France requires banks to expand their capital cushion

Time:2019-03-26 12:28:55  Author:en.gouwuwang.org Popular: Comment:0

  

France requires banks to expand their capital cushion

 

The French Financial Stability Commission on Monday ordered banks to hold additional capital in case the current credit boom turns to collapse in the future. The committee, which includes the finance minister and central bank governor, has given French banks one year to increase the proportion of counter-cyclical bank capital cushions in risk-weighted assets to 0.5%. A source close to the committee said it was not expected that French banks would need to raise additional capital in the market to meet the new requirements.

 

In June last year, the Commission launched its first counter-cyclical cushion, setting the capital cushion at 0.25% of assets in the face of strong credit growth. Since then, however, lending demand has shown no signs of slowing down as French companies continue to buy cheap bonds in large quantities. According to data from the Bank of France, bank loans to non-financial enterprises increased by 6% in January compared with the same period last year. France is one of the fastest-growing countries in the euro zone, far higher than the ECB's forecast of 1.4% growth this year.

 

As a result, corporate debt has steadily climbed to 74% of GDP, while strong mortgages have pushed household debt to 59% of GDP. Although banks generally disapprove of being required to hold additional capital, this buffer is designed to ensure that they can continue to lend when the credit cycle deteriorates. In a downturn, the commission can allow banks to release additional capital to continue lending when the economy needs it most.

France requires banks to expand their capital cushion

 

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