French banks, for their part, are continuing to display solid fundamentals, thanks to a high level of own funds, which has stabilised at around 15 %i:  In this respect, the main euro area banks have fortunately defied certain – fairly pessimistic – predictions, which forecast that CET1 ratios would have deteriorated significantly by the end of 2020.ii This better than expected resilience among financial institutions, particularly in France, has played a decisive role in determining our economy’s capacity to weather the crisis. Banks already financed three quarters of the European economy, and more than 60 % of the French economy. Fortunately, they have increased their volume of financing since the start of the health crisis, especially in France:  Corporate lending, which was already rising at a rate of around 6 % per year between 2016 and 2019, accelerated markedly in 2020 (+ 13.3 %), especially lending to SMEs (+ 20.3 %), helped by the unrivalled success of the government’s distribution of state-guaranteed loans, which totalled nearly EUR 140 billion at the end of April 2021. Let us also make one thing clear, in the face of the doubts that have been raised, which are completely unfounded: French banks are in no way underprovisioned. The cost of risk is traditionally lower in our country than the European average, and certainly than the level in the US:  And the recent reduction in this cost reflects the improvement in the economic outlook, as well as the efficiency of the public support measures for households and businesses.
For these reasons, markets have seldom, during living memory, considered a large fiscal deficit in the US as presaging monetary laxity or signalling a weaker dollar. Indeed, the contrary often seems to have been the case: with the fiscal deficit providing some circumstantial evidence of a deficiency of domestic  2  BIS Review 70/2002  savings, the prospect that interest rates might need to rise to bring savings and investment into equilibrium – or the reality of such a rise – may actually have contributed to the strength of the dollar on occasions, as noted already. A similar trait was apparent with the deutschemark in the early 1990s in the wake of German reunification: the prospect – and subsequent emergence – of a substantial budget deficit, and hence higher interest rates than otherwise, was accompanied by a strengthening of the exchange rate. By contrast, however, and as discussed below, the more recent deterioration in the fiscal outlook in Germany has not been a positive factor for the euro. At the other extreme lie examples of countries where budgetary indiscipline has plainly been a factor behind the collapse of the currency. It would be invidious to mention names, but the story can be caricatured as follows. The government is running a deficit which it is unable or unwilling to correct. Domestic savings are in short supply and savers do not have abundant faith in the government from the credit-risk perspective.