Bank capital requirements will tighten in 2023

The High Council for Financial Stability (HCSF) will force banks to further strengthen their capital in the event of a crisis, he announced on Tuesday after its quarterly meeting.

The institution, meeting earlier in the day, decided to raise the rate of the countercyclical banking capital buffer to 1%, currently 0.5%, according to a press release. It thus ratifies a measure already announced at its previous meeting on 15 September.

This mechanism is an additional reserve of capital put aside in a preventive manner by the banks in the event of a downturn in the financial situation. It comes in addition to the capital already required by international banking regulations.

This is an opportune time to do so, said a spokesman for the HCSF, the French banks being able to cope with this decision.

On the occasion of the publication of their half-year results at the beginning of November, the main French banks assured that their core capital ratios (CET1) were significantly higher than regulatory requirements: 12.1% for example for BNP Paribas, 13.1 % for Socit Generale or 15.1% for BPCE.

They have one year to comply with this new obligation of the HCSF, which does not envisage any additional increase in this ratio in the coming year.

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High risk

The institution, responsible for supervising the financial system as a whole, also considers that the risks to financial stability remain at a high level.

It draws attention to the exposure of the French financial system to the risk of contagion, via the financial markets, of tensions stemming from non-resident non-banking financial institutions, which are often less supervised.

The implosion in 2021 of the American fund Archegos, whose setbacks cost several large banks billions including Credit Suisse, UBS, Morgan Stanley and Nomura, made an impression.

The HCSF has also encouraged certain banks, without naming them, to comply more with the new rules of the game in terms of mortgage loans.

Since January 1, the effort ratio, i.e. the total amount of housing-related expenses in relation to income, cannot exceed 35% and the duration of indebtedness is limited to 27 years at most in certain case.

Institutions may, however, waive these criteria for 20% of loans, provided that these exceptions relate 80% to the acquisition of a main residence and 30% to first-time buyers.

It is on these last two points that progress remains to be made, according to the HCSF. The High Council for Financial Stability brings together, among others, the Minister for the Economy and the Banque de France.

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