## 1fraea2025004 ## Source details **Canonical URL:** [1fraea2025004](https://www.imf.org/-/media/files/publications/cr/2025/english/1fraea2025004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1fraea2025004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1fraea2025004.pdf.json) --- ### Institutional framework and governance - Designated macroprudential authority: HCSF (Haut Conseil de stabilité financière), set up in July 2013; consists of eight members: Minister for the Economy (Chair), Governor of the BdF, Vice-Chairman of the ACPR, Chairman of AMF, Chairman of ANC, three “personnalités qualifiées”. - Chair convenes meetings at least four times a year (CMF Art. 631-2); only the Chair can convene meetings and set agenda; agenda must include BdF Governor's quarterly CCyB proposal. - Voting rules: hard powers require at least four votes in favor; other decisions need simple majority; quorum is half the members; Chair casts tie-breaking vote. - BdF Governor is the only HCSF member empowered to propose implementation/adjustment of legally binding macroprudential tools and may disclose proposals publicly—de facto gives Governor veto over hard powers. - Accountability and transparency features and gaps: - Legal requirement to send annual report to President of the two parliamentary chambers (art. L631-2-2 of CMF); Chair may be called to appear before finance committees but historically has not been called. - Decisions to act on hard powers are automatically published; decisions not to act are not published; when a Governor proposal is voted down, HCSF does not publish that fact. - Selected governance recommendations: - Adopt limits on number of meetings held as written procedures and narrowly define exceptional circumstances for written procedures. (¶ 12) - Allow meetings to be convened by a majority vote rather than only by the Chair. (¶ 12) - By default publish all recommendations, opinions, and voting outcomes, with exceptions voted on by members; publish voting records and mandate Chair and Governor testimonies before Parliament at least once a year. (¶ 16) - Explicitly add a ‘comply or explain’ mechanism and explicit powers to make recommendations to the MoEF, similar to the Bank of England’s FPC. (¶ 24) ### Actions since the 2019 FSAP and operational capacity - Measures enacted since 2019: - Introduced borrower-based measures (BBMs) using DSTI ratios and loan maturity limits; maintained them through the recent period of rising interest rates. - Rebuilt the counter-cyclical capital buffer (CCyB) (called the credit protection reserve) after COVID-19. - Introduced a sectoral systemic risk buffer (sSyRB) on exposures to highly indebted corporates (until June 2025). - Broadened HCSF indicators beyond banks and conducting a system-wide liquidity stress test. - Resources and institutional capacity: - HCSF supported by co-secretariat from BdF Financial Stability Department (DSF) and DG Trésor's Financial Sector Economic Analysis Division; ACPR and BdF jointly calibrate and monitor instruments via financial stability hub; ANC provides legal/accounting expertise. - Recommendation: maintain and continue to effectively manage resources allocated to financial stability analysis. (¶ 30) - Data gaps and surveillance needs: - Desirable data: lending to special purpose vehicles, loan-level data matched to borrower and property characteristics, FX hedging by corporate borrowers, interconnectedness, derivative and repo markets. (¶ 35-36) - Loan-level borrower/property matched data cover only about 30% of outstanding loan volume (2024). - No domestic household credit register; AnaCredit covers firms but lacks hedging information for firms borrowing in foreign currency. - Recommendation: continue to enhance data availability, including on residential real estate lending, FX hedging by corporate borrowers, interconnectedness, and derivative/repo markets. (ST) ### Macroprudential communications and strategy - Current practices: - Uses annual report, press releases, FAQs, public notes, consultations; annual report akin to a financial stability review but generally lacks discussion of credit gaps/financial cycle indicators underpinning CCyB decisions; no press conference at annual report release. - Last public consultation: October 2019 (residential real estate risks). - Communication recommendations: - Conduct regular strategy reviews (HCSF announced a full review at its June 2025 meeting; revised strategy to be published in March 2026). - Pre-announce schedule for HCSF meetings and annual report release by more than a week; institute scheduled press conferences by Minister and Governor at least once a year. - Publish key indicators guiding HCSF decisions on its webpage and datasets underlying charts/tables; adopt layered communications and strengthen annual report. (¶ 21) ### Borrower-based measures (BBMs) and housing market vulnerabilities - BBM calibration and timeline highlights: - Dec-2019 recommendation: DSTI limit 33%; maturity limit 25 years; flexibility margin 15% of new housing loans with at least 75% of margin allocated to primary dwelling. - Jan-2021 revision: DSTI 35%; maturity 25 years; 27-year loan compliant for construction/renovation under conditions; flexibility margin 20% with >=30% to FTBs and >=80% to primary dwelling. - Jan-2022 recommendation became legally binding. - Jun-2023 technical adjustments and Dec-2023 further adjustments (bridge loan exclusion, renovation thresholds, compliance assessments). - Empirical effects and stress-test findings: - Share of new loans above DSTI limit stabilized at about 15%. - Excluding higher DSTI borrowers reduces PDs by about 58 percent at the end of counterfactual scenarios. - Excluding higher LTV borrowers reduces PDs by 17 percent in the geopolitical scenario (0.53 to 0.44 percent) and by 18 percent in the severe recession scenario (0.65 to 0.53 percent). - During the downturn (2022 Q2 – 2024 Q1), high LTV (LTV > 100%) loans issued in 2015–2019 more likely to default; both high DSTI (> 35%) and high LTV loans saw ~25% increase in PDs relative to lower-ratio counterparts. - High LTV share remained high at 42 percent in December 2024 (LTV > 95 percent). - Structural mitigants: - 99 percent of new housing loans were fixed-rate in 2024; 98 percent of stock fixed-rate in 2024. - About two-thirds of all home loans are guaranteed; three main guarantors manage 84% of guaranteed loans. - Scope, leakages, and data issues: - BBMs exclude professional SCIs; loans to family-oriented SCIs intended to hold assets are covered but monitoring of SCIs should be expanded. - Renovation loans generally included at time of purchase and thus covered; consumer loans are about 14 percent of outstanding credit to individuals as of end-2024, and growth picked up through 2024. - Absence of a credit register hampers application of DSTI to standalone consumer loans. - BBM policy recommendations: - Broaden BBMs to renovation and other consumer loans where feasible; broaden monitoring of loans to SCIs and continue to monitor market dynamics. (¶ 65-66) - Consider narrowing the 20 percent flexibility margin or introduce prudential requirements to cover loans within it. - Consider customized LTV measures if appropriate; high LTV loans warrant further monitoring. ### Releasable capital buffers and CCyB policy - Recent CCyB actions: - France entered COVID-19 with CCyB of 0.25%. - HCSF increased credit protection reserve to 0.5 percent in April 2022 (effective April 2023) and to 1 percent in December 2022 (effective January 2024). - HCSF uses a “guided discretion” four-step framework for CCyB decisions. - pnCCyB considerations and stress-test evidence: - pnCCyB rationale: maintain a positive neutral CCyB in normal times to ensure meaningful releasable capital and reduce burden of proof to act. - Solvency stress-test illustrative exercise (moderate scenarios) found capital losses in range 1.7 to 2.6 percent of RWA under five moderate scenarios (peak unemployment and GDP shocks described). - Conclusion: current high precautionary buffers with CCyB likely sufficient to enable banks to continue lending after moderate shocks; if precautionary buffers were lower, current CCyB release might not suffice. - Policy recommendations: - Formalize availability of releasable capital buffers by improving guidance regarding neutral level of the credit protection reserve (CCyB). (¶ 54) - Consider offering more explicit forward guidance on future policy settings (conditions and timeframe for buffer rebuild) to reduce incentives for capital hoarding. - Medium-term calibration of positive neutral rate should consider capital losses under moderate shock scenarios and structural characteristics (usability constraints from leverage ratio and MREL, low profitability). (¶ 72) - Continue to monitor NFC vulnerabilities and stand ready to raise CCyB if warranted to provide releasable capital and protect credit. ### Non-bank financial intermediation (NBFI) oversight and investment funds - Investment fund sector: - Size: EUR 2 trillion; MMF market around EUR 475 billion since April 2024 (AMF-provided information). - AMF supervised; AMF incentivized liquidity management tools (LMTs) ahead of EU rules. - Estimated adoption end-2023: 66 percent of retail open-ended CIS AUM equipped with gates; 45 percent with swing pricing; adoption in MMFs significantly lower. - AMF conducted thematic supervision on valuation; letters to market issued to stress proper valuation and LMT usage. - Liquidity stress testing and data gaps: - AMF ad hoc studies: only 30 funds have liquidity coverage ratio below 1 under the adverse scenario, collective shortfall EUR 1 billion. - AMF lacks systematic access to holdings data (securities identification) residing with ACPR/BdF. - Recommendation: improve monitoring of investment fund redemption risk through data sharing on fund liability structures. (¶ 36) - Leverage and oversight: - AMF conducts quarterly assessments under AIFMD Art.25 and ESMA guidelines; can impose leverage limits but has not done so to date. - NBFI interconnections: - Private credit role limited; SRTs increasingly used by banks to generate capital relief, creating interdependencies with NBFIs. ### Corporate sector measures, sSyRB, and CRE assessment - sSyRB for highly indebted corporates: - 2018 LE limit (5% of Tier 1) converted in August 2023 to a sectoral SyRB: CET1 surcharge of 3% for exposures above 5% of Tier 1 to firms with consolidated leverage (total debt/EBITDA) > 6 or negative. - HCSF lifted the sSyRB as announced 2 June 2025 and effective 18 June 2025, noting targeted risks diminished and prudential buffer impact now insignificant. - CRE sector: - Substantial correction since pandemic: large price declines, low transaction volumes, increased NPLs. - Short-term debt of CRE firms: 25 percent of total debt in 2023. - France's five major banks CRE exposure to real estate professionals: around 2.9% of total assets and 67% of CET1 capital in 2023. - When adding loans collateralized by CRE assets and loans to real estate and construction firms: exposures amount to 6.6% of total assets. - Policy recommendations: - Continue close monitoring of NFC vulnerabilities and stand ready to raise CCyB if warranted. - Consider broader sSyRB to cover corporate exposures, potentially differentiated by sector or tiered to avoid cliff effects. ### Stress testing, system-wide exercises, and monitoring - Stress-testing capacity: - Top-down model STORM used by BdF and ACPR; ACPR conducted insurance-only climate stress test in 2023-24. - SWST initiated June 2024: bottom-up and top-down components; bottom-up two-stage with supervised entities running first-round assessments; results expected to be published in March 2026. - Regular assessment and evaluation practices: - Key lending metrics for residential real estate reported monthly to ACPR. - Compliance data with BBMs published on HCSF website. - March–July 2024 quantitative assessment of BBMs published in 2024 annual report using four model-based analyses. - Ongoing work on BBMs effects on defaults and consumption using state-dependent macro econometric frameworks. ### Key selected recommendations (agencies and timing preserved from Table 1) - Strengthen HCSF governance by adopting stronger governance arrangements for meetings. Agencies: MoEF, HCSF. Timing: I - Strengthen transparency and public accountability by making publication of vote outcomes, HCSF recommendations and opinions the default, publishing votes of individual members, and requiring regular testimonies in Parliament. Agencies: HCSF, MoEF. Timing: I - Explicitly empower HCSF to make public recommendations to member institutions with a ‘comply or explain’ mechanism, and to the MoEF. Agencies: MoEF, HCSF. Timing: I - Strengthen HCSF communications framework, including regular strategy reviews and best practices. Agencies: HCSF. Timing: ST - Continue to enhance data availability for effective surveillance, including on residential real estate lending, FX hedging by corporate borrowers, interconnectedness, and derivative and repo markets. Agencies: HCSF, ACPR. Timing: ST - Improve monitoring of investment fund redemption risk through data sharing on fund liability structures. Agencies: ACPR, BdF, AMF. Timing: ST - Regularly conduct system-wide liquidity stress tests and remain vigilant to emerging risks. Agencies: AMF, ACPR, BdF. Timing: ST - Formalize availability of releasable capital buffers by improving guidance regarding neutral level of the credit protection reserve (CCyB). Agencies: HCSF. Timing: ST - Continue closely monitoring vulnerabilities in banking and non-financial corporate sectors and stand ready to increase CCyB rate if needed. Agencies: HCSF. Timing: ST - Enhance effectiveness of BBMs by broadening their coverage. Agencies: HCSF. Timing: MT - Continue to effectively manage resources allocated to financial stability analysis. Agencies: HCSF, Trésor, BdF, AMF, ACPR. Timing: MT *Source: EXECUTIVE SUMMARY and selected sections from IMF staff technical note prepared during March 5–19, 2025.