Front Matter Page

IMF Country Report No. 19/324

FRANCE

FINANCIAL SECTOR ASSESSMENT PROGRAM

TECHNICAL NOTE—BALANCE SHEET RISKS AND FINANCIAL STABILITY

October 2019

This Technical Note on Balance Sheet Risks and Financial Stability on France 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 on October 1, 2019.

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Front Matter Page

FRANCE

FINANCIAL SECTOR ASSESSMENT PROGRAM

TECHNICAL NOTE

BALANCE SHEET RISKS AND FINANCIAL STABILITY

October 1, 2019

Prepared By

Monetary and Capital Markets Department

Contents

• Glossary

• MACROFINANCIAL RISK AND CAPITAL GAP (CAP-GAP) ANALYSIS

• A. Executive Summary

• B. Introduction

• C. High-level Summary of the Model

• D. Detailed Description of the Model

• E. Empirical Strategy and Application to France

• F. Results–Gap Analysis

• G. Results–Macro Stress Test

• H. Implications for Macroprudential Policy Setting

• INTERCONNECTEDNESS AND CONTAGION: SELECT ISSUES

• A. Executive Summary

• B. Introduction

• C. Data Overview

• D. Cross-border Interconnectedness

• E. Domestic Interconnectedness

• F. Cross-border Interbank Contagion

• G. Concluding Remarks

• FIGURES

• 1. Literature Review

• 2. Corporate Probability of Default (quarterly; demeaned)

• 3. Banking Sector Probability of Default (quarterly; demeaned)

• 4. Corporate Risk Gap (Corporate PD–Optimal PD)

• 5. Banking Risk Gap (Bank PD–Optimal PD)

• 6. Corporate Capital Gap ((Optimal Capital-Corporate Capital)/Corporate Capital)

• 7. Banking Capital Gap ((Optimal Cap–Bank Cap)/Bank Cap)

• 8. Gap Analysis of Default Risk and Capital of Nonfinancial Corporates and Banks, and Macro Stress Test

• 9. Composition of Exposures in the Unilateral Dataset

• 10. Direct Cross-border Exposures of French Financial Entities

• 11. Direct Cross-border Exposure Network Properties in Unilateral Dataset

• 12. Significant Trends in Cross-border Common Exposures.

• 13. Composition of Domestic Exposures in the Bilateral Dataset.

• 14. Network Visualization of Cross-sector Exposures.

• 15. Direct Exposure Network Properties in Bilateral Dataset

• 16. Significant Trends in Domestic Common Exposures

• 17. Common Exposures in Assets Relative to the Average Domestic Portfolio

• 18. Common Exposures in Liabilities Relative to the Average Domestic Portfolio

• 19. Cross-border Interbank Contagion.

• TABLES

• 1. Common Exposures in Cross-Border Assets.

• 2. Common Exposures in Domestic Assets

• 3. Common Exposures in Domestic Liabilities

• APPENDICES

• I. Capital and Risk Caps Technical Appendix

• II. Data and Methodologies

• III. Interconnectedness and Contagion Technical Appendix

• References

Glossary