Recent banking events, notably in the US with the failure of 3 regional banks, as well as the takeover of Credit Suisse in Europe, have cast doubt on the solidity of the banking system.
While the risk of contagion spreading to major American, European, and French banks remains unlikely, it is evident that the liquidity ratios imposed on banks are not always sufficient to prevent vulnerabilities, particularly in difficult times.
So how solid are French banks?
Historically, French banks have weathered various crises relatively well.
During the 2008 financial crisis, French banks were affected by the fallout from the subprime mortgage crisis in the United States, but they broadly held up better than banks in several other countries. This can be attributed to their limited exposure to toxic assets, prudent regulation, and State intervention when needed.
French banks also demonstrated a degree of resilience during the 2020 health crisis, thanks to their solid fundamentals, their risk management policies, and their ability to adapt swiftly to the new economic realities.
The various banking regulations applicable to French banks (Basel, IFRS, IRRBB) help frame and underpin the soundness and integrity of credit institutions. These regulations are constantly evolving and increasingly demanding. Basel IV, scheduled to come into force in 2027, provides for the introduction of MREL (Minimum Requirement for own funds and Eligible Liabilities) and TLAC (Total Loss-Absorbing Capacity) to absorb losses, the revision of the IRB (Internal Ratings-Based) approach for assessing borrower quality, the introduction of “Output Floors” limiting the reduction of variable rates, a new SMA (Standardised Measurement Approach) for measuring operational risks, and the revision of the FRTB (Fundamental Review of the Trading Book) to regulate market risks. Banks most exposed to corporate lending and mortgage loans will also be required to increase their capital.
Looking at the key bank soundness ratios:
| Ratios | Regulatory Minimum | Average of the 6 Largest French Banks in 2022 |
| CET1 (Solvency) | 10.5% | 15.5% |
| LCR (Liquidity) | 100% | 146% |
| NSFR | 100% | 121.1% |
In addition to solid ratios, French banks are holding up thanks to their diversified business model.
The quarterly results of BNP Paribas, Crédit Agricole, and Société Générale exceeded expectations in the first quarter of 2023, despite a backdrop of uncertainty surrounding inflation and rising interest rates.
Although challenges persist for retail banking in France due to the rapid rise in interest rates and increasing funding costs, investment banking was the growth engine for French banking groups in the first quarter. In particular, trading activities in rates, foreign exchange (FX), and commodities benefited from market volatility to deliver positive performance.