* ### EXECUTIVE SUMMARY __________________________________________________________________________ 7 ### EXECUTIVE SUMMARY ### Institutional framework and governance - HCSF is the designated authority with hard powers over specific tools and soft powers for recommendations; chaired by the Minister of Economy and Finance and provides a strong role for the Governor of the Banque de France (BdF), enabling willingness to act. - Membership includes key agencies with financial stability mandates and external members, facilitating coordination and mitigating inaction bias; the market authority (AMF) is an active participant in the HCSF. - National authorities have adequate powers for information gathering and strong accountability frameworks; the ECB has top-up powers over hard tools and the ESRB can issue warnings and recommendations. - Recommendation highlights: - Strengthen HCSF governance by adopting limits on the number of meetings that can be held as written procedures and allow meetings to be convened by a majority vote rather than only by the Chair. (¶ 12) - Improve transparency and public accountability by publishing all recommendations, opinions, and voting outcomes by default, with exceptions voted on by members; publish voting records and mandate testimonies before Parliament at least once a year. (¶ 16) - Explicitly add a ‘comply or explain’ mechanism and explicit powers to make recommendations to the MoEF, similar to the Bank of England’s FPC. (¶ 24) ### Actions since the 2019 FSAP and operational capacity - Since 2019, authorities: - Introduced borrower-based measures (BBMs) using debt-service-to-income (DSTI) ratios and loan maturity limits; maintained them through the recent period of rising interest rates. - Rebuilt the counter-cyclical capital buffer (CCyB) (called the credit protection reserve) after the COVID-19 crisis. - Introduced a sectoral systemic risk buffer (sSyRB) on exposures to highly indebted corporates (until June 2025). - Broadened HCSF indicators beyond banks and are conducting a system-wide liquidity stress test. - Operational capacity improvements and gaps: - Resources: maintain and continue to effectively manage resources allocated to financial stability analysis. (¶ 30) - Data: surveillance enhanced since 2019, but further data on lending to special purpose vehicles, loan-level data matched to borrower and property characteristics, FX hedging by corporate borrowers, interconnectedness, and derivative and repo markets are desirable. (¶ 35-36) - System-wide liquidity stress tests should become regular exercises. (¶ 43) ### Macroprudential communications and strategy - Communication improvements recommended: - Regular strategy reviews (a review announced in June 2025). - Scheduled press conferences by the Minister and Governor, public consultations, publishing key indicators guiding HCSF decisions on its webpage, a strengthened HCSF annual report, and layered communications to the public. (¶ 21) ### Borrower-based measures and housing market vulnerabilities - Existing BBMs improved lending standards and, together with structural lending-market features, kept losses low. - Recommendations to address leakages and coverage: - Broaden BBMs to renovation and other consumer loans where possible. - Narrow the flexibility margin or introduce prudential requirements to cover loans within it. - Expand monitoring of loans to Sociétés Civiles Immobilières (SCI). - Continue monitoring market dynamics and consider customized LTV measures; current BBMs do not include an LTV limit—high LTV loans are common and warrant further monitoring. (¶ 65-66) ### Releasable capital buffers and CCyB policy - Authorities proactively rebuilt releasable capital buffers through the credit protection reserve post-COVID, aligning with a positive neutral CCyB (pnCCyB) approach. - Policy recommendations: - Formalize availability of releasable capital buffers by improving guidance regarding the neutral level of the credit protection reserve (CCyB), even when cyclical systemic risks are not yet elevated. (¶ 54) - Consider offering more explicit forward guidance on future policy settings (conditions and timeframe for buffer rebuild) to reduce incentives for capital hoarding, while balancing flexibility and communication challenges. - Medium-term calibration of the positive neutral rate should consider capital losses under a moderate shock scenario and structural characteristics of the banking system; usability of a CCyB release may be constrained for some banks by the leverage ratio and MREL requirements, and low profitability remains an issue for French banks. (¶ 72) ### Non-financial corporate sector and CCyB stance - Authorities should continue to closely monitor NFC vulnerabilities and stand ready to raise the CCyB rate if warranted; a higher CCyB rate would provide releasable capital and protect credit in an adverse shock, consistent with HCSF’s current CCyB approach. - Consideration: a broader sSyRB to cover all corporate exposures, particularly given the lifting of the large-exposure sSyRB. ### NBFI oversight and investment funds - French NBFI macroprudential oversight has been proactive: - Insurers supervised by ACPR; investment funds overseen by AMF. - Authorities have ex-post crisis management tools (including suspension of redemptions) and encouraged adoption of liquidity management tools (LMTs) ahead of EU regulations. - AMF is an active participant in macroprudential authority. - Recommendation: Improve monitoring of investment fund redemption risk through data sharing on fund liability structures. (¶ 36) ### Key recommendations (Table 1) — selected items with agencies and timing - Further strengthen HCSF’s institutional framework by adopting stronger governance arrangements for meetings. Agencies: MoEF, HCSF. Timing: I - Strengthen transparency and public accountability by making publication of vote outcomes, HCSF recommendations and opinions the default, with limited exceptions, publishing votes of individual members, and requiring regular testimonies in the Parliament about HCSF work. Agencies: HCSF, MoEF. Timing: I - Explicitly empower the HCSF to make public recommendations to member institutions on tools entrusted to them with a ‘comply or explain’ mechanism, and to the MoEF. Agencies: MoEF, HCSF. Timing: I - Strengthen HCSF communications framework, including by instituting regular reviews of strategy and adopting other communications best practices. Agencies: HCSF. Timing: ST - Continue to enhance data availability for effective surveillance of risks, including on residential real estate lending, FX hedging by corporate borrowers, interconnectedness, and derivative and repo markets. Agencies: HCSF, ACPR. Timing: ST - Improve monitoring of investment fund redemption risk through data sharing on fund liability structures. Agencies: ACPR, BdF, AMF. Timing: ST - Regularly conduct system-wide liquidity stress tests and continue to be vigilant to emerging risks. Agencies: AMF, ACPR, BdF. Timing: ST - Formalize the availability of releasable capital buffers by improving guidance regarding the neutral level of the credit protection reserve (CCyB). Agencies: HCSF. Timing: ST - Continue closely monitoring vulnerabilities in banking and non-financial corporate sectors and stand ready to increase CCyB rate if needed. Agencies: HCSF. Timing: ST - Enhance effectiveness of borrower-based measures (BBMs) by broadening their coverage. Agencies: HCSF. Timing: MT - Continue to effectively manage resources allocated to financial stability analysis. Agencies: HCSF, Trésor, BdF, AMF, ACPR. Timing: MT *Source: EXECUTIVE SUMMARY* ### 3. This technical note assesses France’s macroprudential framework and the calibration ### 3. This technical note assesses France’s macroprudential framework and the calibration ### Overview and scope - Prepared by Gurnain K. Pasricha, Senior Financial Sector Expert, Monetary and Capital Markets Department. - Review conducted during the period of March 5-19, 2025, considering legal and regulatory framework and practices in place and employed at the time. - Evaluates: - (i) the institutional framework (Section II); - (ii) the operational capacity (Section III); - (iii) the adequacy of the current macroprudential settings based on the vulnerabilities identified in the FSAP (Section IV). - Evaluation conducted in accordance with IMF guidance (IMF, 2014a; IMF, 2014b) and additional IMF policy documents. ### Institutional framework — design and mandates - Designated macroprudential authority: HCSF (Haut Conseil de stabilité financière). - Set up in July 2013. - Consists of eight members: Minister for the Economy (Chair), Governor of the BdF, Vice-Chairman of the ACPR, Chairman of AMF, Chairman of ANC, three qualified members (“personnalités qualifiées”). - Meets when convened by the Chairman at least four times a year and as necessary (CMF Art. 631-2). - HCSF formal mandate and intermediate objectives: - Formal mandate to help mitigate and prevent systemic risks. - Five intermediate objectives: - (i) mitigating and preventing excessive credit growth and leverage; - (ii) limiting overreliance on short-term funding or excessive risk mismatch, and mitigating market illiquidity; - (iii) limiting direct and indirect exposure concentrations; - (iv) limiting the systemic impact of misaligned incentives with a view to reducing moral hazard; - (v) strengthening the resilience of financial infrastructures. - Member institutions with financial stability mandates include BdF, ACPR, AMF, and ANC. ### Principle I — Willingness to act and governance - BdF’s special role: - The Governor of the BdF is the only HCSF member empowered to propose the implementation or adjustment of legally binding macroprudential tools (e.g., countercyclical capital or systemic risk buffer). - The Governor may disclose these proposals publicly if deemed useful. - This gives the Governor an effective veto over the hard powers of the HCSF. - External members (“personnalités qualifiées”): - Appointed for three-year terms (post-2019 FSAP changes). - Selected based on academic and research expertise to provide independent perspective. - Participate in discussions and votes; thematic workshops are held prior to each HCSF meeting. - Decision-making rules: - Chair alone can convene meetings and set the agenda, though any member may suggest agenda items. - Agenda must include the BdF Governor's quarterly CCyB proposal. - Voting: decisions on hard powers require at least four votes in favor; other decisions need a simple majority; quorum is half the members; Chair casts tie-breaking vote. - Observed governance limitations: - Written procedures substituted for meetings three times in 2024 (to take CCyB and reciprocity decisions), precluding full discussion of vulnerabilities and needed tools. - Members cannot convene meetings by majority vote; only the Minister (Chair) can call meetings. - Discussions generally limited to tools at HCSF’s disposal; member institutions’ tools (e.g., leverage ratio limits for funds or stricter risk weights) are generally not discussed. ### Accountability, transparency, and communication practices - Legal accountability: - HCSF required by law to send its annual report to the President of the two parliamentary chambers (art. L631-2-2 of the CMF). - The Chair may be called to appear before the committees on Finance of both chambers, though they have not been called to do so historically. - Transparency gaps and recommendations: - Decisions to act on hard powers are automatically published; decisions not to act are not published. - When a Governor proposal is voted down, HCSF does not publish that fact (though the Governor may make proposals public personally). - Recommendation: adopt default rule to publish all recommendations and opinions unless HCSF votes otherwise; publish information about actions on hard powers that were proposed by the Governor but voted down; publish votes of each member to establish individual