January 18, 2018 / 6:41 PM / 6 months ago

French banks face capital buffer if lending doesn't slow - central banker

PARIS, Jan 18 (Reuters) - French authorities stand ready to rein in excessive borrowing and could require banks to hold extra capital as a risk buffer, French central bank governor Francois Villeroy de Galhau said on Thursday.

France’s financial stability council has been concerned about record levels of private debt and in particular heavy borrowing by large companies who can finance themselves at rock-bottom rates on the bond market.

The council, which includes Villeroy and the finance minister, took the unprecedented step last month of setting a cap on banks’ exposure to the most indebted borrowers, which is due to become effective July 1.

However, it stopped short of activating a so-called counter-cyclical capital buffer, which effectively requires banks’ to hold more capital as a cushion against their risks.

“If credit cycle risks persist - which is to say grows significantly faster than economic fundamentals justify - we stand ready to do more at any time in 2018, including activating the counter-cyclical capital buffer if necessary,” Villeroy told finance sector executives in a New Year’s address.

The financial stability council has not imposed any counter-cyclical capital buffers since it was set up in 2014. The Czech Republic, Sweden and Slovakia are the only EU countries to have decided to use them. (Reporting by Leigh Thomas; Editing by Geert De Clercq)

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