• Increase in energy prices and spread of inflation to other sectors
• Acceleration in inflation
• Resilient activity in France

• War in Ukraine: contribution of technical and operational expertise to prepare and implement financial sanctions against Russia
• Energy crisis: enhanced oversight of French participants’ exposures to these markets
• Cyber risk: proactive role in implementing Europe’s Digital Operational Resilience Act (DORA)
• Uncertainty of the macroeconomic and financial environment: banks and insurers are sound, but precautions required

• The crypto-asset market shrank by a factor of around three relative to its peak in November 2021: USD 800 billion in capitalisation
• The European Union adopted its first crypto-asset regulation: Markets in Crypto-Assets (MiCA) Regulation
• Continued work by the Eurosystem on a central bank digital currency (CBDC)

• The Banque de France and the ACPR are stepping up the attention paid to climate change-related risks
  • The exercise by the Single Supervisory Mechanism (SSM) underlined the need for banks to accelerate efforts to develop their climate stress testing frameworks
  • The European Insurance and Occupational Pensions Authority (EIOPA) conducted its first climate stress test
  • First supervisory work on environmental, social and governance (ESG) disclosures by financial institutions, in accordance with European and French obligations
  • Goal of redirecting capital flows to sustainable economic activities by enhancing the disclosures provided to retail investors on the ESG characteristics of investment vehicles

• Key inspections in 2022:
  • Procedures used to market life insurance contracts
  • Fees charged to retail investors
  • Compliance with the cap on bank fees charged to customers for account-related incidents
  • Freedom to choose loan insurance for housing loans
  • Joint unit with the Autorité des marchés financiers (AMF)
  • Assurance Banque Épargne Info Service website: over 2 million pageviews

• Support for businesses

Prices climbed in 2022 at a pace not seen in decades, in both the United States and the euro area. In the previous year, inflation was initially driven by supply-side disruptions linked to the Covid-19 pandemic. In 2022, the massive increase in energy prices that followed Russia's invasion of Ukraine spread to goods and services.

A widespread return of inflation

Widespread inflation in the United States, euro area and United Kingdom

The post-Covid economic recovery drove up oil and commodity prices and created supply-side bottlenecks, which caused prices to start climbing globally from mid-2021. These factors, which remained present in the first half of 2022, were then amplified by the energy crisis following Russia's invasion of Ukraine on 24 February.

In the United States, the initial demand shock that caused inflation to begin picking up again in 2021 is fading. Ongoing monetary tightening and slackening demand combined to slow the pace of increase in energy and goods prices, and inflation appeared to peak at the start of the summer of 2022.

In the euro area, inflation primarily linked to imports in 2021 suffered an additional shock in 2022 when Russia invaded Ukraine, which pushed food, gas and electricity prices upwards. While inflation is still mainly imported, service prices have gone up, moderately for now, but the pace could accelerate in the coming months. Forecasts indicate that euro area inflation will peak in the first half of 2023.

The United Kingdom is also experiencing an inflationary shock due to higher energy and food prices and the tight labour market, which is leading to sharp wage gains.

In the United States, the euro area and the United Kingdom alike, by the end of 2022, the general level of consumer prices had increased by approximately 16% since February 2020.

Fighting inflation is our responsibility and the primary objective of our mandate

The Eurosystem’s objective is to maintain price stability, i.e. inflation of 2% over the medium term.
Deflationary risks between 2014 and 2021, which were exacerbated by the Covid pandemic in 2020, required a highly accommodative monetary policy:

• interest rates were cut to historically low levels to provide favourable financing conditions to households and companies;
• Eurosystem central banks set up asset purchase programmes to inject the liquidity needed for the economy to function properly.

In 2022, as inflation made a resurgence and spread to many goods and services, with the above-mentioned consequences in terms of reduced household purchasing power and corporate profitability, a resolute response was needed – and continues to be needed – to bring the level of inflation back towards 2%. This led to a change in the monetary policy stance from that which had been pursued up to that point for almost a decade. The normalisation of monetary policy in 2022 was the first stage in the fight against inflation. It will be followed by a second stage in 2023, with more rate hikes and measures to shrink the Eurosystem's balance sheet.

Withdrawal of non-standard measures and policy rate hikes

In 2022, the Eurosystem's monetary policy actions initially involved the gradual withdrawal of the support measures first introduced in 2015 to combat too low inflation and then strengthened in 2020 to offset the adverse impacts of the health crisis on the economy and inflation. Net asset purchases were halted in April for the pandemic emergency purchase programme (PEPP) and in July for the asset purchase programme (APP).

Targeted longer term refinancing operations (TLTROs) were recalibrated in October, helping to normalise bank financing costs and removing deterrents to voluntary repayment of these operations. Reducing outstanding TLTROs plays a part in reducing the size of the Eurosystem's balance sheet.

In addition, on 21 July, the Eurosystem officially stopped providing forward guidance on policy rates. Faced with geopolitical and economic uncertainty, we moved to a more responsive monetary policy, with decision-making carried out on a meeting-by-meeting basis using an analysis of changes in economic indicators.

The gradual cessation of non-standard measures was followed an increase in policy rates. An initial hike of 50 basis points (bps), or 0.5%, took effect on 27 July, ending almost a decade of negative policy rates. This was followed by two further 75 bps increases, on 14 September and 2 November respectively, and an additional 50 bps hike on 21 December, bringing the deposit facility rate to 2.00%.

A monetary strategy deployed in stages

By ceasing asset purchases – and hence the expansion of its balance sheet – and then gradually raising policy rates, the Eurosystem ended the exceptional monetary accommodation that characterised the years of excessively low inflation and that provided extremely favourable financing conditions. At end-2022, the deposit facility rate reached a level considered to be that of a nominal “neutral rate”, i.e. the theoretical equilibrium rate at which inflation neither accelerates nor decelerates.

Interest rates on loans to individuals and companies are rising gradually from record low levels

After several years of historically low nominal and real interest rates, bank rates rose gradually in 2022.
The cost of bank loans to non-financial corporations increased in France by approximately 191 bps between December 2021 (1.3%) and December 2022 (3.2%), which was less than in Germany (225 bps) and Spain (213 bps). The cost of market financing for companies rose faster than the cost of bank financing in 2022, especially for large businesses.

The cost of bank loans to French households went up at the same time. From a low of 1.1% in December 2021, the average interest rate on housing loans reached 2.05% in December 2022, which was a far more gradual increase than that seen in other European countries. The increase only affected new loans, as existing housing loans are virtually all at fixed rates.

