France: Staff Report for the 2024 Article IV Consultation—Informational Annex
Author:
International Monetary Fund. European Dept.
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Publication Date:
12 Jul 2024
eISBN:
9798400281280
Language:
English
Keywords:
market discipline; France-Report on the Observance of Standards and Codes; FSAP update; IMF's article; metadata exchange; Financial Sector Assessment Program; Anti-money laundering and combating the financing of terrorism (AML/CFT); Financial statistics; Commercial banks; Financial sector stability; Global
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FRANCE

Title page

FRANCE

STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

June 18, 2024

Prepared By

European Department

Contents

  • FUND RELATIONS

  • STATISTICAL ISSUES

Fund Relations

(As of May 31, 2024)

Membership Status: Joined December 27, 1945; Article VIII.

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Outstanding Purchases and Loans: None

Latest Financial Arrangements

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Projected Payments to Fund

(SDR million; based on existing use of resources and present holdings of SDRs):

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Implementation of HIPC Initiative: Not applicable

Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable

Implementation of Post-Catastrophe Debt Relief (PCDR): Not applicable

Exchange Arrangements:

  • The currency of France is the euro. The exchange rate arrangement of the euro area is free floating. France participates in a currency union (EMU) with 19 other members of the EU and has no separate legal tender. The euro, the common currency, floats freely and independently against other currencies.

  • France has accepted the obligations under Article VIII, Section 2(a), 3, and 4 of the IMF’s Articles of Agreements, and maintains an exchange system free of multiple currency practices and restrictions on the making of payments and transfers for current international transactions, with the exception of restrictions imposed solely for the preservation of international peace and security, which have been notified to the Fund in accordance with Executive Board Decision No. 144-(52/51).

Article IV Consultation:

The last Article IV consultation was concluded on January 25, 2023. The associated Executive Board assessment is available at https://www.imf.org/en/News/Articles/2023/01/27/pr2321-imf-executive-board-concludes-2022-article-iv-consultation-with-france and the staff report at https://www.imf.org/en/Publications/CR/Issues/2023/01/30/France-2022-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-528669. France is on the standard 12-month consultation cycle.

FSAP Participation and ROSC:

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Summary: The report found that France has achieved a high level of fiscal transparency and has introduced a number of improvements in coverage and presentation of fiscal information. Notable areas of progress include the development in the final accounts publication to include more complete information on government assets and liabilities as well as disclosure of contingent liabilities. Accounting standards have been changed to reflect accruals principles in a number of areas, and these standards are clearly explained. The staff suggested that further steps could be taken to identify and report quasi-fiscal activities in the budget presentation, provide a more consolidated picture of fiscal activity outside the appropriation process, and improve the reconciliation of stated policies with outcomes at the general government level.

These issues have been addressed in the Loi organique aux lois de finance (LOLF), which has become fully effective on January 1, 2006. In addition to the annual appropriations, the first multi-annual fiscal framework law was adopted in January 2009, and contains fiscal objectives for the period 2009–12. The budget is organized along missions and provides details on the level of appropriations for each mission and performance indicators by which the expected results of the mission will be assessed ex post. The State Audit Office has been given the new assignment of certifying the public accounts, and implementation of accruals basis accounting has been confirmed. Parliamentary oversight powers have been strengthened.

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Summary: The 2000 ROSC noted that transparency of financial policies is accorded a high priority by all financial agencies assessed, and they are in observance of the good practices of the Code of Good Practices on Transparency in Monetary and Financial Policies. The major agencies disclose their objectives, their legal and institutional frameworks, and have open processes of policymaking and regulation. The principles of transparency are observed by dissemination of relevant information to the public and in the agencies’ arrangements for internal conduct, integrity, and accountability. However, the staff noted that the framework for supervision and regulation applicable to mutual insurance firms is not as well defined and suggested to improve its transparency. The transparency of monetary policy was not assessed by the Fund team as the Banque de France is a member of the European System of Central Banks and no longer conducts independent monetary policy.

Subsequently, the framework for supervision and regulation applicable to a specific group of mutual insurance firms was modified in a number of steps. In August 2003, legislation created a single supervisory body, the Commission de Contrôle des Assurances, Mutuelles et Institutions de Prévoyance (CCAMIP) by merging the regular insurance supervisor (CCA) and mutualities’ supervisor (CCMIP). Coordination with the banking sector supervisors was strengthened and the powers of the supervisory authorities extended. In 2010, supervision of the banking and insurance sectors was unified under the Autorité de contrôle prudentiel (ACP), which subsequently also was granted resolution powers and was renamed the Autorité de contrôle prudentiel et de résolution (ACPR).

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Summary: The report found that France is in observance of the Fund’s Special Data Dissemination Standard (SDDS) Plus. In particular, the mandate of INSEE and the Banque de France for the production of the six macroeconomic datasets is clearly defined, with the reporting burden and the confidentiality provisions given special consideration notably through the CNIS. Professionalism is central to the statistical operations of the two institutions, internationally and/or European accepted methodologies are generally followed, the degree of accuracy and reliability of the six datasets is remarkable, statistics are relevant and provided on a timely basis, and they are accessible to the public.

The report made a number of suggestions for further improvements: the responsibility of INSEE as the producer of government finance statistics should be clarified; data sharing between the Banque de France and the rest of the French statistical system improved; classification and valuation methods in balance-of-payments statistics reviewed; consistency between the current account of the balance of payments and the goods and services account in the national accounts improved; the timing of revisions in the quarterly and annual national accounts aligned; and identification of data production units of INSEE facilitated.

