How French are pushing to make Paris an international financial centre at cost of London…

Interesting speech by Mr François Villeroy de Galhau, Governor of the Bank of France.

The title of the speech is: New Year wishes to the Paris financial centre. This clearly signals how the central bank is pushing to making Paris a Financial centre post Brexit and relocation of EBA to Paris.

He highlights four wishes for the New year. The third is with respect to shaping Paris as a financial centre:

My third wish is for financing. Often, the Governor of the Banque de France encourages banks to lend more; this is not the case at present! Bank lending in France is very buoyant. Bank lending to households and firms is growing at almost 6% per year. This is good news, but we must avoid excesses. There are thus several efforts to be made in 2018 to ensure the smooth financing of our economy:

  • Remain vigilant to ensure financial stability, first and foremost. At last December’s meeting of the Haut Conseil de Stabilité Financière (HCSF – High Council for Financial Stability), we decided to take a macroprudential measure to limit the sharp rise in the debt of certain large companies, including bond debt. It will apply as of 1 July after approval by the European authorities. If credit cycle risks persist – i.e. growth that is significantly higher than that justified by economic fundamentals – we stand ready to act further at any time in 2018, including if necessary by implementing a countercyclical capital buffer.
  • Promoting the attractiveness of the Paris financial centre in the context of Brexit, second: irrespective of the possible transition, the City will most likely lose its EU passporting rights. The Paris financial centre must continue to develop, notably in the area of the clearing of financial instruments, and promote its numerous qualities, enhanced by the arrival of the EBA, in order to become the main euro area centre for market activities. This is our collective challenge, over and above announcements of welcoming registered head offices.
  • Lastly, better channelling our savings. Overall, the French economy has no lack of financing, thanks also to the soundness of its financial institutions. Our challenge concerns more the nature of this financing: developing equity financing more than debt financing. Flat tax is a welcome step towards a greater tax neutrality between the different forms of investment. I have already stated this, insurers must create new tailored products, in the area of life insurance, which are less liquid but allow savers to benefit from the higher returns offered by equities in the long term, with a form of capital protection. The PACTE law on growing and transforming companies, presented by the Minister of the Economy, could provide an opportunity. Banks are also considering offering a new long-term savings product: I understand this point of view, provided that the aim isn’t to create a new tax loophole; we have had enough of this great French speciality.

He clearly mentions that one has to look beyond announcement of registered head-0ffices to things more concrete that shape financial centres. It will be really interesting to track whether and how Paris becomes a respected centre in arena of global financial services.

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