accountability. - Suggestion: require the Chair and Governor to testify in front of the Parliament about HCSF work at least once a year. - Communication practices in place: - Uses annual reports, press releases, frequently asked questions, public notes, and consultations. - Annual report similar to a financial stability review but generally does not discuss evolution of broad-based credit gaps or financial cycle indicators underpinning CCyB decisions; no press conference held at its release. - Press conferences held after HCSF meetings by the secretariat; press releases summarize meetings but meeting dates are not released more than a week in advance. - No press releases were issued in 2024 after the three written procedures (though reciprocity decision and recommendation from October 2024 procedure were published). - Last public consultation was in October 2019 (on risks in the residential real estate sector). - Most key publications are in technical language. ### Data publication and transparency of indicators - Quarterly data published: - HCSF publishes a detailed set of data quarterly on credit developments, including credit gap measures and supplementary indicators on credit to households and non-financial corporates. - Data gaps: - Key datasets that guide HCSF decisions on hard-power tools (e.g., forward-looking financial cycle indicator, characteristics of new housing loans) are not linked on the HCSF webpage. - Data in charts and tables in HCSF annual report are not published along with the report as datasets. - Recommendation: publish datasets (rather than single quarter pdf figures) and centralize access to key indicators relevant for understanding and assessing HCSF decisions. ### Evaluation of effectiveness and operational practices - Regular assessment: - HCSF assesses effectiveness and calibration of measures regularly, including via market consultations, and adapts as needed. - Examples: LE limit measure allowed to lapse and replaced by a sectoral systemic risk buffer in 2023; several technical adjustments to borrower-based measures in 2024 based on feedback. - HCSF’s 2024 annual report evaluated impacts of borrower-based measures and reviewed experience. - European oversight and coordination: - ECB has top-up powers and performs regular assessments of national macroprudential stances. - ESRB reports on systemic risks at union-wide and national levels; issues warnings or recommendations that compel the HCSF to comply or explain. - Example: ESRB warning on housing sector risks in France (ESRB Alert/2019/12 of 27 June 2019). ### Communication and governance improvement recommendations (selected) - Strengthen meeting governance: - Ensure HCSF meets in person (or virtual/hybrid) and tightly limit number of meetings held as written procedures; narrowly define exceptional circumstances for written procedures. - Allow meetings to be convened by a majority vote of members rather than only by the Chair. - Include discussion of macroprudential tools at the disposal of HCSF or its member institutions on the agenda when warranted. - Enhance transparency and accountability: - By default publish all HCSF recommendations and opinions unless the HCSF votes otherwise. - Publish information about Governor-proposed hard-power actions that are voted down and publish votes of each member. - Require the Chair and Governor to testify before Parliament at least once a year about HCSF work. - Improve communications and public engagement: - Conduct regularly scheduled updates of overall HCSF strategy; HCSF decided at its June 2025 meeting to conduct a full review of its strategy, with the revised strategy to be published in March 2026, along with its annual report. - Pre-announce schedule for HCSF meetings and annual report release by more than a week. - Hold a press conference by the Minister and the Governor at least once a year at the release of the annual report. - Issue press releases and meeting summaries after every meeting. - Publish or link to datasets used for measures on the HCSF website. - Adopt a layered communication strategy for the annual report and borrower-based measures, and continue regular public consultations to improve public buy-in and incorporate feedback into measure design. *Source: IMF staff technical note prepared during March 5-19, 2025.* ### Box 1. Macroprudential Policy Communications: Principles and Best Practice Examples ### Box 1. Macroprudential Policy Communications: Principles and Best Practice Examples ### Principles of macroprudential communications - Communication is essential for accountability, fostering willingness to act, promoting public understanding, and enhancing legitimacy (IMF, 2014a). - Communication principles align with those for monetary policy: it should be clear, transparent (with discretion to avoid risky behavior or sensitive disclosures), regular, timely for target audiences, consistent over time, and layered for different audiences. ### Key communication tools - A published and maintained policy strategy that fosters predictability while retaining discretion and countering inaction bias. - Regular risk assessments that maintain the authority’s commitment to action. - Communication of policy intentions and actions to improve policy transmission. - Impact assessments that measure success and build credibility. - Meeting records that create a narrative for future actions and enhance accountability. ### Best practice examples - United Kingdom (UK) - The UK Financial Policy Committee (FPC) reviews its macroprudential policy strategy every three years. - FPC publishes its approach to using its hard powers, with detailed policy statements available for each of the tools on which FPC has hard powers; these policy statements identify the core indicators that guide decisions. Data on these indicators is kept updated on the FPC webpage. - The Financial Stability Report (FSR) includes a summary of key messages and a non-technical summary (layered approach to communications), before explaining key risks and macroprudential policy decisions in the main body of the FSR. - The FPC’s remit requires them to discuss the cost-benefit analysis of their decisions, as detailed in the November 2022 speech by Colette Bowe. - The FPC webpage provides dates of upcoming FPC meetings. - After each meeting, the FPC publishes its views of the risks to the UK’s financial system and how to tackle those risks in a Summary and Record that start with a headline judgement and policy actions; there is clear communication guidance for FPC members published online. - Ireland - Central Bank of Ireland prepared the public before announcing borrower-based measures by publishing several research papers on how these tools work. - Issued a formal consultation setting out the rationale, summarizing research findings and suggesting a tentative calibration. - Central bank webpage provides an infographic, frequently asked questions (FAQs), explainer on mortgage measures, definition of first time home-buyers, and relevant data. - The central bank conducts an annual evaluation of the measures, and periodic evaluation of the full framework of the borrower-based measures via public consultation; the last was done in 2022. - Good timing: measures were introduced in 2015 when the Irish property market was just coming off a trough in valuations, helping reduce opposition and subsequently containing the buildup of vulnerabilities as property prices rose. - United States - The US FSOC is required by law to hold at least quarterly meetings, called by the chairperson or by a majority of voting members. - FSOC’s website publishes governance documents, including by-laws and a transparency policy. - FSOC allows members of the public to sign up for email updates from the council. ### Principle II: Ability to Act — findings on powers and recommendations - Macroprudential framework requirement: designated macroprudential authority should have sufficient powers to act (information collection powers; rulemaking and calibration powers; designation powers). Powers can be ‘hard’, ‘semi-hard’ (comply or explain), or ‘soft’. - HCSF powers - HCSF has hard powers to calibrate a wide range of macroprudential tools subject to ECB top-up on some tools (Table 3), and soft powers to issue opinions or recommendations likely to prevent systemic risk and threat to financial stability. - HCSF has the power to collect information and data needed for systemic risk analysis and macroprudential policy. Art. L.631-2-2 of the CMF empowers the HCSF to gather any necessary information from any third parties (representatives of credit institutions, financing companies, investment firms, investment management companies, portfolio management companies, insurance companies, mutual and pension funds as well as any other relevant actor). - ACPR identifies O-SIIs (supervised under the SSM) and for insurers, G-SIIs. Currently no process for identification of non-bank non-insurance systemically important institutions or financial market infrastructures (FMIs) at the national level, unless the FMI is a credit institution. - Footnote: While HCSF has broad powers to seek information from all entities, currently there isn’t a framework to penalize third parties that do not provide quality information. However, no such experience has been reported by the authorities so far. - Recommendation to enhance HCSF’s operational authority - Make HCSF’s powers vis-à-vis member institutions explicit by empowering HCSF to issue comply or explain recommendations to its member institutions (semi-hard power) to enhance compliance amid regulatory differences and ensure transparency. - Adopt a comply or explain mechanism that is optional (HCSF could still make recommendations without “comply or explain” and/or vote not to publish a recommendation via majority vote). - Explicitly enable HCSF to recommend to the MoEF (by majority vote) to strengthen capacity to propose new macroprudential tools and extend the regulatory perimeter. - Note: the law does not prevent HCSF from recommending to the MoEF, but it is not explicitly authorized, and no recommendations have been made previously. - Context: while HCSF is collegial, differences in views between regulators can arise (example: responses to European Commission targeted consultation on macroprudential framework for NBFIs). ### Table 3 (Main macroprudential instruments available to the French authorities) — instruments and responsibilities (selected items and legal references preserved) - Countercyclical capital buffer - Intermediate Objective: To safeguard the banking system from losses linked to materialization of cyclical systemic risk and support sustainable credit provision to the real economy over the financial cycle. This buffer accumulates during high-risk periods and is released during crises, rather than serving as a credit cycle management tool. - Responsible Authority: Designated authority (HCSF), on the proposal of the BdF Governor. ECB has top-up powers. - EU Legal Basis: Articles 130 and 135–140 CRD. - French Legal Basis: Article L. 631–2–1 of the CMF. - Systemic risk buffer (including on sectoral exposures) - Intermediate Objective: To limit direct and indirect exposure concentrations; prevent and mitigate long-term noncyclical systemic or macroprudential risks; strengthen resilience of FMI. - Responsible Authority: Designated authority (HCSF), on the proposal of the BdF Governor. ECB has top-up powers. - EU Legal Basis: Articles 133 and 134 CRD IV. - French Legal Basis: Article L. 631–2–1 of the CMF. - Flexibility package: national measures stricter in terms of own funds, LE, public disclosure, capital conservation buffer level, liquidity, risk weights for targeting asset bubbles in the property sector, and intra financial sector exposures - Intermediate Objective: To moderate and prevent excessive credit growth and leverage; limit overreliance on short-term funding and excessive maturity mismatch and mitigate market illiquidity; limit direct and indirect exposure concentrations; limit systemic impact of misaligned incentives and reduce moral hazard. - Responsible Authority: Designated authority (HCSF), on the proposal of the BdF Governor. - EU Legal Basis: Article 458 CRR. Directly applicable. - French Legal Basis: Article L.631–2–1 4° of the CMF. - Setting of credit standards (including loan-to-value, loan-to-income, and debt service-to-income ratios). Recently powers extended to set credit standards on lending from investment funds too. - Intermediate Objective: To moderate and prevent excessive credit growth and leverage. - Responsible Authority: Designated authority (HCSF), on the proposal of the BdF Governor. - French Legal Basis: Article L. 631–2–1 of the CMF. - Additional own funds requirements (buffer) for global systemically important institutions and other systemically important institutions - Intermediate Objective: To limit systemic impact of misaligned incentives and reduce moral hazard. - Responsible Authority: Competent authority (ACPR). ECB has top-up powers. - EU Legal Basis: Article 131 CRD. - French Legal Basis: Article L. 612–1 of the CMF. - Stricter risk weights for exposures secured by residential or commercial property - Responsible Authority: Competent authority (ACPR). - EU Legal Basis: Article 124 CRR. Directly applicable. - Increase in the minimum loss given default for exposures secured by residential or commercial property - Responsible Authority: Competent authority (ACPR). - EU Legal Basis: Article 164 CRR. Directly applicable. - Modulate the rules for setting up and taking over the profit-sharing provision for all or a subset of the insurance companies - Intermediate Objective: To mitigate market illiquidity. - Responsible Authority: Designated authority (HCSF), on the proposal of the BdF Governor and in consultation with ACPR. - French Legal Basis: Article L. 631–2–1 of the CMF. - Precautionary measures towards the insurance sector: temporary restrictions on transactions/activities (incl. premium collection or payment); free disposal of assets; surrender value payment; reallocation of assets or early payments; and dividends distribution - Intermediate Objective: To mitigate market illiquidity. - Responsible Authority: Designated authority (HCSF), on the proposal of the BdF Governor and in consultation with ACPR. - French Legal Basis: Article L. 631–2–1 5° of the CMF. - Limits to the level of leverage that an AIFM is entitled to employ with respect to the AIFs under its management - Intermediate Objective: To cap investment fund leverage. - Responsible Authority: Competent authority (AMF), upon prior notification of ESMA, the ESRB and other competent authorities of considered AIFs. - EU Legal Basis: UCITS: Directive 2009/65/EC (Article 83 for Financial Leverage; Article 5 1-3 for Synthetic Leverage). AIFM: Directive 2011/61/EU (Article 25). ESMA Guidelines on Article 25 of Directive 2011/61/EU. - French Legal Basis: Article L.214–24–20 of the CMF. - Note: ESMA published guidelines on December 17, 2020, for operationalization of macroprudential leverage limits for alternative investment funds (AIFs), which became effective on August 23, 2021. - AMF powers (selected) - Entitled to demand temporary total suspension of subscriptions and redemptions on any French UCITS or AIF “when exceptional circumstances so requires and if the interest of the unitholders, the shareholders, or the public so commands”. - Legal basis: Articles L.621-13-2 and L.621-13-3 of the CMF. - Entitled to impose a ban on short selling to mitigate destabilizing speculative behaviors. - Legal basis: Regulation (EU) No. 236/2012 – Short Selling Regulation (SSR). - Entitled to suspend trading when an exceptional event disrupts the regular operation of a trading platform. - Legal basis: Article L421-16 of the CMF. - Footnote: Upon recommendation of the ESRB on liquidity and leverage of investment funds, the macroprudential powers of national and EU authorities and their coordination are under review. ### Principle III: Effective cooperation and coordination — findings - HCSF statutory role: Article L.631-2-1 of the French monetary and financial code tasks HCSF with ensuring “cooperation and exchange of information between the institutions that its members represent, as well as between these institutions and itself.” - Legal rights and agreements - ACPR and AMF have the legal right to provide the HCSF with information protected by professional secrecy. - AMF, ACPR and BdF have signed data sharing agreements (Contrats de liaison applicative). - BdF chairs the “Groupe de place Robustesse” (GPR) comprising main French financial actors to prepare to respond to financial shocks. - During COVID-19 crisis, AMF, ACPR and BdF organized daily calls to monitor the situation and exchange information, demonstrating effective domestic cooperation via ad-hoc process. - European and international cooperation - French institutions collaborate with European institutions, share supervisory data and adhere to the reciprocity framework, participate in ECB and ESRB working groups and committees. - AMF represented in all of ESMA’s standing committees and participates in its quarterly risk survey; AMF participates in ESMA’s Risk Standing Committee and Investment Management Standing Committee; AMF Chair is a member of ESMA’s Board of Supervisors and of the ESRB General Board. - French authorities submit data on significant institutions (SIs) overseen by the ECB and adhere to information sharing mandated by ESRB Recommendation ESRB/2019/18. - In its most recent compliance report of this recommendation, the HCSF and ACPR were assessed as having “sufficiently explained inaction”. - French authorities are engaged in global dialogues (G20, CGFS, FSB, BCBS, IOSCO, IAIS). AMF is a founding member of IOSCO’s Financial Stability Engagement Group (FSEG) and co-leads the FSEG. ACPR is authorized under the CMF to cooperate with non-EU/non-EEA supervision authorities via MoUs and has signed a number of such MoUs. *Source: Box 1. Macroprudential Policy Communications: Principles and Best Practice Examples (excerpts).* ### 27. The capacity to effectively assess systemic risk is crucial for making timely and ### 1fraea2025004 - 27. The capacity to effectively assess systemic risk is crucial for making timely and appropriate adjustments to macroprudential policy ### Resources - The HCSF is supported by a dedicated secretariat jointly provided by the Financial Stability Department of the BdF (DSF) and DG Trésor's Financial Sector Economic Analysis Division. - The co-secretariat: - sets the groundwork for discussions, - leads ad hoc working groups involving BdF, DG Trésor, or other authorities, - produces quarterly monitoring of financial risks and relevant ad hoc studies. - The ACPR and the BdF jointly calibrate and monitor macroprudential instruments via the financial stability hub. - The ANC provides expertise including legal support for drafting decisions and identifying accounting-standard issues. - The HCSF has harnessed member institutions’ expertise to run state-of-the-art models, an ongoing system-wide liquidity stress test, and analyses of crypto assets and environmental, social and governance considerations. - As responsibilities expand, “careful resource management will continue to be important.” ### Data Availability and Gaps - The HCSF reviews a broad set of indicators covering: banking sector, households, corporates, real estate, NBFIs and financial markets, interconnectedness, concentration and climate risks (Annex Table 2). - A core list of indicators is updated quarterly and provided in several monitors (cyclical and structural). - Indicator sources include micro and macro data, survey-based data (e.g., bank lending survey), market intelligence (AMF), and model-based analysis; thematic studies provide deeper analysis (crypto assets, CRE, etc.). - Specialized databases: - Fiben (BdF) contains accounting, rating and default information for French non-financial companies (consolidated and unconsolidated). - BdF and ACPR collect data on bilateral exposures (e.g., loans to financial and non-financial agents for AnaCredit), large bilateral exposures, and ISIN-by-ISIN portfolio holdings of insurance companies and funds. - Ad-hoc data collections and market intelligence exercises are used for issues like RRE, CRE, leveraged finance; examples include: - surveys on RRE and CRE by the ACPR, - custodian daily reports on MMF redemptions by AMF in 2020, - ad-hoc data collection on highly leveraged hedge funds by AMF. - Novel methods to fill gaps: - nowcasting techniques and forecasts for cyclical systemic risks and CCyB decisions, - AMF text-mining program (developed 2018–2020) to detect LMTs in fund prospectuses. - Remaining data gaps: - Real estate: data on foreign actors’ footprint in French CRE markets is lacking. - No domestic household credit register; AnaCredit covers firms but lacks information on whether firms borrowing in foreign currency are hedged. - In 2024, loan-level data matching borrower and property characteristics cover only about 30% of the outstanding loan volume. - Surveillance of housing market risks could be enhanced by expanding loan-level data and data on lending and lending standards to SCIs. - NBFI, derivatives and interconnectedness data gaps: - Family offices and some funds face lower reporting, making activity tracking difficult. - Fund liabilities knowledge is incomplete; ACPR–AMF data sharing on investment fund holdings by insurers has been one-off agreements. - Recommendations include improved data sharing on fund liability structures and strengthening data quality and timeliness on interconnectedness and derivative/repo markets. ### Systemic Risk Assessment and Analysis - Decision framework: - Uses comprehensive indicators, model-based analysis and judgment (guided discretion). - Models and tools include composite indicator of systemic stress; SRISK; distance to default; real estate and asset price valuation models; early warning systems; non-linear smooth local projection models; SVAR; DSGE-type models. - Analytical capacity and publications: - BdF publishes a semi-annual financial stability report (jointly with ACPR); methodological framework updated in 2021. - AMF publishes an annual Markets and Risk Outlook. - Institutional research applies and develops cutting-edge tools to inform calibration of tools. - CCyB calibration: - Relies on comprehensive assessments and trade-offs. - Indicators used include the Basel gap, credit gaps, credit growth trends, sectoral lending conditions, and a forward-looking financial cycle indicator incorporating BdF forecasts. - CCyB timeline: raised in April 2022 (effective April 2023) from 0 to 0.5 percent; raised again in December 2022 (effective January 2024) from 0.5 to 1 percent. - Bank resilience evaluated via CET1 ratios, stress test results, profitability; interactions assessed using a DSGE model (Espic and others, 2024). - A composite index of systemic stress and survey responses on credit availability are used to gauge potential for releasing the CCyB. - Borrower-based measures (BBMs) calibration: - Based on housing market dynamics, household indebtedness, and banks' exposure to housing-related risks. - Housing fundamentals estimated using simplified versions of four macroeconomic models (Warisse, 2017; ECB, 2015; Caldera and Johansson, 2013; Avouyi-Dovi and others, 2014). - Microsimulations estimate BBMs’ impact on credit volumes, house prices and excluded borrowers; DSTI distribution simulations informed 2023 adjustments. - BdF developed a SVAR to estimate drivers of housing prices and credit volumes; work under development includes VECM for credit supply and house prices and a model to identify property bubbles. - Sectoral systemic risk buffer (sSyRB) on large banking exposures to highly leveraged non-financial corporations: - Calibration used indicators such as indebtedness ratios (debt-to-GDP, debt-to-value added, debt-to-EBITDA, debt-to-equity), interest coverage ratio, debt service ratio, liquidity ratio at macro and micro levels. - Pass-through assumptions from sSyRB to firm borrowing costs were modelled. - ACPR required quarterly reporting of exposures, RWA and NFC debt levels for a broader subset than targeted. - As announced on 2 June 2025 and effective 18 June 2025, the HCSF lifted the sSyRB, noting the specific risks had diminished and the prudential buffer impact was now insignificant. ### Stress Testing and System-wide Exercises - Microprudential stress-tests: - Banque de France and ACPR use the top-down model STORM (derived from MERCURE). - UCITS and AIFM Directives require asset managers’ liquidity stress tests; AMF guidelines published in 2017; ESMA guidelines in 2020; parameters updated annually. - ACPR conducted an insurance-only climate stress test in 2023-24 and published results (ACPR, 2024). - ACPR runs stress tests of main housing loan guarantors ahead of EBA stress tests using the same scenarios; these results feed into EU-wide quality assurance. - System-wide stress test (SWST): - BdF initiated discussions with ACPR and AMF in June 2024 for a French market SWST in 2025. - Exercise structure: bottom-up (banks, insurers, investment funds) and top-down (using Euro system framework improvements). - Bottom-up is two-stage: supervised entities run first-round assessments and management actions; authorities aggregate and adjust scenarios; second round runs with revised scenarios. - Results expected to be published in March 2026. - SWST complements past interconnectedness studies between investment funds and other institutions. ### Evaluating Policy Effects - Regular assessment practices: - Key lending metrics for residential real estate are reported monthly to the ACPR. - Compliance data with BBMs is published on the HCSF website. - Since BBMs introduction, HCSF has consulted banking sector and made operational adjustments based on feedback. - From March to July 2024, HCSF conducted a quantitative assessment of BBMs and published