The increase of recent months, which has generally been more gradual and smaller than in other European countries, has brought interest rates closer to their medium-term average, reflecting the return to a normalised situation.

Launch of the National Payments Committee and creation of the Directorate General Cash – Retail Payments

The National Payments Committee (CNMP) was established on 4 October 2022. It coordinates organisations and innovation relating to all payment instruments, including cash. It is chaired by the Banque de France and brings together representatives of government, the payment industry, consumers and merchants.

The committee has already issued recommendations to ensure that disabled or digitally excluded people have access to inclusive and high-quality payment instruments.

A Directorate General Cash – Retail Payments was set up to act as a hub for all the staff that work with retail payment instruments, from printing banknotes and issuing and maintaining euro banknotes and coins in circulation, to conducting research and supervising cash and non-cash payment instruments, such as payment cards, credit transfers, direct debits, cheques and digital currency. With the support of its staff, whose expertise and innovative capabilities are widely recognised, the new Directorate General will execute the Bank's task of making sure that people can exercise their freedom to choose from a range of accessible, safe and modern payment instruments, which will maintain confidence in the currency.

Banknote manufacturing and quality of cash in circulation

The Banque de France plays a leading role in manufacturing banknotes for the Eurosystem. It also prints banknotes that circulate in over 20 countries and provides advisory and support services in the area of banknote expertise and currency issuance. In 2022, it printed over one billion euro banknotes (€5, €20 and €50 denominations). It also delivered around two billion banknotes in other currencies to major foreign central banks.

The findings of the SPACE II survey released in late 2022 showed that cash remains the most widely used means of payment in the euro area, although its share of the total is shrinking. In France, the share of cash payments in shops fell from 57% of transactions in 2019 to 50% in 2022. 

Under its national cash management strategy, the Banque de France enhanced its nationwide organisation in 2022. Acting in partnership with cash-in-transit companies, it set up auxiliary banknote storage facilities across the country to help the cash industry operate even more efficiently.

Getting ready for the digital euro

In July 2022, the Eurosystem set out the main goals that could justify introducing a digital euro. This new euro, which would be made available to the general public, would be a central bank currency for the digital era. It would thus help to preserve the anchoring role of central bank money. A digital euro could also help to strengthen Europe's economic efficiency and strategic autonomy.

The Governing Council validated guidelines on certain design features that would contribute to the achievement of these objectives, in parallel with the forthcoming European legislative work on the legal basis and characteristics of this new form of public money. To ensure that the digital euro is integrated into the existing payments ecosystem, it would be distributed by approved payment services providers, including commercial banks, which would handle the management of future digital euro accounts or portfolios and customer relations. In addition, steps would be taken to affirm the digital euro's role as a payment instrument and not an investment asset. For example, holding caps would be established, as they are with Livret A passbooks in France. 

The Eurosystem's investigation phase will continue until the end of 2023. At that point, the Governing Council will decide whether to move on to the realisation phase. This phase, which would last approximately three years, could pave the way for issuance of a digital euro by 2026-27. Such issuance would require a legal basis and approval from Member States and the European Parliament.

A robust financial sector that swiftly adapted to the crisis

Effective implementation of European sanctions

In response to the war in Ukraine, the Banque de France offered its technical and operational expertise to help prepare and implement financial sanctions against Russia. It also took part in international discussions aimed at preventing any efforts to thwart the sanctions as well as their impacts on financial stability. As soon as the first sanctions were published, the Autorité de contrôle prudentiel et de résolution (ACPR – Prudential Supervision and Resolution Authority) sent out a questionnaire to supervised institutions in order to identify the accounts and transactions involved, and measure any operational challenges encountered. The answers to the questionnaire showed that, aside from a few initial one-off problems, institutions were able to take on the resulting additional workload. On-site investigations were also conducted to make sure Russian assets were frozen as instructed.

The financial sector remained robust

With an average CET1 ratio of 14.9% at end-December 2022, the six main French banking groups maintained a substantial margin over the minimum regulatory capital requirement. Although the cost of risk rose due to the war in Ukraine and the worsening macroeconomic environment, it remained under control and was well below that observed during the health crisis. For their part, French insurers significantly exceeded their capital requirements and their capital has been increasing since the end of 2021, in line with the rise in interest rates.

A financial sector that fully played its role in response to the energy crisis

Enhanced supervision

The war in Ukraine triggered a sharp rise in gas and electricity prices, also increasing their volatility. Given the risks posed to financial stability, the Banque de France and the ACPR stepped up their supervision of French institutional exposures to these markets.

The crucial role of banks as liquidity providers

In March and August 2022, price fluctuations spurred a peak in initial margins demanded by central counterparties (CCPs) to cover increased risks (see Focus below: "The role of CCPs"). French non-financial corporations exposed to derivative markets successfully weathered the associated liquidity tensions by drawing on liquidity provided by banks. French banks, which are particularly active in the energy derivatives market in Europe, play a key role as intermediaries between their customers and the clearing houses. They demonstrated a significant capacity to absorb shocks and remained resilient, with overall exposures to the energy sector contained in relation to their total capital.

Enhanced surveillance to address heightened cyber risk

A real threat

The conditions created by the war in Ukraine proved particularly conducive to the advent of potentially destabilising cyberattacks. The acceleration of the digitalisation of the financial sector has generated vulnerabilities that could be exploited by hackers. Pirating methods are becoming increasingly sophisticated and pose an ever-greater threat to all sectors.

Necessary enhancement of resilience in response to cyberattacks

The Banque de France and the ACPR took a proactive approach to implementing the EU’s Digital Operational Resilience Act (DORA). DORA harmonises requirements applicable to all financial institutions and innovates by introducing direct supervision of “critical” third-party providers. Both institutions are extensively involved in multiple working groups and coordination systems in France (such as the Paris Resilience Group, chaired by the Banque de France, which mobilised 1,700 Paris financial market professionals), in Europe and at the international level.

Cross-border cooperation is critical in order to curb systemically hazardous cyber crises. After the G7 successfully carried out its first major cyberattack simulation in 2019, the Banque de France and the ACPR continuously worked to bolster their international cyber resilience partnerships, organising a joint cyber crisis management test with the Monetary Authority of Singapore in June 2022. In January 2022, the European Systemic Risk Board (ESRB) called for the creation of a pan-European systemic cyber incident coordination framework aimed at better combating cyberattacks targeting the financial system.

