EBA issues Opinion on measures to address macroprudential risk following notification by French High Council for Financial Stability (HCSF)

The European Banking Authority (EBA) published today an Opinion following the notification by the French macroprudential authority, the Haut Conseil de Stabilité Financière, of its intention to extend for a second time a measure introduced in 2018 to safeguard the resilience of systemic institutions from excessive risk-taking and to prevent the build-up of future vulnerabilities. The measure intends to tighten, for French global or other systemically important institutions, the large-exposure limits applicable to large and highly indebted non-financial corporations (NFCs) or groups of connected NFCs assessed to be highly indebted. Based on the evidence submitted, the EBA does not object to the extension of the proposed measure, which will be applied for two years from 1 July 2021 to 30 June 2023.

With the application of this measure, French systemically important institutions should not have individual exposures exceeding 5% of their Tier 1 capital for NFCs or for groups of connected NFCs assessed to be highly indebted and resident in France. The 5% limit will act as a backstop to safeguard these institutions from excessive risk-taking and prevent the build-up of future vulnerabilities.

In its Opinion, addressed to the Council, the European Commission and the French Authorities, the EBA acknowledged that the measure helps promote financial stability and prevent future systemic shocks to the French and EU economies by shielding individual systemically important lenders from idiosyncratic corporate defaults. In light of the increase in corporate indebtedness following the COVID-19 pandemic, the EBA encourages the French authorities to monitor closely the developments during the application horizon of the measure and to be vigilant about any unintended consequences on credit supply.

Background

In its Opinions issued on 13 March 2018 and 20 May 2020, the EBA did not object to the initial adoption and the first extension of this measure, taking into consideration the measure’s objectives of resilience (limiting concentration risks) and prevention (intensifying the vigilance about high leverage of NFCs).