France has asked its banks to hold more money in order to mitigate risks associated with private sector borrowing binge.
The decision, taken by the financial stability council following a recommendation of the French central bank, requires banks to hold a counter-cyclical buffer of 0.25% of their risk-weighted assets.
Go deeper with GlobalData
The measure is expected to enable the banks to have adequate capital to address any potential economic downturn in the future and cover up bad loans.
Recently, the Bank of France Governor Francois Villeroy de Galhau has advocated the need to increase capital buffer of the French banks.
According to the central bank of the country, bank lending to the private sector has increased significantly, soaring by 5.1% in April compared to the corresponding period a year ago.
However, industry group French Banking Federation (FBF) stated that they are unmoved by the decision.
In a statement to the news agency FBF head Marie-Anne Barbat-Layani said: “Credit in France is safe as the low cost of risk and the very low rate of non-performing loans shows.”
The financial stability council has already directed all six major domestic banks to restrict their offering to the most indebted corporate borrowers.