Monitoring vulnerabilities associated with the financial markets and financing conditions

Strong volatility on the financial markets

In 2022, the financial markets were beset with strong volatility, in response to rising interest rates in an uncertain environment marked by constantly climbing inflation, the normalisation of monetary policies and an economic downturn. Increasing sovereign debt yields were accompanied by shrinking liquidity, but the market continued to function smoothly and risks of European sovereign debt fragmentation were contained. Corporate bond issuance waned, particularly for high-yield issuers (presenting a greater risk of payment default), and was offset by an upturn in bank loans, the cost of which rose less quickly than the cost of market debt. Equity markets experienced substantial corrections, reflecting the impact of rising risk-free rates on valuations. They could see further adjustments, given the slowdown in growth and earnings prospects.

Non-banking financial intermediaries are a source of risks

These major fluctuations have thus far arisen in an orderly fashion, but isolated tensions have appeared, particularly on the UK sovereign debt market. This episode of stress underscores the risk represented by non-banking financial intermediaries exposed to leverage (investing by taking on debt, which generates risk). Their liquidity requirements can amplify adverse market volatility, with the potential for systemic destabilisation. Available data indicate that the level of leverage of French investment funds is under control. However, contagion triggered by stress caused by less resilient non-resident entities cannot be ruled out. The Banque de France works with the Financial Stability Board (FSB) to analyse the vulnerabilities of non-banking intermediaries. It supports the development of regulatory responses aimed at better addressing their risk and increasing transparency on their exposures.

Monitoring the impact of rising inflation and interest rates

The situation of non-financial agents was stable

Despite a high level of debt compared with their European and international counterparts, French non-financial corporations and households enjoy limited exposure to interest rate risk thanks to their predominantly fixed-rate debt. The repayment capacity of companies was bolstered by their high level of activity and low default rate. As regards households, the improvement in credit standards for housing loans proves the merit of France's financing model for house purchases, which is based on the borrower’s repayment capacity and should not be affected by changes in the residential housing market, where prices are continuing to climb. The creditworthiness of the French government remained strong, but the debt path was weakened by measures to offset high energy prices, as well as by the deteriorating macroeconomic outlook and rising interest rates.

Banks and insurance firms are sound, but caution is necessary

Banks displayed a robust balance sheet structure and continued strong earnings, which should be underpinned in the medium term by an increase in net interest income (see Focus below: "Interest rate risk for banks and insurance firms"). Cost of risk remained on the low side, but the Banque de France and the ACPR are calling for conservative provisioning policies due to the uncertainty weighing on the credit risk outlook. Insurance firms also enjoy a high level of capital, allowing them to absorb the impact of rising inflation and interest rates (which vary depending on firms’ activities).

Regulating the digitalisation of finance

A bumpy road for the crypto-assets market

After growing sharply in 2020 and 2021, the size of the crypto-assets market fell almost threefold compared with its peak in November 2021, dropping to USD 800 billion in market capitalisation at end-2022. Amid uncertain economic and geopolitical conditions, investors elected to reduce their exposure to these high-risk assets. Several incidents, including the collapse of the blockchain protocol Terra and the fraud-related failure of crytpo conglomerate FTX, exacerbated this decline. These chaotic events demonstrate the relevance of warning messages issued by the authorities. At this stage, the crypto-assets market does not appear to present a systemic risk, due to its small size (relatively limited, at around 1% of global market capitalisation) and its weak overlap with traditional finance. That said, the lack of reliable data and expansion of contagion channels call for a cautious approach. This is why the Banque de France promotes internationally coordinated regulation, founded on the “same activity, same risk, same regulation” principle.

Welcome European regulation

The European Union, a pioneer in this area, plans to adopt an initial regulatory text on crypto-assets in 2023, stemming from a political agreement obtained under the French presidency of the EU Council, with an entry into force scheduled for the second quarter of 2023.

The Markets in Crypto-Assets (MiCA) regulation should take effect in the second quarter of 2024 for covered crypto-assets (backed by a traditional currency for example), referred to as stablecoins, and in late 2024 for crypto-asset service providers. The MiCA regulation introduces a harmonised framework for crypto-asset issuers and service providers. The extensive involvement of the Banque de France and the ACPR in negotiations helped ensure that a balanced compromise was reached. MiCA does not cover certain segments of the crypto-assets sector, however, such as decentralised finance (DeFi) and non-fungible tokens (NFTs), set to be addressed in dedicated reports by the European Commission and subject to legislative proposals where applicable.

In addition to its efforts to regulate crypto-assets, the Eurosystem is continuing its work on a central bank digital currency (CBDC). The investigation phase of the digital euro, launched in October 2021, led to the definition of project targets and guidelines on certain design features (described in the Monetary Strategy chapter).

As part of its mission to protect the customers of banks and insurance firms, the ACPR ensures that business practices duly incorporate customer interests. Inspections continued in 2022 on the marketing of life insurance contracts and fees charged to investors, compliance with caps on bank fees charged to customers for account operation incidents, and the freedom to choose payment protection insurance for housing loans. The ACPR also focused on the regulatory compliance of advertising documents (with a recommendation pertaining to sustainable finance arguments), the quality of precontractual information (particularly in the case of unsolicited marketing), the consumer loan approval process, and payments in instalments (sharply on the rise).

Working alongside the Autorité des marchés financiers (AMF – Financial Markets Authority), the ACPR continued to investigate the marketing of financial products to vulnerable elderly persons. The website Assurance Banque Épargne Info Service (ABEIS, abe infoservice.fr – more than 2 million pages viewed in 2022) and the telephone hotline provide the general public with information and practical and neutral advice on financial products, as well as scams and financial sector professional identity theft (which was on the rise again in 2022). The authorities ended up blacklisting more than 1,135 names of unauthorised sites or parties. 

Enhanced expertise to serve companies

A new and more accurate rating scale

On 8 January 2022, the Banque de France modified its rating scale to assess the financial health of rated companies more accurately. The scale also reflects adjustments to the rating methodology to meet European requirements for external credit assessment institutions, aimed at evaluating companies’ risks more effectively as well as their capacity to deal with such risks.

The rating, which has been expanded to include additional indicators and financial analysis ratios, is now more detailed, with 22 risk levels, compared with 13 previously, in accordance with new European credit risk assessment standards. The refined rating system will help to improve the resilience of the financial system and the quality of financing provided to the economy.

