PARIS (Reuters) – Bank capital regulations need to be further adjusted to limit the impact of the coronavirus crisis on lenders’ balance sheets, the head of France’s central bank said on Thursday.
The European Commission proposed in April a package of temporary “quick fixes” offering capital relief to banks to support extra lending potentially worth up to 450 billion euros (404.22 billion pounds) to companies struggling in the face of a deep recession.
Bank of France Governor Francois Villeroy de Galhau said that European bank profitability was not excessive compared to U.S. rivals and banks in France needed to generate sufficient revenue to finance the economy without undue constraints.
“While preserving the solidity of banks, some adjustments to the prudential framework are needed to limit certain procyclical effects of the current crisis on the level of capital requirements,” Villeroy told reporters, speaking in his role as head of France’s ACPR financial sector supervisor.
“The measures proposed by the Commission go in the right direction even if we would like – in parallel to the recent American decisions – to take state guaranteed loans out of the leverage ratio,” Villeroy said.
The U.S. Federal Reserve proposed that until March 2021 banks do not have to include holdings of U.S. government bonds and deposits parked at the central bank in their assets tally for calculating the leverage ratio.
This would free up their balance sheet to offer more loans to companies during the pandemic.
The leverage ratio is a yardstick of solvency that measures capital against total assets on a non-risk-weighted basis.
The French government has offered to guarantee up to 300 billion euros in bank loans to businesses to help smooth out their cashflow through the current crisis.
Nearly 560,000 requests have so far been made for loans worth 105 billion euros and banks have granted 85 billion euros, Villeroy said.
Reporting by Leigh Thomas. Editing by Jane Merriman