François Villeroy de Galhau: Euro area monetary policy and businesses Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Vereinigung der Bayerischen Wirtschaft, Munich, 26 January 2017. * * * I am very pleased to be here with you and wish to thank you for inviting me. It is the second time in recent months that I have had the pleasure of visiting Bavaria. In September, here in Munich, I had the great honour of receiving the Montgelas prize, presented by Minister Erwin Huber, in remembrance of one of your great statesmen. If I may add a personal note, I am here as a committed European and a friend of Germany. I am French but my roots are in Saarland where my family has lived since the end of the 18th century and where its porcelain manufacturing company Villeroy & Boch forms part of the German “Mittelstand”. I feel close to your country and admire its success, particularly that of its business enterprises. Bavaria illustrates this success. It is currently one of Europe’s major economic centres. I will also have the pleasure later of meeting Dr Theo Waigel, who, alongside other German political leaders, has played such a key role in the construction of our solid common currency, the euro. Our growth forecasts for the euro area are for growth of 1.7% in 2017, the same as in 2016. This confirms the economic recovery, which is good news, but the situation is not yet satisfactory.
The greater concentration and interconnectedness in the global financial system may also have increased the magnitude of a potential crisis. The greater risk tolerance of market players is ultimately a logical consequence of the exceptionally long and stable period of calm in the financial markets. Market participants have had no reason of late to keep their risk-taking in check. Basically, anyone who held back felt they were missing the opportunity to generate high returns. Even the short-term corrections in the financial markets in February of this year and May of the previous year did not result in a change of attitude in this regard. On the contrary, the low impact made by these corrections and the ability of the markets to absorb them may have served as a confirmation for those operating a high-risk strategy to continue, and as an indication for the more risk-averse to take greater risks. The risk appetite is also fairly high in the Swiss banking sector at present. In our Financial Stability Report, we indicate for instance that the domestically oriented banks – Raiffeisen, cantonal and regional banks – are currently incurring a relatively high interest rate risk. At the same time, the big banks have also exhibited an increased risk tolerance in recent years. Although Credit Suisse Group’s overall risk has declined in the past year, following the sale of Winterthur, both big banks have significantly increased their risk-taking in the banking business; particularly their exposure in trading and in foreign lending business.