Recognition of climate-related risks

The Banque de France continued work aimed at better capturing the exposure of companies to climate risks when assessing their performance. As they ready themselves for the low-carbon transition, firms are adapting their business models and getting organised to meet market requirements. At the request of regulators, they are going to have to publish a wide range of extra-financial disclosures, notably in connection with implementation of the Corporate Sustainability Reporting Directive (CSRD)² which comes into effect at the end of 2024 for large companies.

Against this backdrop, in 2022 the Banque de France began in-house trials of a prototype climate indicator to measure the progress made by companies in the low-carbon transition. A partnership was signed with the French Environment and Energy Management Agency (ADEME) in March 2022 to apply some of the core elements of the agency’s Assessing low-Carbon Transition (ACT) methodology to the development of tools to assess company transition trajectories.

New business support tools

A personal space for senior company managers on the Banque de France website

In 2022, the Banque de France began the process of creating a personal space for senior company managers, which will be available in 2023. The new space will act as a one-stop gateway to a suite of services aimed specifically at company managers. Using their secure login, any legal representative of a company will be able to access their firm's rating, his or her management indicator,³ any business-related correspondence and online business positioning and analysis (OPALE) reports. Representatives can also see key indicators for their companies and compare them against those of their industry. The tool will provide a new channel to connect with the Banque de France, as managers will be able to submit questions via the personal space. It is the result of a participative approach (surveys and individual interviews with a panel of managers) that will be continued in 2023.

OPALE, an enhanced assessment tool for businesses

In early 2022, substantial changes were made to the online financial assessment service (OPALE) provided free of charge to company managers. Ten or so additional ratios and aggregates were added, with analyses made available to company leaders. OPALE’s two modules – Analysis and Simulation – give executives easy access to robust, instantly available financial expertise.

The analysis module allows them to measure and compare company performances and to identify strengths and room for improvement through four analytical themes. The simulation module is designed to prepare forward-looking scenarios to assess the financial impact of projects and management decisions, especially on cash flow. With OPALE, which they can use either on their own or with assistance, company managers have a handy tool to support decision-making and communication with financial partners.

ACSEL: supporting the regional economies

Last year saw the completion of several major “regional economy” projects aimed at enhancing the local economic cyclical and structural analyses (ACSEL) offered to local decision-makers. ACSEL studies can be used to examine the economic and financial situation of a given geographical area, sector of activity or set of companies. By applying artificial intelligence tools to the 1,254 établissements publics de coopération intercommunale (EPCI – public inter-municipal cooperation structures), which include major cities as well as groupings formed from smaller communities, and harnessing socio-economic criteria, four regional profiles were created, offering new scope for drawing comparisons.

New indicators were also added to measure regional performances against not just the national average but also “expected” performance levels, the exposure of a given sector to globalisation, or the functioning of the local labour market. These innovations, which enhance the Banque de France's financial expertise, were added to one of the ACSEL modules in November 2022.

Initiatives to serve businesses locally

Supporting VSEs and SMEs through a nationwide presence

Over the past six years, the Banque de France has provided support to more than 38,000 project leaders and company managers. In 2022, 8,779 entrepreneurs were assisted by the Bank's 102 department-based VSE-SME correspondents, whose task is to field questions from entrepreneurs during their business journey and to quickly assess their company’s situation, in order to steer them towards the right correspondents. The service is free and confidential (see Focus below: "Payment times: a year of raising awareness among companies").

Strengthening support for innovation with start-up correspondents

In 2020, the Banque de France deployed a network of start-up correspondents in every region and in each “French Tech Capital”, with the aim of supporting and rating these firms while taking into account the specific features of the start-up growth model. The number of start-ups identified and rated by the Banque de France has more than doubled in the space of three years (around 2,000 balance sheets rated in 2022), creating the need to train specialised analysts and contact persons to deliver broader regional coverage. Around 1,000 start-ups were assisted in their efforts to obtain financing. The Bank published a study on their financial situation⁴ which underlined the vibrant growth of French Tech.

Credit mediation still working to help businesses

In 2022, applications for mediation (2,180 cases) fell by 45% compared with 2021. Reduced demand, at a time when companies are showing good overall resilience, is also a sign of favourable access to credit.

A small number of these applications (598) concerned restructurings of state-guaranteed loans (SGLs), in accordance with the industry agreement of 19 January 2022.

A simpler and stronger multi-channel system to communicate with the public

Launched in 2016, efforts to upgrade and streamline the channels through which members of the public can communicate with the Banque de France are continuing, with the aim of making the institution accessible to everyone, especially the most vulnerable.

Since October 2022, Banque de France employees have staffed a one-stop helpline number, 3414, which replaced more than 200 existing numbers. For the cost of a local call, members of the public can use this helpline from 8 a.m. to 6 p.m. to reach the most appropriate department for the subject of the call.

Anyone wishing to use the Banque de France's services may do so through the channel of their choice, including via its website, which had approximately 270,000 open accounts at end-2022, or at the Bank’s branches, where meetings are primarily by appointment.

An objective of preventing financial difficulties

The incident databases managed by the Banque de France, including the Fichier central des chèques (FCC – Central Cheque Register) and the Fichier national de remboursement des crédits aux particuliers (FICP – National Register of Household Credit Repayment Incidents), aim to prevent financial difficulties and overindebtedness. Banks use them in their loan approval processes and to identify customers who are struggling financially. In 2022, the number of incidents reported to the FICP was on a par with that of 2019, while the number of reports to the FCC was more or less the same as in 2021.

A major role in dealing with excess debt situations

Banque de France staff provide the secretariat for the departmental Household Debt Commissions, manage the procedure for dealing with cases of household overindebtedness and implement solutions to assist households to get out of difficult financial situations. They meet with individuals, assess their applications, contact creditors and propose solutions to the Household Debt Commissions, which then make their decisions. Since May 2022, France’s Loi en faveur de l’activité professionnelle indépendante (API – Self-employed Professional Activity Act) has opened up the procedure to sole proprietors, but only upon a referral to a judge ruling on commercial matters.

This free system ensures, as soon as the application is accepted, protective measures for the debtor (suspension of enforcement procedures, interest and repayments, prohibition of rejection fees, restoration of housing benefits, etc.).

The number of applications submitted fell from 120,975 in 2021 to 113,081 in 2022, which is close to pre-pandemic levels, although the number of monthly applications stabilised as of August. Information on the activity of the Household Debt Commissions can be found in the financial inclusion barometer and in Appendix 6.

