At the same time, banks are required to build additional capital buffers, which further constrain their pay-out ratio. So dividend prospects are doubly affected and that explains why share prices are reacting to negative news on growth. This movement has been more pronounced for French banks which are suffering from two specific vulnerabilities, one real, one exaggerated. The real vulnerability is their dependence on dollar funding, due to the scale of their international activities, which they may have been initially too slow to address effectively. It is currently being dealt with through a combination of deleveraging and consolidation. In the meantime, in order to ease this transition, the Eurosystem, together with other central banks across the world, has decided to conduct US dollar liquidity-providing operations with a maturity of three months. A more exaggerated concern about French banks is their exposure to sovereign risk. Let me just point out some facts: total exposure of major French banks to the sovereign risk of socalled “peripheral countries” amounts to € To take an extreme – and from my view point – totally unrealistic scenario – a 50% haircut on Greece and 25% haircut on Italy and Spain would result in a 12% loss of core Tier One capital. In terms of liquidity, the Eurosystem refinancing policy provides for an unlimited provision on an extended period and the collateral held by French banks in eligible assets is much above their present needs.
Jean-Paul Redouin: A French and central banker point of view of the current situation Speech by Mr Jean-Paul Redouin, Deputy Governor of the Bank of France, at the first anniversary of Bank of France’s reserve management facility, New York, 11 October 2011. *  *  *  Ladies and gentlemen, dear friends, It is a great pleasure to welcome you in this fascinating place. We were gathered here one year ago, for the opening of BANQUE DE FRANCE premises in New York.   BANQUE DE FRANCE has a long history of being present in New York, and deploying a reserve management desk within our own office is a logical conclusion of this lasting presence. In the context of the present turmoil this new organization helps us manage our portfolios efficiently and improves our understanding of market developments. I would like here to thank our team for its dedication and skill in this challenging responsibility. It gives me also the opportunity to share with you my understanding of the Eurozone and the way it works.   The first anniversary of our reserve management facility in New York happens to coincide also with the end of my tenure as Deputy Governor of BANQUE DE FRANCE, in a few months. For me both events are closely associated: I happen to be among the “happy few” that have been offered the opportunity to spend a year In New York representing BANQUE DE FRANCE at the Fed and vis a vis the financial community thirty years ago.