results in its 2024 annual report, relying on four model-based analyses from BdF or DG Trésor. - ACPR monitors quarterly bank exposure to highly indebted corporates before they breach systemic thresholds. - Potential circumvention of sSyRB via adjusted EBITDA and NFC subsidiaries outside France was assessed and found immaterial. - BdF is evaluating effects of CCyB, SyRB, O-SII/G-SII buffers and reciprocity measures implemented in Europe over the past decade. - AMF published quantitative impact evaluations of several actions (e.g., the 2020 short-selling ban, incentivization of LMTs). - Additional work on BBM impacts: - Ongoing evaluation of BBMs’ effects on defaults and arrears (approach of van Bekkum and others, 2024). - Research on BBMs’ ability to mitigate interest rate and/or inflation increases’ impact on household consumption and investment using state-dependent macro econometric frameworks (in the spirit of Cumming and Hubert, 2023). ### Systemic Risks and Macroprudential Policy Settings - Since the 2019 FSAP, the HCSF enacted measures addressing emerging threats: - 2019: introduced BBMs through DSTI and loan maturity limits to mitigate rising household indebtedness and deteriorating lending standards. - CCyB history: reduced to 0 during COVID-19; raised April 2022 (effective April 2023) from 0 to 0.5 percent; raised December 2022 (effective January 2024) from 0.5 to 1 percent. - 2018 hard LE limit (5 percent of Tier 1 Capital on French SIs to heavily indebted corporates) changed in August 2023 to a sectoral systemic risk buffer: a CET1 surcharge of 3 percent for exposures to highly leveraged non-financial companies above 5 percent of Tier 1. - The sectoral measure curbed concentrated exposures; HCSF announced intent to lift it after June 2025 meeting (see sSyRB note above). - Monitoring indicators: share of new housing loans not in compliance with HCSF decisions is tracked (quarterly average of monthly data). *Source: 1fraea2025004 - Section 27, IMF staff summary.* ### 47. Credit growth moderated in the period of higher interest rates, while private debt ### 47. Credit growth moderated in the period of higher interest rates, while private debt remains elevated ### Credit dynamics and private sector debt - Credit growth moderated with the delayed impact of monetary tightening; the credit-to-GDP gap turned negative. - Private sector debt levels remain elevated, particularly for non-financial corporates (NFCs). - Private bank credit to GDP ratio is high relative to peers, driven by NFC debt. - Corporate credit growth is likely to remain subdued due to soft loan demand and still tight credit standards. - Retail credit is set to rebound on the back of stronger household loan demand and loosening credit standards. - Banks’ capital ratios remain well above regulatory requirements, with heterogeneity across banks. - The leverage ratio in the banking system is comfortably above the regulatory minimum of 3 percent. - Highly leveraged non-financial companies were defined as those whose ratio, between total financial debt, including undrawn credit lines, and EBITDA is greater than 6 or negative, when assessed at the highest level of consolidation. ### Countercyclical capital buffer (CCyB) / Credit protection reserve: HCSF approach and recent actions - Objective: strengthen credit resilience during a financial downturn by protecting the banking system from potential losses stemming from exacerbated systemic risk. - HCSF approach: “guided discretion” with a structured four-step framework: - identifying risks; - identifying the CCyB target rate in light of these risks; - assessing banking resilience; - ex-ante impact assessment on macroeconomic conditions of the proposed rate. - Each quarter the HCSF assesses cyclical systemic risks and sets a buffer rate balancing financial stability benefits and potential negative impact on credit provision; the CCyB is released in the event of systemic shocks. - Timeline and recent rates: - France entered the COVID-19 pandemic with a low CCyB buffer of 0.25%. - HCSF increased the credit protection reserve to 0.5 percent in April 2022 (effective April 2023). - HCSF increased the credit protection reserve to 1 percent in December 2022 (effective January 2024). - Current assessment: credit gaps are negative, but debt levels and debt service ratios (DSR) of the French non-financial private sector are high relative to historical norms and other eurozone countries; these vulnerabilities guided maintaining the CCyB rate despite an orderly housing market adjustment. ### pnCCyB (positive neutral CCyB) vs HCSF approach — similarities, differences, and guidance - Similarities: - Both emphasize preemptive buildup of capital buffers and aim to prevent credit contractions after moderate shocks. - Both allow for a positive CCyB rate early in the financial cycle and promote proactive buffer accumulation when banks can internally generate capital without harming credit provision, with release in event of systemic shocks. - Key differences and recommendations: - HCSF focuses on elevated cyclical systemic risks rather than maintaining a minimum buffer in normal times. - Guidance on buffer release could be clarified by outlining indicators of stress that would supplement judgment in guiding the release and rebuild post-release. - In adopting a pnCCyB approach, communication should clarify that capital buffers will not be rebuilt prematurely; reactivation should occur only when: - (a) banks’ provision of credit is not constrained by capital requirements and the build-up of capital is not expected to create such constraints; and - (b) banks’ profitability is restored to a level that allows rebuilding and maintaining voluntary capital buffers (Miettinen and Nier, forthcoming). - Formally adopting a positive neutral level (i.e., a positive rate even when cyclical systemic risks are not yet elevated) could: - provide insurance against stresses that arise without a prior credit boom; - reduce burden of proof on authorities to show elevated financial vulnerabilities; - better position the financial system to reach a desired level of resilience when vulnerabilities are increasing; - offer more predictable insurance against cutbacks in lending following systemic shocks and provide “forward guidance” to markets on future policy settings and circumstances for release. - These benefits must be balanced against the flexibility and credibility of HCSF’s tailored approach and communication challenges under current EU legislation. ### Calibrating the neutral CCyB rate: stress-test informed considerations - Concept: pnCCyB should ensure a meaningful buffer is available for release during stress while limiting the capital burden on banks through the cycle; if neutral buffer set too low it is unlikely to influence bank behavior or prevent credit rationing. - Solvency stress-test exercise (illustrative) findings: - An exercise using a milder set of scenarios than the main solvency stress tests considered ten scenarios of increasing severity with equally spaced incremental GDP shocks and associated unemployment shocks. - Exercise excluded market risk (included in main solvency stress test) to focus on GDP shocks; credit risk PDs for households and NFCs were re-estimated consistently with each scenario; net interest income and net fixed commission income were interpolated. - Five moderate scenarios considered (starting with scenario with negative real GDP growth and peak unemployment rates of [-0.2, 8] and extending to scenario with peak unemployment rates of [-1.7, 9.5]). - These moderate scenarios yielded capital losses in the range of 1.7 to 2.6 percent of RWA. - Conclusion: at present, high precautionary buffers in combination with the CCyB would likely be sufficient to enable banks to continue lending following moderate macroeconomic shocks; however, if precautionary buffers were lower, the release of the current CCyB might not be sufficient to ensure continued lending under these moderate downturn scenarios. - Calibration guidance: - The proposed range for the neutral rate can be written as the sum of the capital depletion (D) and the post-release minimum management buffer (B): PNCCyB ∈ [P + D_L, P + D_H]. - Medium-term calibration over a suitably long transition should consider capital losses under moderate shock scenarios and structural characteristics of the banking system. - Structural factors supporting a relatively higher neutral rate include: - low usability of buffers (due to the leverage and TLAC ratios becoming binding before releasable capital buffers are exhausted for some banks), - absence of other accumulated releasable buffers, - absence of tools that mitigate vulnerabilities in the broader non-financial corporate sector. - Balance these with mitigating factors: ongoing capital adjustments under Basel III and low profitability in French banks. - Authorities should retain flexibility on the pace of build-up and the possibility of revising the neutral rate as part of periodic reviews. ### Capital buffers and borrower-based measures (BBMs) - Complementarity: - Capital buffers and BBMs are largely complementary; they operate through different transmission channels and have varying time lags. - BBMs work on the flow and the riskiest borrowers, reducing probability of default and/or loss given default and helping reduce build-up of debt and vulnerabilities in the residential real estate sector during a boom. - Capital tools apply across balance sheets or sectoral exposures, increasing resilience and capacity to absorb shocks and continue lending. - BBMs can serve as a partial substitute for capital buffers over the medium term as risk profile of outstanding bank loans improves; regulatory framework allows improved risk characteristics of new mortgages to reduce RWA and required capital for buffer rates. - The presence of BBMs in France does not preclude the need for releasable capital buffers. - Usability caveat: - French banks have global operations and parts of their balance sheet may be exposed to different buffer rates than applicable to French exposures; a weighted average of applicable buffer requirements, leverage and MREL requirements should be considered to arrive at accurate measures of buffer requirements and effective management buffers. - Effective management buffers can be significantly smaller than stated buffers when all applicable regulatory requirements are considered. - Buffer usability in French banks is lower than in banks of other European countries, including those that host EU G-SIIs. ### Household vulnerabilities, housing market, and BBMs timeline - Housing market and household credit: - The housing market underwent an orderly adjustment starting in 2022; housing loan issuance declined sharply in 2023-24 and average DSTI increased. - Real house prices appear to have troughed and market reportedly started to stabilize in early 2024 following slowdown in inflation, with certain areas seeing moderate price increases. - Housing affordability in France has evolved more favorably compared to peers. - Household debt levels in France are above the euro-area average, while home ownership rates are below the euro-area average. - Going forward, retail credit is set to rebound on the back of stronger household loan demand and loosening credit standards. - BBMs introduction and timeline (Table 4): - Dec-2019 HCSF recommendation to banks: - DSTI limit: 33% - Maturity limit: 25 years - Flexibility margin: 15% of new housing loans, of which 75% at least allocated to primary dwelling (first time buyers (FTBs) and second and subsequent buyers (SSBs)) and for these loans, the debt-to-income ratio cannot exceed 7 years. - Jan-2021 Revision of the HCSF recommendation: - DSTI limit: 35% - Maturity limit: 25 years. 27-year maturity loan compliant in case of construction or renovation work (under specific conditions). - Flexibility margin: 20% of quarterly amount of new housing loans. >=30% allocated to FTBs, >=80% allocated to primary dwelling buyers. - Jan-2022 Recommendation becomes legally binding. - Jun-2023 Technical adjustments: - >=70% of flexibility margin allocated to primary dwelling buyers (instead of 80%). - Adjustment in compliance assessment (under specific conditions, compliance can be assessed based on cumulated new loan amounts over 3 quarters). - Dec-2023 Adjustments: - Exclusion of interest payments on bridge loans when assessing the borrower's DSTI ratio, provided that the bridge loan’s loan to value ratio is less than or equal to 80% of the value of the marketed property. - To lower the threshold for renovation work above which house buyers are allowed to defer their loan repayments. - Further adjustments for assessing compliance. *Source: IMF staff report excerpt (France).