Front Matter Page
© 2013 International Monetary Fund
June 2013
IMF Country Report No. 13/186
France: Financial Sector Assessment Program—Technical Note on Crisis Management and Bank Resolution Framework
This paper was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed in June 2013. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of France or the Executive Board of the IMF.
The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201
E-mail: publications@imf.org Internet: http://www.imf.org
International Monetary Fund
Washington, D.C.
Front Matter Page
Financial Sector Assessment Program Update
France
Crisis Management and Bank Resolution Framework
Technical Note
JUNE 2013
International Monetary Fund
Monetary and Capital Markets Department
Contents
Glossary
Executive Summary
I. Introduction
II. Crisis Preparedness and Preparation
A. Assessment
B. Comments and Recommendations
III. Bank Resolution
A. Assessment
B. Comments
IV. Role and Mandate of Banque de France
A. Assessment
B. Comments and Recommendations
V. Role and Mandate of the Ministry of Finance
A. Assessment
B. Comments and Recommendations
VI. Role and Mandate of the Deposit Insurance Fund
A. Assessment
B. Comments and Recommendations
C. Bank Resolution Fund
VII. Cooperation and Information Sharing on Crisis Issues
A. Cooperation Between the French Authorities
B. Cross-Border Cooperation Within the European Economic Area
C. Cross-Border Cooperation with Third Countries
VIII. Recovery and Resolution Plans
A. Assessment
B. Comments and Recommendations
IX. Expected Developments
Glossary
ACP |
Autorité de Contrôle Prudentiel |
AMF |
Autorité des Marchés Financiers |
BCBS |
Basel Committee on Banking Supervision |
BCP |
Basel Core Principles for Effective Banking Supervision |
BdF |
Banque de France |
CI |
Credit institution |
CMF |
Code Monétaire et Financier |
CMG |
Crisis management group |
COREFRIS |
Conseil de la Regulation Financière et du Risque Systémique |
EBA |
European Banking Authority |
ECB |
European Central Bank |
ELA |
Emergency liquidity assistance |
ESRB |
European Systemic Risk Board |
EU |
European Union |
FDIC |
Federal Deposit Insurance Corporation |
FGD |
Fonds de Garantie de Dépôts (Deposit Insurance Fund) |
FSAP |
Financial Sector Assessment Program |
FSB |
Financial Stability Board |
G-SIFIs |
Globally systemically important financial institution |
IOSCO |
International Organization of Securities Commissions |
MOF |
Ministry of Finance |
MOU |
Memorandum of Understanding |
Non-G-SIB |
Nonglobally systemically important bank (which does not qualify as a global systemically important financial institution according to the set criteria) |
OBA |
Open bank assistance |
ORAP |
Organisation et Renforcement d’Action Préventive |
PCA |
Prompt Corrective Action |
RAS |
Risk assessment system |
RRP |
Recovery and resolution plan |
SIB |
Systemically important bank |
SFEF |
Société de Financement de l’Economie Française |
SPPE |
Société de Prise de Participation de l’Etat |
SREP |
Supervisory Review and Evaluation Process |
Executive Summary
The French banking system weathered the crisis 2007–09 relatively well. As in many other European Union (EU) countries, the French authorities provided capital support and guarantees to banks; and the extension of liquidity from Banque de France (BdF)—being part of the Eurosystem—was significant. Overall, however, there was limited intervention from the authorities in individual banks and the banks were, to a large degree, able to deal themselves with their balance sheet problems through private capital infusions by deleveraging and by reducing dividends.
Already, before the crisis, France had a comprehensive framework for crisis management and bank resolution. Based on developments as of end-January 2012, with some exceptions, the French framework contains the instruments and measures that now constitute international best practices and which (likely) will be recommended in the expected proposal for an EU Directive on a bank resolution framework. However, the legal processes for the liquidation or bankruptcy of financial institutions might not be separate enough to handle the specific issues of bank resolution as distinct from liquidation. Indeed, although the definition of the cessation of payments and the appointment of an administrative liquidator by the Autorité de Contrôle Prudentiel (ACP) are distinct features, the rest of the process is the same as those for nonfinancial corporations fit to handle.