France participates to the G-20 Data Gaps Initiative, which aims at implementing twenty key recommendations aimed at addressing the data gaps identified after the global financial crisis and promote the regular flow of timely and reliable statistics for policy use. For example, with regard to Recommendation on Sectoral Accounts, all target requirements (dissemination of both annual and quarterly nonfinancial and financial accounts and balance sheets) have been met through the recent transmission of additional data to the OECD.

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Summary: The 2004 report concluded that France’s financial sector is strong and well supervised. No weaknesses that could cause systemic risks were identified. The strength of the system is supported by the financial soundness indicators and the strong conformity to the supervisory and regulatory standards approved by the Basel Committee, IAIS, IOSCO, FATF, and CPSS. The degree of observance of the transparency code is high in all relevant areas. The French banking sector has been modernized and restructured over the past two decades and is well capitalized. Systemic vulnerabilities in the important insurance sector are well contained. Securities markets are large and sophisticated.

The FSAP Update undertaken in January and June 2012 confirmed the resilience of France’s financial system to severe market pressures but also identified challenges faced by the system. While its structure has contributed to solid profit generation, the crisis exposed the risks posed by the banks’ size, complexity, and dependence on wholesale funding. The larger banks have been actively restructuring their balance sheets—moving to more stable sources of funding; reducing their cross-border presence; and building up capital. They remain, however, vulnerable to sustained disruptions in funding markets and reduced profitability, which would cause delays in meeting capital-raising plans.

The 2012 report confirmed that the regulatory and supervisory regime for banks, insurance, and securities market was of a very high standard. Areas for improvement that emerged from the FSAP Update included greater de jure independence of supervisory authorities; disclosure of the capital treatment and related financial interactions within complex banking groups; a move toward a more economic risk-focused approach to insurance regulation and supervision; and enhanced supervision of investment service providers and financial advisors.

The 2012 report also found disclosure-related shortcomings. French banks and listed companies, more generally, make extensive public financial disclosures under IFRS, and as a result of bank regulations (Pillar III of Basel II). Nonetheless, disclosure of financial sector data falls short of international best practice and enhancements would be highly desirable. Market discipline would benefit from the publication of regular and comparable data on an institution-by-institution basis, as well as detailed official analyses of financial sector developments in France.

The FSAP Update undertaken in July 2019 confirmed that the financial system is more resilient than it was in 2012. French banks’ capital positions and asset quality have improved. Banking business is better placed to handle cross-border contagion, including from exposures to high-yield EA economies. Insurers’ solvency ratios have been stable and have been bolstered by the effective implementation of Solvency II. Household savings and balance sheets are relatively sound and house prices presently appear broadly aligned with fundamentals. The French financial conglomerate (FC) and bancassurance models thus far have worked well. Important institutional and policy changes have also taken place since the 2012 FSAP. At the national level, the authorities have strengthened the macroprudential framework by establishing the High Council for Financial Stability (HCSF), enhanced monitoring of financial stability risks, introduced macroprudential measures, and taken various financial reform measures. At the European level, significant changes include the Banking Union (BU), Capital Requirements Regulation/Capital Requirements Directive (CRR/CRD), Solvency II, and efforts towards a Capital Markets Union (CMU).

The 2019 report however found that there are several challenges. Banking and insurance business lines, and the corporate sector, carry important financial vulnerabilities that need close attention Private nonfinancial sector and public debt has continued to rise, with some concentration of vulnerable corporate debt. Risks from a tail of highly indebted corporates appear manageable, though stress tests show that some banks’ large exposures to highly indebted corporates may increase notably under stress. Bank face profitability pressures due to the interest rate environment, lower revenue from market-related business, and stronger market competition. The reliance of banks on wholesale funding is better managed but is still sizable, and, could pose further risks to profitability and solvency. Insurers are broadly resilient against market shocks, but vulnerabilities stem from the concentrated exposures, mostly to their parent banks. Nonbanks—insurers and investment funds—are playing a larger role given the growing cross-border and non-EU exposures. The French financial conglomerate model, while so-far working well, is complex to manage and exposed to contagion and unexpected reputational risks. Finally, the incomplete BU and the slow progress towards CMU are creating uncertainty and constraining faster shifts in business models.

The 2019 report recommended augmenting policy tools to contain vulnerabilities and continue to act pre-emptively if systemic risks intensify. To mitigate intensification of corporate—and potentially household—vulnerabilities, the FSAP proposed: (i) active engagement with the ECB on the possible use of bank-specific (Pillar II) measures; (ii) considering fiscal measures to incentivize corporates to finance through equity rather than debt; and (iii) a sectoral systemic risk buffer. Additional liquidity buffers in all major currencies including in U.S. dollars, and intensified monitoring of insurers’ exposures to parent banks, are desirable. A high priority should be placed on enhancing oversight of financial conglomerates, including through augmented conglomerate-level reporting and stress testing, and improving the resolution framework for insurers by including the bail-in tool. Stronger and formal coordination between the French Prudential Supervision and Resolution Authority (ACPR), French Financial Markets Authority (AMF), and the European Central Bank (ECB), alongside adequate skilled supervisory resources are also essential.

Statistical Issues

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Table 1.

France: Table of Common Indicators Required for Surveillance

(As of June 2024)

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Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

This information is provided on a budget-accounting basis (not on a national accounts basis).

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France: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for France
Author:
International Monetary Fund. European Dept.
Volume/Issue:
Volume 2024: Issue 216
Publisher:
International Monetary Fund
ISBN:
9798400281280
ISSN:
1934-7685
Pages:
78
DOI:
https://doi.org/10.5089/9798400281280.002