* ### 59. The BBMs have supported prudent lending practices (Figure 4). The share of new loans ### The BBMs have supported prudent lending practices (Figure 4) ### Effects of BBMs on lending patterns - The share of new loans above the DSTI limit started declining rapidly even before the BBMs became legally binding and stabilized at about 15 percent. - The share of loans with DSTI between 30 and 35 percent increased as share above the limit fell. - The share of first-time home buyers increased, aided by reserving a share of the flexibility margin for these borrowers and by DSTI limits being more binding for second and subsequent buyers and buy-to-let investors. - The average LTV ratio of new loans declined from its peak in 2020 as borrowers needed to reduce LTVs to qualify under the DSTI and maturity limits. - The share of new loans to borrowers with debt ratio above 4.5 declined by about 20 percentage points. - With rising interest rates, issuance of housing loans declined sharply in 2023-24 and average DSTI increased (Figure 4). ### Empirical counterfactual and stress-test findings (Box 3) - Analysis based on the 2021 household finance and consumption survey (HFCS) and solvency stress test scenarios simulated household default probabilities under two counterfactuals: - (i) excluding borrowers with DSTI limits above 32 percent, and - (ii) excluding borrowers with LTVs above 90 percent. - Key quantitative results: - Excluding higher LTV borrowers reduces default probabilities by 17 percent in the geopolitical scenario (from 0.53 to 0.44 percent). - Excluding higher LTV borrowers reduces default probabilities by 18 percent in the severe recession scenario (from 0.65 to 0.53 percent). - Excluding higher DSTI borrowers reduces PDs by about 58 percent at the end of both scenarios. - Interpretation: - DSTI limits have a larger marginal impact on default probability than an LTV limit, consistent with DSTI targeting probability of default and LTV targeting loss given default. - Caveats and limitations of the exercise: - The exercise relies on 2021 survey data and thus misses distributional shifts since then. - Dropping borrowers above thresholds removes 24% of the sample in the DSTI exercise and 44% in the LTV exercise, potentially overstating abrupt changes relative to actual policy implementation that allows flexibility margins and borrower bunching. - The exercise does not fully capture mortgages held by SCIs. - Default probabilities and LGDs for high LTV borrowers excluded from the LTV counterfactual are likely to rise more during price corrections. ### Loan performance in the housing market downturn and loss severity - Recent data show high LTV loans (LTV > 100%) issued in 2015-2019 were more likely to default during the downturn (2022 Q2 – 2024 Q1) than prior (2020 Q2 – 2022 Q1). - During the downturn, both high DSTI (DSTI > 35%) and high LTV loans experienced about 25% increase in PDs relative to lower-ratio counterparts. - Loss given default (LGD) dynamics: - Historically, LGD of high LTV loans issued between 2015-2019 was 85% of that of low LTV loans in the period before the market correction. - During the recent downturn, LGD of these high LTV loans increased to roughly equal the LGD of low LTV loans. - Implication: expected loss of high LTV loans was higher than that of low LTV loans during the price correction despite issuance to wealthier borrowers. ### Scope, potential leakages, and data gaps - BBMs apply only to loans to family-oriented SCIs intended to hold assets; loans to professional SCIs are excluded (professional loans face stricter standards). - Authorities’ monitoring finds no strong evidence that professional SCIs are currently used to circumvent measures (rate of creation of new firms not increased significantly since BBMs). - Renovation loans are generally included in housing loans at the time of purchase and thus covered by DSTI limits; this inclusion contributes to higher LTVs on housing loans. - Consumer loans were about 14 percent of outstanding credit to individuals as of end-2024; their growth rate picked up throughout 2024. - The debt service on existing consumer loans is counted when computing DSTI for a housing loan, but debt service on subsequent standalone consumer loans would not be captured. - Application of DSTI limits to standalone consumer loans is hampered by the absence of a credit register in France; past efforts to build such a register were struck down by courts. ### Structural features and systemic risk mitigants - Fixed-rate lending predominates: - 99 percent of new housing loans were fixed-rate in 2024. - 98 percent of the stock of housing loans was fixed-rate in 2024. - Lending standards emphasize borrower solvency and ability to pay (stable employment and assets) rather than collateral value. - All housing loans are secured (mortgage, institutional guarantee, or personal guarantee). - Approximately two-thirds of all home loans in France are guaranteed in case of default, mutualizing borrowers’ and banks’ risk and reducing cyclicality. - The three main guarantors manage 84% of the guaranteed loans and are mutually or individually owned by the banks issuing the loans. - Eight guarantors covering 98% of the guaranteed loans are subject to stress testing and appear resilient; in severe downturns these guarantors could still require recapitalization by banking parents. ### Policy recommendations and macroprudential considerations - Broaden BBMs to prevent leakages and reflect best practices: - Where feasible, expand BBMs to renovation and other consumer loans. - Consider narrowing the 20 percent flexibility margin (currently wider than European peers where flexibility margins usually range between 5 to 15 percent). - Introduce prudential requirements for loans within the flexibility margin (e.g., higher DSTI or LTV limits for SCIs lacking DSTI data) or reduce the margin. - Broaden regular monitoring of housing loans to cover credit volumes and lending standards to SCIs and continue monitoring potential leakages. - From a macroprudential perspective, broaden BBMs before the boom phase of the housing cycle to prevent vulnerabilities from rebuilding as the housing market recovers. - High LTV loans warrant further monitoring and possible macroprudential action: - Despite declines, the share of high LTV loans (LTV > 95 percent) remained high at 42 percent in December 2024. - An LTV limit would target a different borrower segment than a DSTI limit: DSTI is highest for second or subsequent borrowers of primary residence (who have lowest LTVs on average), while highest LTVs are seen in buy-to-let investors. - Buy-to-let investors have average DTI ratio of 3.6 and may access additional leverage via special purpose vehicles or foreign entities, exposing them to liquidity pressures during downturns. - Authorities should continue monitoring market dynamics and consider customized LTV limits if deemed appropriate. *Source: IMF staff analysis as presented in the content unit.* ### 69. HCSF was proactive in identifying and taking macroprudential measures to address ### 1fraea2025004 - 69. HCSF was proactive in identifying and taking macroprudential measures to address ### Macroprudential measures targeting highly indebted corporates - In 2018, banks’ large exposure (LE) limits to highly indebted corporates were tightened: French globally and domestic systemically important banks were required to set a five percent exposure limit (of Tier 1 capital) to highly indebted large corporations, effective July 1, 2018 (for two years, and extended annually until 2023). - With the introduction of sectoral SyRB in CRD V in 2019, the LE limit was no longer compliant with pecking order. - The LE limit risked becoming more binding in the high-interest environment and encouraging substitution to market-based finance. - The HCSF changed this limit effective August 2023 to a sectoral systemic risk buffer (sSyRB) in the form of a CET1 capital surcharge of 3 percent for exposures above 5 percent of Tier 1 capital. - Following the SSM definition, “highly indebted corporates” were redefined as those with leverage ratio (total debt/EBITDA) of the consolidated firm strictly above 6 or negative. - This amounted to a de-facto broadening of the definition, increasing the share of large French firms and the consolidated total debt covered. - The exposures previously targeted continued to be covered by the sSyRB. - Materiality threshold: the total amount of the final exposures of the “group of connected clients” at the highest level of consolidation, as defined in the CRR large exposures framework, should be greater than or equal to 5% of Tier 1 capital. ### Outcomes of the sectoral systemic risk buffer - The sSyRB was calibrated to balance deterring banks from lending more to highly indebted companies while avoiding procyclicality in a period of higher interest rates. - The aggregate levels of additional CET1 requirements when the sSyRB entered into force was limited and additional requirements decreased since implementation, as firms diversified their lender base. - In June 2025, the HCSF lifted the SyRB, noting that the specific risks it was designed for have now diminished, and that its prudential buffer impact is now insignificant. ### Commercial real estate (CRE) sector assessment - The CRE sector experienced a substantial correction since the pandemic driven by structural shifts (including rise in teleworking) and higher interest rates, resulting in: - large price declines, - low transaction volumes, - an increase in NPL rates for loans to the CRE sector. - High leverage and debt secured by assets expose firms to refinancing risks; however, short-term debt of CRE firms is limited: 25 percent of total debt in 2023. - Liquidity risks from fund outflows could arise, but 70% of real estate fund assets are in funds that are closed-ended in practice; AMF urged real estate funds to reassess share valuations in mid-2023. - France's five major banks have minimal CRE exposure (to real estate professionals): around 2.9% of total assets and 67% of CET1 capital in 2023. - When adding loans collateralized by CRE assets and loans to real estate and construction firms, the exposures amount to 6.6% of total assets (Banque de France Financial Stability Reports, June and December 2024). - Exposures of insurers are also low relative to EU peers. ### Policy recommendations for corporate sector vulnerabilities - Authorities should continue to closely monitor vulnerabilities in the non-financial corporate (NFC) sectors and stand ready to raise the CCyB rate if warranted. - A higher CCyB rate would provide releasable capital and protect credit in the event of a more severe adverse shock. - Raising the CCyB would recognize risks in the non-financial corporate sector beyond highly indebted corporates and would not excessively penalize corporate lending by banks (relative to other borrowers). - This would be consistent with authorities’ current approach for setting the CCyB rate. - Authorities could consider a broader sectoral SyRB to cover corporate exposures rather than only those to highly indebted corporates. - The measure could be calibrated to differentiate across sectors (higher buffer for less resilient sectors) to penalize riskier exposures more heavily. - Or it could be tiered to avoid cliff effects by gradually increasing the capital charge in line with growing firm indebtedness and bank exposure. ### Non-financial corporate sector vulnerability indicators (selected) - Short-term debt of CRE firms: 25 percent of total debt in 2023. - France's five major banks CRE exposure (to real estate professionals): around 2.9% of total assets and 67% of CET1 capital in 2023. - When adding loans collateralized by CRE assets and loans to real estate and construction firms: 6.6% of total assets. ### Bank funding and liquidity vulnerabilities - Deposits from the public are about half the funding base; retail deposits are about 40 percent of available stable funding (lower than EU average). - Funding appears well diversified and concentration of funding remains small. - Aggregate Net Stable Funding Ratio (NSFR) stands at 115 percent and exceeds the 100 percent requirement for all banks. - Aggregate LCRs in all currencies and in euros have remained stable at around 150 percent every month since 2020. - USD LCRs are all above 100 percent at the end of 2024, but significant monthly volatility in USD LCRs was observed; USD LCRs were below 100 percent some months in 2021-2022. - Several banks have large USD funding that appears to be shorter-term and more volatile than overall funding. - Cash flow stress tests reveal that banks can withstand significant liquidity outflows under several scenarios. ### Vulnerabilities in the NBFI sector and oversight of investment funds - The French investment fund sector is EUR 2 trillion and caters to domestic and EU markets across asset classes, including real estate and alternative investment funds. The sector supports a large fixed-income market and one of the largest money-market fund (MMF) markets in Europe (MMF market broadly stable around EUR 475 billion since April 2024, per information provided by the AMF). - The investment fund industry is supervised by the AMF. - AMF