Work by the Observatory for Banking Inclusion

The members of the Observatoire de l’inclusion bancaire (OIB – Observatory for Banking Inclusion) held two plenary meetings in 2022 but also continued to share their views on social conditions each month. The observatory provides a forum for banks and structures providing assistance to jointly monitor developments in the situation of households by analysing bank account-related incidents and the take-up of different schemes (see Focus below: "Financial inclusion councils set up across the country").

Improved detection of vulnerabilities, first noted in 2021 following the entry into force of measures recommended by the Observatory, continued. More than four million people are currently identified as vulnerable, but over six million people are actually eligible to have their fees capped, thanks to improved detection and the inclusion of situations of temporary vulnerability.

Efforts to deploy the special scheme for vulnerable customers continued and helped over 800,000 people at end-2022.

The Banque de France is in charge of executing the EDUCFI strategy nationwide, alongside 29 partners from the public, non-profit and private sectors. In line with criteria set down by the Organisation for Economic Cooperation and Development (OECD), which state that financial literacy information should be unbiased, reliable, accessible and free of charge, it aims to ensure that everyone has access to a useful framework for making financial decisions.

Economic, budgetary and financial literacy training for young people

EDUCFI passports, which are issued to third and fourth-year secondary school students who have completed a financial literacy course, are becoming more widespread. Designed to convey a basic introduction to budgetary and financial topics, the scheme was delivered by educators to 2,200 third and fourth-year classes in 2021-22, or 80,000 students. In 2022-23, all secondary schools will teach the passport training course to at least two of their third-year classes, raising awareness among 400,000 students, or about half the total number of students at that level.

The Banque de France and its partners also staged EDUCFI workshops for 31,000 volunteers from the National Universal Service programme. The goal in 2023 is to reach 45,000 young people.

Tackling monetary and financial issues, the ABC de l’économie collection offers more than 90 educational resources to members of the public, secondary and post-secondary students and educators.

The Banque de France has also teamed up with the Ministry for National Education and Youth to run two high-school competitions: the Prize for Economic Excellence in Science and Management Technologies, in partnership with Citéco (see Focus below: "Citéco: delivering a diverse line-up of educational services") and IEDOM-IEOM (3,450 participants in 2021-22), and the Generation €uro competition with the European Central Bank (700 participants).

Fostering better public understanding of budgetary and financial challenges, especially among the most vulnerable members of society

Around 650 EDUCFI workshops were organised for 5,300 young people enrolled in employment integration programmes at over 200 organisations, including local youth guidance centres, second-chance schools, Apprentis d’Auteuil, an organisation that helps disadvantaged youth, and the public employment service, along with 114 workshops for 1,200 people with literacy difficulties and their support persons during the events staged as part of France’s national illiteracy prevention campaign.

New training programmes are being made available to social actors on scams and online banking. In addition, measures tailored to social services (hospitals, correctional facilities, national defence) are being carried out to address best practices in management of personal finances and financial inclusion.

Helping entrepreneurs, particularly more isolated ones, to gain a better grasp of companies’ financial management challenges

The EDUCFI awareness-raising programme for entrepreneurs is expanding, notably to include the public employment service and business incubators, with videos and modules on topics such as the balance sheet, equity, equity financing and bank/business relationships.

Spreading EDUCFI messages through broader channels

Under the EDUCFI strategy, the Banque de France manages the websites: ABC de l’économie, Mes questions d’argent and Mes questions d’entrepreneur. In addition to many podcasts, it offers free educational content on social media, including all of its educational videos and webseries on the Educfi Banque de France YouTube channel. At the end of 2022, these digital services were expanded to include educational digital games, such as Scènes d’argent, a narrative game, and a digital version of the # Aventure Entrepreneur game.

Management of the Treasury’s accounts

At the government's request, the Bank manages the Treasury's accounts and associated payments (see Focus below: "Banking services provided to the Treasury" and "Execution of the public service contract in 2022").

Auctions of securities issued by the European Commission

To finance the NextGenerationEU recovery plan adopted on 17 September 2020,⁵ with an amount of EUR 800 billion up to 2026, the European Commission decided to issue securities through an auction system. Following its selection by the Commission in 2021, the Banque de France auctioned Commission securities worth a total of EUR 85.1 billion (in 32 auctions) in 2022. Thanks to its automated auction system, the Banque de France provides the Commission with the technical support and expertise it needs to raise funds rapidly and at low cost.

The start of the roll-out of the strategic plan was marked by the Covid-19 pandemic, which triggered an abrupt and deep economic crisis. Initially, the plan was built around six major challenges (economic, monetary and European challenges, financial stability, climate change, technological change, social and local issues, and employer attractiveness).

In 2022, the Bank conducted a midway review of the plan to assess its relevance in light of the new challenges thrown up by the pandemic and the war in Ukraine. More than ever, Building 2024 Together reflects the Banque de France’s ability to adapt and innovate, for the benefit of all French citizens.

The midway review was structured around three main themes: the meaning of our action, new working methods – notably with the rise of teleworking – and how to better manage our resources.

The meaning of our action

Adopting a monetary policy to bring inflation down towards 2% and managing the effects of higher policy rates on central bank earnings have become key challenges in today’s environment. As a result, the strategic plan has been extended to include this inflation target of "towards 2%" by end-2024/end-2025. In parallel, the Banque de France is structuring itself to take better account of the development of decentralised and tokenised finance.⁷ The three actions in the plan relating to payment instruments have been reorganised and combined into two actions, which include the digital euro: innovate in everyday payments (Actions 4 and 5), and prepare our market infrastructures for decentralised and tokenised finance (Action 6). The strategic plan action on the governance and exploitation of data has been expanded with the addition of a fifth focus area: climate data. Last, the target of providing a climate indicator has been added to the action on incorporating climate risks into our company ratings.

New working methods, notably with the rise in teleworking

The public health crisis has profoundly changed the way work is organised. To take stock of the past two years, the Banque de France conducted a staff survey (45% participation rate) and held a series of interviews and workshops (with the participation of around 60 staff). The first positive finding was that the widespread adoption of teleworking has improved the quality of life at work and raised productivity. Teleworking is transforming work relationships by increasing trust and the use of targets to manage staff performance. However, one aspect that needs to be watched closely is the risk of a deterioration in team spirit. Teleworking can have a negative impact on relationships with colleagues, and on the integration and training of new staff. Individuals may also feel obliged to work from home (rather than coming in to an empty office) and may no longer feel that they are part of a team. The interviews also showed that managers have new expectations in terms of team leadership and management. Based on these findings, the Bank put together a set of proposals and good practices which it then disseminated to all staff. These ideas have been combined into a new action in the strategic plan: “strengthen our teamwork in a hybrid environment”.