The crisis preparation, crisis identification, and crisis management processes in the supervisory authority (ACP) are comprehensive and well structured. Without having a formal U.S.-type “PCA-regulation,” the ACP identifies weak banks and requests appropriate remedial measures to be taken (although the FSAP assessment has identified the occurrence of delays in some cases). The ACP also actively uses the Basel II Pillar 2 instrument to require add-ons on an individual-bank basis to the minimum regulatory capital requirements, reflecting the assessed riskiness of a bank.
The ACP has a wide range of remedial and sanctionary powers at its disposal, including the right—under defined circumstances—to appoint an interim administrator in a bank. Ultimately, the ACP may revoke a bank’s license, which automatically will start the judicial liquidation process.
The funds of the Fonds de Garantie de Dépôts (FGD, the deposit guarantee agency) may be used either for compensation to depositors or for recovery actions in order to prevent the disorderly failure of a bank. The latter function can only be triggered after an invitation from the ACP, and the FGD has the power to accept or to decline such an invitation. In practice, the decision of the FGD will, as a rule, be based on a “least-cost” consideration, e.g., whether the cost of providing financial support is likely to be lower or higher than that of a pay-out to depositors in liquidation.
The specific roles of the Banque de France (BdF) in crisis management lie mainly in the provision of liquidity through standing or extraordinary facilities like the emergency liquidity assistance (ELA), in the analysis of overall financial stability and in its responsibility to ensure the smooth functioning of the payment system infrastructure. All liquidity provision is subject to the rules and restrictions of the Eurosystem.
The main roles of the Ministry of Finance (MOF or Le Trésor) in crisis management are in initializing and drafting laws and regulations in the financial field; in negotiating international agreements; and in following developments in the financial sector and in individual banks through its participation in various bodies such as the ACP. During the 2007–09 crisis, the government—through various vehicles—provided significant solvency and liquidity support to banks.
Close cooperation and information sharing among the relevant authorities is ensured mainly through cross-Board-memberships. For instance, the MOF as well as the BdF are represented on the ACP Board, with the BdF governor being the President of the Board. Cooperation on crisis management matters also takes place in a wide range of other domestic and international fora. Furthermore, the ACP is an organizational, although operationally independent, part of the BdF. The president of the FGD is appointed with a specific agreement from the MOF, its by-laws, rules, and financing are also determined by—or with the agreement of—the MOF, whereas the FGD Supervisory Board mainly consists of active bankers, as the FGD is a private organization funded by the contributing institutions.
A recurring conclusion in this assessment note1 is that—while the close organizational links between the authorities and, indeed, within a limited group of persons provide powerful means for cooperation and information sharing, which is positive not least in a crisis—they could also blur the transparency and accountability for the separate responsibilities of said authorities.
The French authorities had so far no certainty about the adjustments needed to be made to its legislation, as precise proposals on crisis management and resolution framework issues from international bodies were not yet on the table. In particular, an EU Commission proposal on a bank resolution framework is expected to be presented soon. The authorities are mainly positive to the proposals of the EU Commission (as indicated in the French authorities’ reply to the Commission’s Consultative Paper of 2011), but prefer harmonized EU-wide regulations to taking unilateral steps.
Due to the cross-border structure of the major French financial groups, the authorities emphasize the need for cooperation and information sharing in the so-called crisis management groups (CMGs) of the individual financial groups, in which both home and host authorities are represented.
At present, the large French financial groups are requested to draft so-called Recovery and Resolution Plans (RRPs) with the aim to reduce the risk of a default, but also to reduce the impact of an eventual default. These plans are drafted on a group-wide, cross-border basis. For the three largest banks,2 the drafting is advanced and their RRPs are expected to be presented shortly. For the other French systemically important banks, the RRPs are to be presented before end-2012 in accordance with the Financial Stability Board (FSB) regime on Key Attributes for Effective Resolution.