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International Banking and Liquidity Risk Transmission: Evidence from France

IMF Economic Review volume 63, pages 479–495 (2015)Cite this article

Abstract

The Banque de France contribution analyzes the effect of liquidity risk on domestic and foreign lending, credit and intragroup funding by French banking groups. The paper finds that a higher core deposit ratio, a higher commitment ratio, and a low ratio of illiquid assets are associated with higher growth of certain types of lending during times of liquidity risk. These effects are mitigated when public liquidity is accessed, thus confirming that public liquidity provision was conducive to maintaining lending growth. Most importantly, it finds that the quantitative importance of liquidity risk is more pronounced for foreign lending, which may suggest that the particular banking model of French banks and the strong domestic retail sector contributed to the stability of domestic credit.

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Figure 1

Notes

  1. The exception is La Banque Postale, which is active mostly domestically.

  2. In response to the financial crisis, the French government created the Société de prise de participation de l’Etat (SPPE). The role of the SPPE, an exclusively government owned institution, was to recapitalize solvent credit institutions.

  3. Data on domestic and external lending, commitments and intragroup funding is collected by the Statistics Department of the Banque de France as well as by the Autorité de Contrôle Prudentiel et de Résolution (ACPR). In particular, we build a data set comprising six major French banking groups and construct stocks of various types of outstanding loans, undrawn commitments as well as assets and liabilities of the head office vis-à-vis its foreign affiliates.

  4. In addition, due to changes in reporting standards, we do not have information on commitments for 2007:Q2 and are therefore obliged to interpolate all values for 2007:Q1-2007:Q3.

  5. In the context of this paper, we refer to this central bank liquidity support as public liquidity assistance in order to ensure a common terminology across all IBRN contributions, but want to stress that we are limiting the analysis to central bank liquidity and abstract from measures such as capital support.

  6. The marginal effects, however, show that a high core deposit ratio and a low illiquid asset ratio during crisis times are associated with an increase in net intragroup funding.

  7. A high reliance on funding from foreign offices during crisis times is associated with less lending to the public sector abroad.

  8. See Kashyap and Stein (2000).

References

  • Buch, Claudia M. and Linda S. Goldberg, 2015, “International Banking and Liquidity Risk Transmission: Lessons from Across Countries,” IMF Economic Review, Vol. 63, No. 3, pp. 377–410.

  • IMF. 2012, France: Financial System Stability Assessment, IMF Country Report No. 12/341 (International Monetary Fund).

  • IMF. 2013, France: Selected Issues, IMF Country Report No. 13/3 (International Monetary Fund).

  • Kashyap, Anil K. and Jeremy C. Stein, 2000, “What Do a Million Observations on Banks Say about the Transmission of Monetary Policy?,” American Economic Review, Vol. 90, No. 3, pp. 407–428.

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  • McGuire, Patrick and Goetz von Peter, 2009, “The US Dollar Shortage in Global Banking and the International Policy Response,” BIS Working Paper No. 291 (Bank for International Settlements).

  • Xiao, Yingbin, 2009, “French Banks Amid the Global Financial Crisis,” IMF Working Paper No. 09/201 (International Monetary Fund).

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Authors
  1. Matthieu Bussière
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  2. Boubacar Camara
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  3. François- Daniel Castellani
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  4. Vincent Potier
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  5. Julia Schmidt
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Additional information

*Matthieu Bussière is Deputy Director in the Directorate Economics and International and European Relations at the Banque de France. Vincent Potier is a specialist in financial regulation policy in the Financial Stability Directorate at the Banque de France. Boubacar Camara is a senior economist in the Macroprudential Risk Division at the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the French Banking Supervisory Authority. François-Daniel Castellani is a senior economist in the Macroprudential Risk Division at the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the French Banking Supervisory Authority. Julia Schmidt is a research economist in the International Macroeconomics Division at the Banque de France. The authors would like to thank participants at the IBRN workshop at the Banque de France for comments as well as Claudia Buch and Linda Goldberg who initiated this IBRN project. They would also like to thank Christian Durand, Henri Fraisse, Yannick Kalantzis, Laurence Lelogeais, François Mouriaux, Daniele Siena, and Miklos Vari for very helpful discussions and comments.

An erratum to this article is available at http://dx.doi.org/10.1057/s41308-017-0034-4.

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Appendix I

Appendix I

Data Sources

The data set used in this paper is based on regulatory reports submitted to the Banque de France (BdF) and to the Autorité de Contrôle Prudentiel et de Résolution (ACPR) by major French banking groups. All data are consolidated—or represent an estimation of consolidated data—and refer to worldwide activities of French banks accounted in IAS/IFRS international standards. Raw data from the bank’s regulatory reporting forms were collected at a biannual frequency for balance sheet variables, covering the balance sheets of the major French banks over the period 2006:Q4–2013:Q2 and adjusted as described below. International positions of these banks were collected at quarterly frequency for the time period 2006:Q4–2013:Q2. For the period 2006:Q4–2012:Q1, we make use of the database CCX collected by the Statistics Department of the BdF. For 2012:Q2–2013:Q2, we use the database SURFI (in particular “ENGAG-INT”) collected by the ACPR. The reporting forms are available via https://esurfi-banque.banque-france.fr/accueil/. A full description of the variables used is provided in Table A1.

Table A1 Data—Definitions and Sources
Full size table

Data Adjustment Procedures

The raw data were adjusted to account for the following: (i) breaks in time series associated with changes in reporting standards, (ii) a merger between two French banks, and (iii) an estimation of domestic assets.

Changes in Reporting Standards

French banks have reported their first IAS/IFRS consolidated balance sheet through the 4990i regulatory reporting (BAFI framework). Since the implementation of the European common reporting standard in France (2007), banks report data through the FINREP reporting which is more detailed. This results in an important amendment to the reporting forms, some of which lead to breaks in individual series. This was adjusted for by using information from previous reporting forms and merging the codes of the old and new series, where relevant.

Treatment of Mergers and Acquisitions

Over the period analyzed, there was a large merger between two major French actors. This merger was dealt with by creating a new merged series of the merging banks’ data over the entire period.

Domestic Assets and Loans

An estimation of the domestic assets and loans by banking group is given through the total asset aggregation on a solo basis of the French entities of the banking group. This data series is an estimation; not only due to different accounting standards (French instead of IAS/IFRS), but also due to intragroup transactions not being canceled.

Net Due To

This variable is collected at the quarterly frequency and is defined as liabilities of the parent bank of the banking group vis-à-vis its affiliates abroad minus the corresponding assets of the parent bank.

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Bussière, M., Camara, B., Castellani, F . et al. International Banking and Liquidity Risk Transmission: Evidence from France. IMF Econ Rev 63, 479–495 (2015). https://doi.org/10.1057/imfer.2015.24

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JEL Classifications

  • F36
  • G21