Better management of our resources

The midway review was also an opportunity for the Bank to make sure that its resources are aligned with its targets.

In human resources, it aims to better publicise its strengths as an employer by expanding its range of communication tools and encouraging staff to act as company ambassadors. It also intends to speed up its recruitment process to attract the best candidates, including for internships and work-study contracts.

Regarding the Banque de France’s financial resources, the investment target for the duration of the plan remains unchanged at EUR 800 million. Budgets will be reviewed every six months to improve the management of investments and increase the Bank’s ability to respond to new needs. If necessary, some budgets will be reallocated to actions relating to energy efficiency and net zero.

Regarding IT resources, the Banque de France intends to strengthen its systems for measuring the use of its IT tools and staff’s digital autonomy. The amount of processing power made available will also be adjusted according to users’ needs (introduction of “IT scores”).

A strategy built around our 4A’s

The Building 2024 Together strategic plan provides four solid responses to our updated challenges (inflation, financial stability, climate change, technological change, social and local issues, employer attractiveness). These responses are summed up in four verbs: anchor, anticipate, accompany and attract.

Anchor

The Banque de France is stepping up its action to keep prices stable by halting the channels of transmission of inflation and anchoring inflation expectations at the 2% target. It has reasserted its role as a pioneer in the fight against climate change, thanks to its involvement in the Network for Greening the Financial System (NGFS), and by incorporating climate risks into monetary policy and its company ratings. The Bank safeguards the stability of the financial system while also conducting preparedness exercises to ensure its operational resilience.

Anticipate

The Banque de France ensures it has the resources to anticipate the rapid changes in its environment. It is preparing for the issuance of a digital euro while also seeking to remain competitive in banknote manufacturing. It fosters innovation in all its core activities, and especially in enhanced supervision (“intrapreneurship” projects: SAM and DIXIT⁸). More broadly, it exploits internal and external data to better anticipate tomorrow’s changes.

Accompany

The Banque de France is increasing its efforts to promote financial inclusion by rolling out a complete service offering for the financially vulnerable via its nationwide branch network (launch of the one-stop helpline number 3414). It is also helping entrepreneurs to weather the crises by extending its range of services and making it easier to contact an adviser (Manager Portal).

Attract

The Banque de France wants to remain an attractive employer and increase staff loyalty. It supports managers by providing dedicated training and disseminating good practices (Guide to Managerial Attitudes). It also seeks to match staff expectations with those of the business (launch of career management tools and the My Career app). It is simplifying operating methods by implementing 55 concrete staff proposals, such as the use of videoconferencing solutions or a simplified ordering system for office supplies.

Combining performance with capacity for action

In a less favourable monetary income environment,⁹ the Banque de France is managing its resources with the utmost care. Since 2015, it has paid significant sums to the French state (corporation tax and dividends totalling EUR 31 billion) while at the same time increasing its own reserves. It will therefore respond to the decline in its monetary income by reducing its payments to the state and drawing on a portion of its reserves. It intends to increase the number of new hires (around 300 per year) while at the same time lowering its net headcount by around 180 FTE (full-time equivalent) employees per year over the duration of the plan. The Bank has also set itself a target of stabilising its operating expenses (annual cap of EUR 912 million).

Launched at the start of 2021, Building 2024 Together has delivered its first encouraging results.

A focus on innovation in 2022

The Banque de France has made innovation one of its strategic priorities. It exploits the opportunities offered by new technologies, is speeding up its ability to experiment and roll out new solutions to the challenges faced by its departments, and is increasing its external visibility and influence.

The Banque de France’s innovation strategy, embodied by Le Lab, has two main strands: 

• “Vertical” innovations led by individual Bank departments, with three priorities: security, exploitation of data and process digitalisation. The main examples of this are the experiments on a central bank digital currency (CBDC), the use of algorithms and data analysis tools to enhance the supervision of banks and insurers, and the robotisation of manual processes. 
• “Horizontal” innovations which can benefit all departments. There are three main areas of horizontal innovation: post-quantum cryptography to increase security, artificial intelligence to improve the use of data, and blockchain, which could be used in various activities at the Bank.

Major advances in human resources

The Banque de France has reviewed its variable remuneration to better reward individual contributions and thereby motivate, attract and retain staff. It has also decided to give greater recognition to its expert staff, by offering them performance-related bonuses together with non-financial benefits such as training to maintain their expertise. In 2022, the Bank started recruiting assistant-level staff again, this time using a new testing system. The entrance exam has been reviewed to attract candidates with a more “generalist” profile, who have sound economic and financial knowledge and are suited to the Bank’s different missions. The single national exam has been replaced with six separate tests, one per geographical zone, all of which are held over the same period. This guarantees that successful candidates will be posted according to operational needs and in the geographical area of their choice. In addition to tenured staff, the Bank recruits staff on contracts. Since 1 January 2023, it has fully financed a compulsory income protection policy for all staff.

The Bank's monitoring of its environmental footprint

Review and external validation of the GHGEA methodology

The Banque de France reviewed the methodology for carrying out its greenhouse gas emissions assessment (GHGEA). A consultancy firm assisted it and validated all the elements.

The scope of the GHGEA declaration includes energy emissions, direct fugitive emissions, business travel, commuting and waste.

GHGEA published in 2022

The Bank's GHGEA was published on the website of the Agence de l'environnement et de la maîtrise de l'énergie (ADEME) at the end of 2022. The reporting year chosen, which is also the new reference year for its future GHGEA, is 2019, rather than 2020 and 2021, which are biased by the health crisis.

In the "carbon footprint" format, the three most emitting items are energy, commuting and business travel.

The GHGEA includes a transition plan that details the measures needed to achieve the objective set out in the strategic plan (a 15% reduction in GHG emissions over the 2019-24 period): changes in tertiary buildings, actions to reduce electricity consumption in this sector, in particular urban heating and cooling, gradual replacement of fossil fuels by electricity, optimisation of processes, promotion of eco-actions, speeding up of the acquisition of electric vehicles for the car fleet, continued reduction in waste-related emissions and in commuting – in particular through the implementation in 2023 of the sustainable mobility package – measures to complement the existing travel policy in order to limit business travel following the pandemic.

