France/stress test results
The 2010 financial crisis has been crisis of confidence in the European States and banks. After the establishment of the up to €750 billion European Financial Stability Mechanism and Fund, and the decision to strengthen European economic governance, this evening Europe laid the final stone in the programme to restore this confidence.
In line with the 17 and 18 June 2010 European Council conclusions, the results of the stress test exercise, designed to assess the resilience of the European banking system in the event of a very significant deterioration in the economic environment in 2010 and 2011, were published this evening.
This very ambitious exercise was carried out on 91 European banking groups, under the oversight of 20 different national supervisors, including the four main French groups (BNP Paribas, BPCE, Crédit Agricole and Société Générale).
Christine Lagarde, Minister for the Economy, Industry and Employment, welcomes the conduct of this exercise, which the G20 had applauded at the 26 and 27 June Toronto summit, and stresses the exemplary cooperation between all the authorities concerned, under the joint direction of the Committee of European Banking Supervisors (CEBS) and European Central Bank (ECB).
The detailed publication of these results is a major effort to provide transparency on the part of the European Union. Never before have the markets received so much information on such a wide range of institutions, particularly with respect to exposure to sovereign risk.
The stress tests carried out are based on a very tough macro-economic and market scenario, assuming a three-percentage-point loss of GDP growth and a major shock to sovereign exposures held in the banks’ trading books and private-sector loan books registered in the banking portfolio. These tests are more stringent than the tests carried out in 2009 in the United States.
So Christine Lagarde welcomes the fact that the French banks have passed all the tests by a significant margin, which puts them well above the solvency threshold of 6% Tier 1 capital ratio calculated on core equity in 2011, in the worst-case scenario.
These good results reflect the overall solidity of the French banking sector and in particular the significant increase in French banks’ equity over the past few months, together with a controlled exposure to sovereign risk. They thus show the pertinence of the French regulatory and supervisory model, based on an exigent approach to risk prevention. The French authorities’ efforts during the financial crisis in 2008 and 2009 to stabilize the French financial system have thus borne fruit./.