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2008 Annual Report Banque De France ANNUAL REPORT 2008 BANQUE DE FRANCE To The President of the Republic And Parliament By Governor Christian Noyer AR2008_Page_de_garde.indd 1 17/09/2009 09:57:29 The photographs featured in this report were taken by Pascal Assailly, Jean Derennes and Philippe Jolivel. Banque de France • Annual Report • 2008 AR2008_Page_de_garde.indd 2 17/09/2009 09:57:57 CONTENTS A WORD FROM THE GOVERNOR 3 THE IMPLEMENTATION OF MONETARY POLICY IN THE CONTEXT OF THE FINANCIAL CRISIS 5 1| The international environment 5 1|1 Financial and commodity markets 5 1|2 Economic growth in non-euro area countries 11 2| Situation of the euro area and Eurosystem monetary policy 15 2|1 Economic and fi nancial situation of France and the euro area 15 2|2 Eurosystem monetary policy decisions 29 2|3 The implementation of Eurosystem monetary policy decisions by the Banque de France and action regarding liquidity 30 3| Action taken by public authorities to manage the crisis 33 3|1 Management of the fi nancial crisis 33 3|2 Support for the fi nancing of the economy 36 3|3 Fiscal stimulus packages 37 THE BANQUE DE FRANCE’S BUSINESS STRATEGY AND ITS IMPLEMENTATION 41 1| The Bank’s business strategy 41 1|1 Six areas of development for 2008-2012 41 1|2 Two cross-sectoral strategies 44 2| Implementing the strategy 49 2|1 Organisation of the departments 49 2|2 Salient features of activities in 2008 51 GOVERNANCE, HUMAN RESOURCES AND FINANCIAL MANAGEMENT 69 1| Governance 69 1|1 Executives bodies 69 1|2 Decision-making and control bodies 71 1|3 Risk control and internal audit 73 2| Human resources management 74 2|1 Staff levels 74 2|2 Skills development and prospects in terms of new positions 75 2|3 Corporate social responsibility activities 76 2|4 Developments in corporate social spending 77 3| Financial management: analysis and results 78 3|1 The fi nancial crisis had a mixed impact on income 78 3|2 Continuing efforts to modernise the Bank 80 Banque de France • Annual Report • 2008 1 AR2008_Contents.indd 1 17/09/2009 09:59:30 CONTENTS THE ACCOUNTS OF THE BANQUE DE FRANCE 83 1| Report on assets, liabilities and results 83 1|1 Assets and liabilities 83 1|2 Breakdown of profi t 87 2| Annual accounts 91 2|1 Balance sheet and profi t and loss account 91 2|2 Notes to the annual accounts 92 2|3 Auditors’ report on the annual accounts of the Banque de France 109 3| Combined accounts 111 3|1 Combined balance sheet and profi t and loss account 111 3|2 Notes to the combined annual accounts 112 3|3 Auditors’ report on the combined annual accounts 114 APPENDICES 117 The Banque de France branch network at 31 December 2008 118 Banque de France staff levels at 31 December 2008 119 Organisation of the Banque de France at 1 April 2009 120 LIST OF ILLUSTRATIONS 122 SUBSCRIPTION FORM 125 BOXES 1 A sharp increase in volatility on fi nancial markets in 2008 6 2 Credit derivatives 8 3 Contagion mechanisms of the crisis 9 4 Current account transactions in France’s balance of payments 17 5 Narrowing of the infl ation differential between the euro area and France 22 6 The state of public fi nances in France in 2008 23 7 Bank lending, balance sheets and leverage 25 8 Loan supply and demand developments in 2008 based on the fi ndings of the Bank Lending Survey for France 27 9 Refi nancing of European banks in US dollars 31 10 Extension of eligible collateral for Eurosystem lending transactions 33 11 Government support for the banking sector in Europe: intervention methods and amounts involved 34 12 The history and future of corporate social responsibility (CSR) 46 13 Launching of the carbon footprint project 47 14 The recycling of euro banknotes and coins in 2008 57 2 Banque de France • Annual Report • 2008 AR2008_Contents.indd 2 17/09/2009 09:59:33 A WORD FROM THE GOVERNOR he fundamental task of a central bank is to foster monetary and financial stability. Put Tsimply, its actions are aimed at maintaining confidence in the currency and the banking system. The management of the far-reaching financial crisis that we are currently experiencing has highlighted the crucial role played by the Banque de France as a member of the Eurosystem and the institution responsible for banking supervision in France. This Annual Report presents the Banque de France’s perspective on the current crisis and its impact on the economy as well as the measures taken to stem it and bolster economic activity, notably via the credit channel. Regarding the Banque de France’s role, I would like to underscore three points: • Its responsiveness, which enabled it from the onset of the crisis in August 2007 to provide the interbank market with funds very rapidly and on a massive scale and international (G7, G20, the Financial Stability and to support bank liquidity. The Banque de France Forum) levels. subsequently prepared and implemented changes to the Eurosystem’s refinancing procedures. These • The service it provides to the national community. comprised