An ambitious policy to promote equality and diversity

For ten years, the Bank has been pursuing an active approach to promote equality, in particular with the signing of the European Equality, Diversity and Inclusion Charter, initiated by the European Central Bank.

Thanks to a dynamic policy of advancing women, the percentage of women on the Bank’s Executive Committee continued to rise, reaching 30.8% at the end of 2022 (up by more than 2 percentage points year-on-year), with four women among the ten highest paid.

The Bank's government has set itself the target of a minimum rate of 40% in 2024, four years before the legal obligation.¹³ In addition, the Bank's Gender Equality Index score increased for the first year, to 98/100.¹⁴

The employer branding fosters the representation of women and the identification of future female employees. In 2022, 60% of employees recruited through competitive examinations were women. Recruitment of contract staff also favoured women, reversing the trend.

The Bank is increasing its awareness-raising activities for newly-recruited staff: videos on stereotypes, promotion of sign language, tutorials on digital accessibility, training in inclusive management and discrimination-free recruitment. The Bank’s Talentu'elles collaborative network encourages the recognition of all talents and offers numerous conferences and information on the subject.

In addition, since 2017, the Bank has exceeded its baseline of having 6% of its positions filled by people with disabilities. It stood at 6.71% in 2022, up from 6.45% in 2021.

Actions to promote career-long employability of employees

The Bank supports each employee throughout his or her career through forward-looking skills management. Thus, 6.7% of the wage bill is allocated to training. In 2022, nine out of ten employees received training, with an average of four days of training per year.

The Bank promotes mentoring to disseminate best practices and develop professional ambitions. It offers and finances training courses leading to qualifications for sought-after scientific expertise positions.

Support provided to managers in the framework of the various forms of teleworking

The Bank provides support to managers in organising and managing teleworking to meet the needs for flexibility as this new form of organisation becomes increasingly widespread.

Of the Bank's new managers, 88% completed the induction course within six months of taking up their post in 2022. The Guide to Managerial Attitudes, which enables managers to position themselves against a benchmark, has been enhanced, digitised and made interactive. A specific application proposes concrete actions to manage day-to-day situations, and the range of training courses has been expanded (modules on hybrid management, prevention and management of stress and physical inactivity, autonomy and trust, intergenerational issues, etc.).

Staff involved and proactive in implementing CSR commitments

In 2022, the second edition of the Sustainability Challenge helped develop intrapreneurship (see Focus below: "Sustainability Challenge, ideas and actions").

In order to further encourage the mobilisation of employees around CSR issues, the Bank also set up a community of committed and willing employees to examine new actions to be implemented. A first assessment will be made in 2023.

The in-house deployment of the Climate Fresk led to the creation of a network of in-house “fresco artists” whose role is to raise awareness on climate change among their colleagues.

The Bank also supported a number of collaborative initiatives, including a solidarity run in aid of the Samu Social, participation in World Cleanup Day, a national fund-raising drive for the Restaurants du Cœur, and fund-raising for Ukrainian families. Every year, 25 employees are rewarded for their voluntary work with a trophy and EUR 2,000 for a sponsored association.

The Bank is involved in three key areas: inclusion through education and for access to employment; the ecological transition; and the conservation of our cultural heritage through its history, its network and staff involvement.

Promoting economic and social inclusion

The Bank contributed to further enhancing educational success and access to culture for young people from disadvantaged social backgrounds through its support for several charities (Capital Filles, Association Jeunesse Éducation and Coup de Pouce).

The Bank pursued its long-standing partnership with the Fondation des Hôpitaux for the Pièces Jaunes operation to help children in hospital and their families. It also continued to support a number of microcredit associations.

As a partner of the Train pour l’Égalité of the Fondation des Femmes, the Bank took part in campaigns to raise awareness about women's rights and prevent all forms of violence against women.

Supporting the ecological transition

The Place de l'Emergence programme run by France Active, the committed entrepreneurs movement, contributed to supporting innovative projects with an impact on the circular economy, digital sobriety or biodiversity, thereby promoting the ecological transition.

As a partner of Emmaüs Connect, the Banque de France supports a socially responsible recycling scheme for IT equipment, while helping to reduce inequalities related to digital illiteracy.

Preserving, enhancing and promoting our heritage

During the European Heritage Days, the Bank welcomed 16,000 visitors, including 13,200 at its head office.

In September 2022, an exhibition organised with Citéco and the Musée des Beaux Arts in Arras gave the public an opportunity to discover the five aurei (Roman gold coins) from Beaurains, classified as a national treasure and purchased by the Bank.

The Bank also acquired the largest gold-bearing quartz found in France (weighing 3.3 kg, including 1 kg of gold) and put it on public display in the Mineralogy and Geology Gallery of the Muséum National d'Histoire Naturelle. This type of gold was used to manufacture Celtic and Roman coins.

Mobilising employees through skills sponsorship for non-profit associations

Around 50 employees are seconded to associations in the framework of skills sponsorship schemes for a few days or several months to carry out missions in a wide variety of fields, including social finance, education and digital inclusion.

Strengthening the Bank’s responsible investment approach

The Bank is continuing to strengthen its responsible investment approach for the asset portfolios for which it has full responsibility (own funds and pension liabilities portfolios, totalling EUR 21 billion). Its strategy is three-pronged:

• It is gradually aligning its asset portfolios with a global warming trajectory of 1.5°C by 2025, having reached the 2°C target by the end of 2021. In addition, it plans to completely exit the coal sector by the end of 2024 and to cap its exposure to other fossil fuels. The integration of this new area is reflected in the first investments in biodiversity impact funds and the launching of work to measure the biodiversity impact of these portfolios. The Bank is continuing to contribute to the financing of the energy and ecological transition by investing in green bonds and specific funds with an EET focus.
• It excludes 20% of assets from its equity investment universe on the basis of environmental, social and governance (ESG) criteria. In 2022, it shifted its ESG bond purchase programme towards social bonds.
• As a shareholder, the Bank has adopted a voting policy that includes ESG provisions that require, for example, that companies disclose information on the environmental impact of their activities. To keep in step with society's aspirations, it has decided to strengthen its voting criteria for setting a threshold of acceptability for the remuneration of company managers.

In 2022, the Bank gave concrete expression to its commitment by joining the Principles for Responsible Investment initiative, a UN-supported network of investors.

