France: Financial Sector Assessment Program-Technical Note-Balance Sheet Risks and Financial Stability

IMF Staff Country Reports, October 29, 2019

Source details

Canonical URL

France: Financial Sector Assessment Program-Technical Note-Balance Sheet Risks and Financial Stability

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Published: October 29, 2019
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781513517797.002

Summary

• Publication date: October 29, 2019
• Pages: 57
• The technical note addresses balance sheet risks and financial stability in France, focusing on the challenge for macroprudential policy of identifying growth of financial and macroeconomic variables above and below potential.
• Presents a macro-financial structural model and a quantitative method for measuring deviations from potential.

Model and measurement

• Model features:
  • Captures sectoral dynamics of firms and banks and feedbacks between them.
  • Captures capital and default risk dynamics of each sector.
  • Captures capital and risk gaps, i.e., deviations of capital and default risk from potential.
• Provides a quantitative method for measurement of the above.

Key findings

• Default risk fluctuates over time between being too high and too low.
• Default risk is identified as "too high" during four episodes:
  • prior to the Technology Crisis
  • prior to the Global Financial Crisis
  • prior to the Sovereign Debt Crisis
  • and now
• Implication: firms should be encouraged to strengthen their equity capital base.

Policy recommendations and implications

• Encourage firms to strengthen their equity capital base by:
  • retaining earnings, or
  • issuing equity.
• Suggests indirect measures to support this, such as publishing related research.

Subject coverage and keywords

• Subjects: Banking, Cross-border effects, Debt default, External debt, Financial crises, Financial institutions, Financial sector policy and analysis, Insurance companies, Nonbank financial institutions
• Keywords: aggregate risk, bank risk Gap, banking capital Gap, capital base, capital gap, common exposure, contagion risk exercise, CR, Cross-border effects, cross-border exposure, Debt default, equity capital, financial crisis, fund share, Global, idiosyncratic risk, Insurance companies, ISCR, marketable securities, Nonbank financial institutions, risk gap, vulnerability risk

Content in this bundle

• 1fraea2019007
  • 1fraea2019007 (Markdown version)
  • 1fraea2019007 (PDF)