extending the maturity of its refinancing Two examples illustrate this. The first relates to the Bank’s operations, broadening the range of eligible currencies role in designing and managing payment infrastructures. and collateral and conducting fixed-rate tenders with The Banque de France has long been responsible — along full allotment. The Banque de France’s capacity to with the banking industry — for the management act quickly and adapt to new circumstances attests to and development of payment and transfer systems. the professionalism of its staff, to whom I would like The financial crisis has demonstrated the resilience of to pay tribute here for their competence and intense these systems. The second concerns the analysis and operational efforts. monitoring of the transmission mechanisms of the crisis to the real economy with respect to the financing of both • Its expertise: the Bank’s knowledge of the markets businesses and households. The Banque de France’s and of banks are mutually reinforcing. The supervision competencies prompted the government to give it an of French banks — whose position is relatively healthy enhanced role in this area, to assist the work of the compared with that of banks in many countries — Credit Mediator. The directors of the Banque de France’s has benefited from the close links between the bank branches implemented the mediation mechanism in supervisory authorities and the Banque de France. France’s départements without delay. These advantages are now clearly visible both in France and at the European level. The Banque de Amid the substantial demands being made on it, in 2008, France has thus been able to actively contribute to the the Banque de France continued its efforts to adapt and discussions aimed at overhauling the governance of modernise the institution’s management, thus acting the financial system at national, European (within the in the best interests of the national community. The context of France’s presidency of the European Union) Annual Report also gives account of these developments. Banque de France • Annual Report • 2008 3 AR2008_Word_Governor.indd 3 16/09/2009 09:01:18 Trading room at the Banque de France AR_2008_CHAPITRE_1.indd 4 17/09/2009 10:33:43 THE IMPLEMENTATION OF MONETARY POLICY IN THE CONTEXT OF THE FINANCIAL CRISIS he year 2008 saw very contrasting developments. The money market sustained the heaviest pressure in Until the summer, it appeared that the impact 2008, with various investors – interbank or otherwise – Tof the financial crisis might remain contained, reducing their lending to credit institutions across all that developed and emerging economies would merely maturities irrespective of its type (both secured and register a slowdown in growth and that inflation unsecured loans). This pressure reached its peak in the would constitute the main threat to be addressed by wake of the Lehman Brothers collapse. Pressures were monetary policy. However, the failure of Lehman underscored by a sharp increase in volatility derived Brothers, the extremely sharp contraction in activity from options on money market rates (see Box 1). and plummeting commodity prices completely It was only thanks to the measures implemented by changed the outlook during the last quarter. This calls central banks and governments that trading resumed for a closer analysis of more recent developments, on the money market, although this did not constitute above and beyond average yearly trends. a return to normal activity. As in the money market, risk aversion in other market segments also acted as the main driver of capital 1| The international flows. environment In the forex markets, 2008 also witnessed a flight to the US dollar as a safe-haven currency. As a result, 1|1 Financial and commodity markets in 2008, the United States recorded positive net capital inflows for the first time since 1960. Carry trade strategies were also abandoned in 2008 owing 1|1|1 Financial markets to the sharp increase in volatility and falling interest rates. The US dollar therefore appreciated against all In 2008, the functioning of financial markets other currencies apart from the yen and the dollar’s deteriorated with the unfolding of each episode of nominal effective exchange rate (as measured against the financial crisis. The difficulties faced by monoline the currencies of the United States’ main trading insurers (Fitch’s downgrade of Ambac’s credit rating partners) rose by 13% over the year. The rise in the in January), JP Morgan’s takeover of Bear Stearns yen’s real effective exchange rate (taking into account in March, the nationalisations of Fannie Mae and inflation differentials with partner countries, which is Freddie Mac on 7 September and, more particularly, a significant factor for a country with extremely low the failure of Lehman Brothers on 15 September, were inflation such as Japan) was particularly pronounced the most critical events.
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