The return of inflation to its target and the gradual reduction in key interest rates, against a backdrop of moderate growth in France, are favourable factors for the stability of the French financial system. The French financial system has weathered a series of major shocks since 2020 and has adapted to a higher interest rate environment since 2022. The soundness of the banking and insurance sectors, the strong cash positions of nonfinancial corporations and the high household savings rate, which is still above its pre-Covid average, are still important shock absorbers. However, pockets of vulnerability remain for the most heavily indebted non-financial participants in an uncertain macroeconomic environment.
Renewed uncertainties, associated with the domestic political climate, the international economy and heightened geopolitical tensions, could affect economic activity and markets. Although volatility remains moderate, it increased in the second half of 2024 with brief episodes of market stress. The spike in volatility observed on global markets on 5 August 2024 reflects market participants' heightened sensitivity to uncertainty. The political transition in the United States also raises questions about the economic and trade policies that will be pursued by the new administration, which could exacerbate existing vulnerabilities for the European economy and markets. In France, domestic political uncertainty has led to an increase in the spread between French and German sovereign bond yields, while the spread between French and Italian yields has narrowed. While the French case remains largely idiosyncratic, the convergence of spreads within the euro area reflects investor confidence in the soundness of European institutions.
Based on this assessment of the overall resilience of the French financial system, this report highlights the main cyclical and structural risks to financial stability.