actions on liquidity management tools (LMTs): - The AMF proactively incentivized the introduction of LMTs in French funds’ toolkit and focused work on funds with more illiquid assets ahead of the obligations imposed by the review of the UCITS and AIFM Directives. - The AMF introduced several incentivization measures in 2022 and 2023 and conducted proactive thematic supervision of valuation practices for real estate funds in 2021 and 2022. - The AMF’s data-driven work revealed some poor practices, prompting three letters to the market stressing the importance of proper valuation and LMT usage. - Estimated adoption as of end-2023: 66 percent of retail opened-ended collective investment scheme AUM were equipped with gates and 45 percent with swing pricing. - Adoption in MMFs is understood to be significantly lower; adoption of gates in open-ended retail private equity and real estate funds is understood to be approaching 100 percent. - Investment fund liquidity stress testing (stringent liquid-asset definition: only assets that would incur up to 85 percent haircut under the banking sector HQLA definition considered liquid): - Results suggest only 30 funds have liquidity coverage ratio below 1 under the adverse scenario, with a collective liquidity shortfall of EUR 1 billion, regardless of pro-rata or waterfall liquidation strategies. - AMF ad hoc studies on performance and outflows did not point to fire sale-like behaviors. - AMF does not have systematic access to holdings data (in particular, securities identification) which reside with other supervisory bodies (ACPR, BdF). - Leverage oversight in AIFs: - AMF conducts quarterly assessments under Article 25 of the AIFMD and ESMA guidelines; it can impose additional leverage limits if needed but has not applied such limits to date. - The AMF imposes ex-ante limits in fund authorization (e.g., retail open-ended real estate funds cannot borrow more than 40% of their net asset value). - Private credit and NBFI role: - Private credit and financing of corporate borrowing through NBFIs play a limited role at present; banks continue to dominate credit origination in France. - Private credit largely appears with private equity-financed deals. - Significant Risk Transfers (SRTs) are increasingly used by French banks to generate capital relief and mimic bank/NBFI partnerships seen in private credit markets elsewhere. - SRTs create new interdependencies between banks and NBFIs and may increase model risk for banks. *Source: IMF staff report excerpt.* ### References ### References ### Selected citations - Autorité de contrôle prudentiel et de résolution (2024). Climate stress-test: The ACPR encourages insurers to keep up their efforts towards the integration of climate risk, Press release, May 23, 2024. https://acpr.banque-france.fr/en/press-release/climate-stress-test-acpr-encourages-insurers-keep-their-efforts-towards-integration-climate-risk - Avouyi-Dovi, S., Labonne, C. & Lecat, R. (2014). The housing market: the impact of macroprudential measures in France. Banque de France Financial Stability Review, No. 18, April 2014 - Banque de France. (2024). Financial stability report – December 2024. https://www.banque-france.fr/en/publications-and-statistics/publications/financial-stability-report-december-2024 - Borraccia, G., Espinoza, R., Guzzo, V., Jiang, F., Lafarguette, R., Nguyen, V., Segoviano, M., & Wingender, P. (2023). Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications. IMF Working Paper No. 2023/209, September 2023. - Camara, B., Castellani, F.-D., Fraisse, H., Frey, L., Héam, J.-C., Labonne, C. & Martin, V. (2015). MERCURE: A macroprudential stress testing model developed at the ACPR. Autorité de contrôle prudentiel et de résolution, Débats économiques et financiers No. 19. https://acpr.banque-france.fr/system/files/import/acpr/medias/documents/20151012-def-mercure_0.pdf - Darpeix, P., Le Moign, C., Même, N. & Novakovic, M. (2020). Overview and Inventory of French Funds’ Liquidity Management Tools. AMF working paper, July 2020. - Espic, A., Kerdelhué, L. & Matheron, J. (2024). Capital requirements in light of monetary tightening. Banque de France Working Paper No. 947. https://www.banque-france.fr/en/publications-and-statistics/publications/capital-requirements-light-monetary-tightening - Gross, M., Tressel, T., Ding, X. & Tereanu, E. (2022). What drives mortgage default risk in Europe and the US? IMF Working Paper No. WP/22/65, April 2022. - International Monetary Fund (2013). Key Aspects of Macroprudential Policy; IMF Policy Paper, June 10, 2013. - International Monetary Fund (2014a). Staff Guidance Note on Macroprudential Policy. IMF Policy Paper, November 2014. https://www.imf.org/external/np/pp/eng/2014/110614.pdf - International Monetary Fund (2014b). Staff Guidance Note on Macroprudential Policy - Detailed Guidance on Instruments. IMF Policy Paper, December 2014. https://www.imf.org/external/np/pp/eng/2014/110614.pdf ### Annex I — Implementation Status of 2019 FSAP Macroprudential Policy Recommendations - Recommendation: Expand the role of external members, including greater involvement at an earlier stage of the HCSF decision process. - Agency: HCSF - Implementation Status: Partly addressed. “Atelier Personnalités Qualifiées” are being held prior to HCSF meetings - Recommendation: Consider publication of summary of meetings including the policy proposals discussed. - Agency: HCSF - Implementation Status: Partly addressed. While summary of meetings are published, these do not contain a summary of all policy proposals discussed particularly those that were proposed by the Governor but voted down. - Recommendation: Empower the HCSF to make recommendations to member institutions on tools entrusted to them (O-SII buffer, Articles 124 and 164 CRR for ACPR; leverage limits for AMF), with a ‘comply or explain’ mechanism. - Agency: HCSF - Implementation Status: No action - Recommendation: Report intra group exposures and transactions within conglomerates on a flow and stock basis, at quarterly frequency. Develop guidance to address direct and indirect, and common exposures of entities in the conglomerate. - Agency: ACPR, AMF - Implementation Status: Addressed. Conglomerates report on intragroup exposures and transactions within conglomerates on a flow and stock basis at regular frequency, i.e. semi-annual basis for the most significant conglomerates. An enhanced reporting has been developed by the European Joint Committee in Financial Conglomerate and was formally adopted by the European Commission in December 2022. - Recommendation: Introduce liquidity management requirements and liquidity stress tests at the conglomerate level. - Agency: HCSF, ACPR, ECB - Implementation Status: Addressed. The FICOD, article 9 as transposed in France requires to implement adequate risk management, including liquidity risk. SSM further clarified its expectation on liquidity monitoring and management through the adoptions of a dedicated annex to SREP methodology in 2020 procedure. ACPR is carrying out ad hoc research projects on liquidity analysis and the conduct of stress testing at the conglomerate level, recently presented to the ACPR Scientific Committee. - Recommendation: Develop capacity for macro stress test of investment funds. - Agency: AMF - Implementation Status: Addressed. Macro stress-tests of investment funds are conducted by the ECB; A system wide liquidity stress testing exercise is being conducted by French authorities. - Recommendation: Add to the HCSF dashboard indicators on investment funds (assets under management, leverage, liquidity and returns). - Agency: HCSF, AMF - Implementation Status: Addressed. HCSF regularly monitors a wide range of indicators with sctoral coverage spanning banks, households, corporates, real estate, NBFIs and financial markets, and also covering interconnectedness, concentration and climate risks. - Recommendation: Develop analytical framework for borrower-based measures for corporates. Consider sectoral SRB (Systemic Risk Buffer) if risks intensify. - Agency: HCSF - Implementation Status: Addressed. On July 28th, 2023, the French macroprudential authority introduced a sectoral systemic risk buffer of 3 percent on the exposures of French banks to large, heavily-indebted corporates. - Recommendation: Evaluate options to further incentivize corporates to finance through equity rather than debt. - Agency: HCSF, MoF - Implementation Status: No action. - Recommendation: Actively engage with the ESRB and others for a speedy development of liquidity and leverage related tools for insurers and investment funds. - Agency: HCSF, BdF, ACPR, AMF - Implementation Status: Addressed. The revision of the AIFM Directive will strengthen the rules on liquidity management for open-ended funds. The AMF recently published a position paper on developing a macroprudential approach for investment funds. ### Annex I — Key Indicators Used in Systemic Risk Monitoring - Broad-based credit risks or to achieve resilience to a broad range of shocks - 1. Basel gap - 2. Bank credit to GDP gap - 3. Nationally preferred measure of credit-to-GDP gap (“HCSF” gap with consolidated debt on the numerator) - 4. Credit-to -GDP gap with credit net of liquid assets (“HCSF” gap net of liquid assets) - 5. Financial cycle indicator - 6. Composite Index of Systemic Stress (CISS) - Notes: - edit gaps are associated with a recommended countercyclical capital buffer following the buffer guide defined in the ESRB/2014/1. While non-binding, this rule maps a level of buffer to the observed credit gap to help the HCSF assess the optimal buffer level. - he financial cycle indicator aggregates eight series from the household and NFC sectors. It acts as an early warning signal to complement credit-to-GDP gaps for decisions to build up the countercyclical capital buffer. - The Composite Index of Systemic Stress helps to gauge potential opportunities for releasing the counter cyclical buffer. - Systemic Liquidity Risks in the banking sector - 1. Structure of French banks’ liabilities - 2. French banks’ non-core liability ratio (% of customers’ deposits) - 3. Regulatory ratios (LCR, NSFR) - 4. Asset encumbrance ratios - 5. Loan-to-deposits ratios (global, NFCs, households) - 6. Counterbalancing capacity - 7. Funding concentration risks (Top 10, wholesale, short-term, long-term, central bank funding) - Notes: - These indicators are regularly monitored by the ACPR department as well as ECB and EBA working groups - LCR and NSFR regulatory thresholds at 100%. - Most of these ratios are used in a framework for analyzing banking sector vulnerabilities. This system is based on a historical and comparative analysis of the aggregate ratios of French banking groups compared with a group of euro zone peers. - Vulnerability mapping: - Low vulnerabilities: < Median - Moderate vulnerabilities: > Median / <= 70th percentile - High vulnerabilities: >70th and =<90th percentiles - Severe vulnerabilities: > 90th percentile - Risks in the Household Sector (selected indicators) - 1. Households’ total debt-to-GDP ratio (%) - 2. Household credit-to-GDP gap – deviation from trend (pp) - 3. Total credit to households (total, housing loans and consumer loans) - annual growth rate (%) - 4. Households’ debt-service ratio (DSR) – level and quarterly change (pp) - 5. Households’ borrowing rates for new housing loans – rate (%) - 6. Lending standards of new housing loans– mean values of DSTI (%), LTV (%) and maturity at origination (years); share of loans with high DSTI/LTV and/or maturity at origination (%) - 7. House price index for residential real estate (nominal and real) – annual growth rate (%) - 8. House price-to-households’ revenues ratio - 9. Model-based house price overvaluation indicators –deviations from estimated fundamental values (%) - 10. Building permits (total authorized floor area) – deviation from trend (%) - Notes: - Variables are standardized via z-scores, which are then mapped to a level of vulnerability based on historical distributions - High vulnerabilities: >70th and =<90th percentiles of the historical distribution - Severe vulnerabilities: > 90th percentile of the historical distribution - Deteriorating lending standards (increase in the share of new loans with high DSTI/LTV and/or maturity), and rising household debt ratios were the leading indicators leading to the implementation of the French borrower-based measures in 2019. - Risks in the Corporate Sector (selected indicators) - 1. NFCs’ total consolidated debt-to-GDP ratio (%) - 2. NFC credit-to-GDP gap – deviation from trend (pp) - 3. Total credit to NFCs (banking loans and debt securities) - annual growth rate (%) - 4. NFCs’ debt-service ratio (DSR) – level and quarterly change (pp) - 5. NFCs’ borrowing rates for banking loans – rate (%) - 6. Surveys regarding credit constraints for NFCs (Bank Lending Survey and Survey on the Access to Finance of Enterprises)- (%) - 7. Net debt (Gross debt – liquid assets)/ GDP (%) - 8. Debt securities issuance (euros) - 9. Transactions flows by non-residents of debt securities issued by non-financial corporations - 10. NFC aggregate leverage ratio (%), computed from sectoral accounts - 11. Interest Coverage Ratio (%) - 12. Net interest flows (Payable – receivable interest rates)/EBE (%) - 13. Share of loans with a residual or initial maturity of less than one year in the total outstanding amount (%) - 14. Weight of credit to failing companies in the outstanding amount (%) - Notes: - Answers to surveys (banks’ answers for Bank lending Survey, BLS, and NFCs’ answers for the Survey on the Access to Finance of Enterprises, SAFE) regarding credit conditions are used to gauge potential opportunities for releasing the counter cyclical buffer. - If a bank’s exposure to an NFC exceeds the thresholds concerning gross debt/EBITDA and group of connected clients, the sectoral SyRB applies. - Gross debt/EBITDA and concentration of banks’ exposures to large non-financial corporations are subject to an alert threshold: - Gross debt/EBITDA > 6 or < 0 - a group of connected clients higher than the threshold of 5% of the Tier 1 capital for a systemic French bank. - These indicators are reported by banks and monitored above a lower threshold: - Gross debt/EBITDA >= 4 or < 0 - a group of connected clients higher or equal to the threshold of 4 % of the Tier 1 capital for a systemic French bank. - Additional corporate indicators: - 15. R-G : interest rate - Gross operating surplus annual growth (percentage point) - 16. Indebtedness (total and for large firms): gross debt/EBITDA (%) - 17. Concentration of banks’ exposures to a selection of large non-financial corporations measured via the share of the final exposure in percentage of Tier One Capital (%) - Foreign Currency Exposure Risks - (Section heading present; no enumerated indicators provided in the supplied content) *Source: References and Annex I from the provided PDF content.