IMF Publishes Reports on the 2017 Article IV Consultation with France
IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with France. The staff’s assessment reveals that the financial sector risks are mitigated by improved capitalization, but banks and insurers still face economic and regulatory challenges. Directors stressed that banks and insurers need to continue adapting their business models to the low interest environment, new technologies, and evolving regulatory standards.
The staff report highlights that the rise of Fintech could constrain profits, and banks could lose customers in the retail market as a result of service sector liberalization. Potential regulatory changes under Basel III, including the introduction of output floors for banks using internal models, would help enhance the system’s resilience and provide a safety net against model risk, while potentially requiring some French banks to raise additional capital over the medium to longer term, as new regulatory measures are phased in. The recently adopted Sapin II law introduced a new class of senior non-preferred (bail-in-able) debt, allowing banks to comply with new EU regulatory standards. French insurers still face challenges related to the transition to the Solvency II regulatory regime. The authorities noted that the new class of senior non-preferred debt has been a success, providing a transparent approach to meeting the EU minimum requirement for own funds and eligible liabilities (MREL) and total loss-absorbing capacity (TLAC) requirements. The authorities argued that Basel III should create a level playing field and should not impose unnecessarily high output floors for banks using internal models. They favor completion of the banking union and the removal of remaining regulatory impediments to cross-border banking flows in the euro area.
The selected issues report analyzes the key features of capital taxation in France, examines the key linkages to the broader tax system, and identifies significant scope for tax reforms that could enhance international competitiveness, efficiency, revenue productivity, and economic growth. The report also examines the external competitiveness in France, reviewing specific indicators of price and non-price competitiveness and presenting empirical findings on the analysis of export market shares in the country and the impact of foreign demand and relative prices on export performance.
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Keywords: Europe, France, Banking, Insurance, Article IV, Basel III, Solvency II, MREL, IMF
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