* ### 1. Liquidity ratios (LCR, NSFR) in main ### 1. Liquidity ratios (LCR, NSFR) in main ### Liquidity ratios and monitoring - Liquidity ratios in foreign currencies are not subject to regulatory requirements. However, the level of these ratios compared to 100% and the amplitude of quarter-on-quarter variations are monitored. - Liquidity Coverage Ratio (LCR): Effective 1 January 2022, LCR of 100% applies, for institutions supervised under the SSM as well as LSIs in France (although the restoration of the latter from the pandemic phase release has not been publicly announced). - Net Stable Funding Ratio (NSFR): As announced May 20, 2019, and effective June 28, 2021, banks must maintain the NSFR of at least 100%. This requirement is in effect in France as in all EU member states. - Specific entities (“Sociétés de financement”) benefit from a dedicated ratio, the “Coefficient de liquidité,” effective June 30, 2010; this coefficient is very similar to the LCR (1-month time horizon). ### Asset price risks — indicators and mapping - Indicators used (variables 1 to 6 are standardized via z-scores and mapped to vulnerability levels based on historical distributions): - 1. Price index for commercial real estate (nominal) – annual growth rate (%) - 2. French stock market index (CAC40) valuation indicators (CAPE ratio) - 3. High yield vs investment grade corporate bond spread (pp) - 4. Credit Default Swap premia (CDS) for French publicly traded companies (bps) - 5. Commodity prices volatility - 6. EUR/USD risk reversal - Additional market and bank risk indicators: - 7. 10-year sovereign yields (%) - 8. Marginal Expected Shortfall for French banks (%) - 9. SRISK for French banks (in billions of euros or % of total current market capitalization) - 10. Distance-to-Default for French banks (% of total current market capitalization) - 11. Real estate fund valuations - 12. MMF valuations ### Systemic liquidity risk and fire-sale risk in the nonbank financial sector - Indicators monitored for AIFs and asset management: - 1. Asset-liability liquidity mismatch in AIFs - 2. Leverage in AIFs - Tools for the asset management industry: - The AMF can demand the (temporary) total suspension of subscriptions and redemptions on any French UCITS or AIF “when exceptional circumstances so requires and if the interest of the unitholders, the shareholders, or the public so commands”. This power has been used in the past (2014 and 2020). - The AMF updated its doctrine on October 7, 2022, to facilitate the adoption of LMTs, aligned conditions for introducing anti-dilution levies with those for swing pricing, and introduced a transitional period until December 31, 2023, during which gates could be introduced with a simple information by any means to the investors. - Under Art.25 of AIFM, the AMF regularly assesses the leverage of alternative investment funds and can impose leverage limits if it detects a potential threat to financial stability. ### Risks from systemically important institutions and interconnectedness - Monitored dimensions: - 1. Concentration risk - 2. Size and substitutability (total exposures, total deposits, total credits, payments transactions) - 3. Interconnectedness (intra financial sector assets and liabilities) - 4. Complexity (derivatives notional, cross-border assets and liabilities) - Limits on exposures between financial institutions (CRR art. 395): - An institution shall not incur an exposure to a financial institution the value of which exceeds 25 % of its Tier 1 capital or €150 million (whichever is higher), after considering the effect of credit risk mitigation. - Reciprocity under EU legislation: mandatory for three measures: - (1) for CCyB rates below 2.5%, it is automatic; - (2) risk weight adjustments for exposures related to real estate, for SA banks; - (3) LGD adjustments for exposures related to real estate, for IRB approach banks. ### Other risks and banking-sector vulnerability framework - Banking and real estate indicators tracked (selection): - 1. French banks’ CET1 ratio (%) - 2. French banks’ profitability, Return-on-Assets (%) - 3. French banks’ average portfolio risk weights (%) - 4. French banks’ nonperforming loans (%) - 5. French banks’ management buffer (%) - 6. Transaction volume of commercial real estate - 7. Vacancy rate and absorption rate of commercial real estate (%) - 8. Rents of commercial real estate - 9. Yield and spread over 10-year government bond of commercial real estate - 10. Authorized and started construction volume - 11. Share price and price-to-book of real estate investment trusts - 12. Credit ratings of real estate and construction firms - 13. French banks' exposure to real estate and construction firms - 14. French bank loans guaranteed by commercial real estate - 15. Non-performing loans to real estate and construction firms - 16. Insurances' exposure to commercial real estate - 17. Assets under management of real estate investment funds - 18. Debt of real estate investment funds - 19. Net inflow to real estate investment funds - 20. Liquidity and concentration of real estate investment funds’ portfolio - 21. Non-specialized investment funds' exposure to real estate and construction firms - Vulnerability classification (based on historical and comparative analysis versus euro zone peers): - Low vulnerabilities : < Median - Moderate vulnerabilities: > Median / <= 70th percentile - High vulnerabilities: >70th and =<90th percentiles - Severe vulnerabilities: > 90th percentile ### Climate and transition-related risk indicators - Indicators monitored: - 22. Exposure to climate policy relevant sectors (CPRS) - 23. Exposure to sectors with high transition risk (TEC, Alessi and Battiston, 2023) - 24. Share of investment in fossil fuels (Urgewald database) - 25. Analytical indicators of carbon emissions from the portfolios of financial institutions (Financed emissions, WACI and carbon footprint) - 26. Digital Twin - Estimation of banks’ exposure to the impact of flooding on companies’ physical assets - 27. Risk score (RS), Potential Exposure at Risk (PEAR), Normalized Exposure at Risk (NEAR) and Collateral-Adjusted Exposure at Risk (CEAR) - 28. Physical Solvency Capital Requirement (SCR) - Proportion of the balance sheet of insurers exposed to climatic risks - 29. Alignment and eligibility with the European Taxonomy (TAC/TEL, Alessi and Battiston, 2023) - 30. Share of investment in green bonds - 31. Share of funds with a ‘green’ label among mutual funds held by French insurers - 32. Greenium estimation for corporate and sovereign green bonds in EA ### Macroprudential tools — current calibration (selected) - Broad-based tools applied to the banking sector: - Countercyclical capital buffer/requirement (CCyB): As announced on December 13, 2022, and effective January 2, 2024, the CCyB rate is 1%. - Capital conservation buffer (art. 129 CRD): The capital conservation buffer consisting of CET1 capital is 2.5% since January 1, 2019. - Limits on Leverage ratio: As announced on May 14, 2019, and effective June 28, 2021, credit institutions are subject to a leverage ratio of 3% at the EU level. The leverage ratio includes central bank exposures. A GSIB leverage buffer was implemented in 2023 (reaching 50% of the GSIB risk-based buffer). The leverage requirements framework was also extended with Pillar 2 Requirements and Pillar 2 Guidance, implemented in 2024. - Household sector tools: - Household sector specific capital requirement: Under Basel rules, a 10% floor for loss given defaults (LGDs) on retail exposures secured by an immovable property (CRR art. 164.4) applies. - Cap on debt-service-to-income ratio: Effective December 18, 2023, Debt Service-to-Income (DSTI) ratio cap of 35% and a loan maturity limit of 25 years apply. These rules include a flexibility margin of 20% of volume issuance, allowing a portion of new loans to exceed either the DSTI or the maturity limits. Within this 20% margin: - 30% of the total margin specifically reserved for first-time buyers only; - 70% reserved to loans for primary residences (including first-time buyers) - Credit institutions can exclude interest payments on bridge loans from the DSTI calculation, provided the bridge loan’s loan-to-value (LTV) ratio does not exceed 80%. - Limit on amortization periods: 25-year maturity cap comes with a possibility to consider compliant specific operations with a maturity up to 27 years. Those include new constructions or operations with heavy renovation work (10% of the total project cost), requiring a delay between acquisition and entry into the house. - Exposure caps on household credit – loans with high DSTI ratio: Effective 1 July 2023: Loans with a DSTI ratio over 35% (or non-compliant maturity) cannot exceed 20% of new volume issuance. At least 70% of the flexibility margin is reserved for primary residences and at least 30% for first-time home buyers. - Corporate sector tools: - Corporate sector capital requirement (art. 133, 134 CRD): Since August 1, 2023, a sectoral systemic risk buffer of 3% is imposed on large exposures of French systemically important banks to large, heavily indebted companies. The buffer rate applies to domestic risk-weighted exposures to non-financial corporates with a total debt to EBITDA ratio greater than six or negative. The measure only applies if the exposure is part of a group of connected clients at the highest level of consolidation representing more than 5% of Tier 1 capital. As announced on June 2, 2025 and effective June 18, 2025, this measure was lifted by the HCSF. - Tools to address systemic liquidity and fire-sale risk in the nonbank sector: see AMF powers and AIFM Art.25 (above). - Tools to address risks from SIIs and interconnectedness: - Capital surcharges on systemically important institutions: There are seven domestic systemically important financial institutions (D-SIFIs), referred to as Other systemically important institutions (O-SIIs) in EU regulation, whose buffers have been set between 0.25% and 1.5% of RWA. - The capital surcharges for the 2024 exercise will apply effectively on January 1, 2026, and are as follows: - BNP Paribas: 1.5%; - Société Générale: 1%; - Groupe Crédit Agricole: 1,5%; - Groupe BPCE: 1%; - Groupe Crédit Mutuel: 0.5%; - HSBC Continental Europe: 0.25%; - La Banque Postale: 0.25%. - The same capital surcharge rates have applied and remained constant since January 1, 2019, except for HSBC Continental Europe which was first designated in 2020 and for Crédit Agricole whose buffer will increase by 50 bp from 2026. - Measures to address risks from financial institutions’ cross border exposures (including reciprocity): Under EU legislation, reciprocity is mandatory for the following three measures: (1) for CCyB rates below 2.5%, it is automatic; (2) risk weight adjustments for exposures related to real estate, for SA banks; and (3) LGD adjustments for exposures related to real estate, for IRB approach banks. Several reciprocity measures are currently in place. *Source: IMF Macroprudential Survey and French authorities* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1fraea2025004.pdf_