Continuing the responsible procurement approach

The Bank is stepping up its responsible procurement approach. For example, 35% of procurement procedures include environmental and social aspects in the form of criteria and clauses. It is increasingly working with companies that employ people with disabilities: reception, catering and management services for the Conference Centre, for example, include a minimum number of hours per year reserved for such people. Cleaning and gardening services also include an incentive social clause.

The Bank’s procurement strategy is based on the desire to support suppliers in reducing their carbon footprint. To date, 250 of the Bank's suppliers have signed the Responsible Procurement Charter.

Extra-financial analysis of internal investments

The Bank has adopted an innovative approach to integrating extra-financial criteria into its internal investment choices, such as the renovation of a property site, the conduct of an IT project or industrial processes (see below – Focus on Taking into account all impacts through the extra-financial analysis of projects). The aim is to gain a better understanding of all the impacts of these projects.

Strict management of Banque de France resources since 2015

Since its first Ambitions 2020 strategic plan, which began in 2016, the Banque de France has been committed to reducing its workforce and controlling its operating expenses. This commitment was reaffirmed as part of the Building 2024 Together strategic plan launched at the beginning of 2021.

The strict management of its resources implemented by the Banque de France means that it has been able to reduce its net operating expenditure by 20% over the 2015-22 period. This represents a reduction of EUR 213 million or 3.5% per year in volume. Staff numbers have been reduced by 25% over the same period, which equates to a cutback in full-time equivalent employees of 3,093.

The Banque de France’s General Council approved the financial statements for the year ended 31 December 2022 at its meeting of 17 March 2023.

The Banque de France’s balance sheet reduced from EUR 2,037 billion at 31 December 2021 to EUR 1,884 billion at 31 December 2022. This EUR 153 billion contraction is the direct result of the monetary policy normalisation measures taken from July 2022 onwards, particularly limiting monetary policy securities purchases to the reinvestment of maturities from April 2022 for the PEPP (pandemic emergency purchase programme) and from July 2022 for the APP (asset purchase programme), and additional voluntary early repayment dates for targeted longer-term refinancing operations (TLTRO III), which came into effect on 23 November 2022 in conjunction with their new terms and conditions of remuneration.

Euro-denominated securities acquired under purchase programmes thus only rose by EUR 51 billion (compared with a prior-year increase of EUR 207 billion) and outstanding loans to credit institutions decreased by EUR 159 billion, mainly due to early TLTRO III repayments in November and December 2022. On the liabilities side, there was a significant decline in the current account balance of credit institutions, investment companies and general government (down EUR 131 billion). 

Net income from activities amounted to EUR 7,722 million in 2022, up EUR 667 million year-on-year despite the hike in expenses related to remunerating excess liquidity at the deposit facility rate, which returned to positive territory on 14 September 2022 and rose thereafter for the remainder of the year. The new terms and conditions for the remuneration of TLTRO III operations (aligning their rate of remuneration with that of excess liquidity from 23 November 2022) resulted in a sharp decline in the expenses on refinancing operations recorded in 2022. Moreover, income from inflation-linked securities held as part of the APP and PEPP purchase programmes increased sharply in line with rising inflation.

Operating expenses rose by EUR 646 million year-on-year to EUR 2,245 million, largely due to the Banque de France’s payment of its employees’ statutory pensions as Employee Reserve Fund (CRE) assets failed to fully cover the year-end pension commitments.¹⁵ Equally, operating expenses in 2022 include employer social security contributions in respect of the pensions of its statutory employees. In previous financial statements, these contributions were allocated to the CRE’s capital as part of the distribution of the Banque de France’s net profit. Setting aside these two items, operating expenses were up by EUR 28 million, notably including the salary measures implemented on 1 July 2022.

After operating expenses, profit before tax came in at EUR 5,477 million, up EUR 21 million compared with  2021. Given the risks carried on its balance sheet and linked to the assets acquired as part of the purchase programmes, and taking into account future expenses related to remunerating excess liquidity within the Eurosystem (see previous section on financial balances), the Banque de France continued to augment its fund for general risks to cover its financial risks (excluding exchange rate risk) in 2022. It thus increased the fund by EUR 4,412 million to EUR 16.4 billion (following allocations of EUR 1,150 million in 2020 and EUR 2,800 million in 2021). After accounting for this allocation and corporate income tax amounting to EUR 1,067 million, net profit for 2022 was zero.

Accounting principles and valuation methods

Legal framework

The annual financial statements of the Banque de France are presented in accordance with a format decided by its General Council¹⁶ and with the provisions of the Order of the Minister of the Economy, Finance and Industry of 7 February 2000, which was amended on 16 November 2010. Their structure is designed to reflect the specific nature of the tasks carried out by the Banque de France as part of the European System of Central Banks (ESCB), and its diverse range of activities. The financial statements are expressed in millions of euro.

The accounting and valuation methods applied by the Banque de France are defined in Article R. 144 6 of the French Monetary and Financial Code, which specifies the following provisions.

• For all activities carried out within the ESCB framework, the Banque de France must comply with the accounting and valuation methods laid down by the European Central Bank (ECB) in its Guideline of 3 November 2016 (ECB/2016/34), amended in 2019 (ECB/2019/34) and in 2021 (ECB/2021/51). This Guideline establishes in particular the accounting rules applicable to refinancing operations for the banking sector, securities, foreign currency transactions carried out in the course of foreign exchange reserve management, and the issue of banknotes.
• The accounting rules established by the Autorité des normes comptables (ANC – the French accounting standards authority) apply to all the Banque de France’s other activities. However, the Banque de France’s General Council may also decide to apply the accounting and valuation methods recommended by the ECB.

With effect from 1 January 2003, the General Council extended the accounting methods laid down by the ECB Governing Council to securities portfolios recorded in asset item A11. Since 1 January 2018, and by decision of the General Council, this provision has also applied to securities portfolios held in the Banque de France Employee Reserve Fund recorded in asset item A12.

General accounting principles

The accounting rules are applied in accordance with the principles of prudence, going concern, consistency (of methods between reporting periods), accruals, matching and revenue recognition (independence of reporting periods), cost (economic reality), full disclosure, and recognition of post-balance sheet events.

Valuation methods

Foreign currency transactions and resulting gains and losses

Spot and forward purchases and sales of foreign currencies are recorded as off balance sheet commitments at the trade date. They are recognised in the balance sheet at the settlement date.

Gold and foreign currency positions are valued at year-end on the basis of the prevailing rates and prices on the last business day of the year. Unrealised gains are recorded as liabilities in the revaluation accounts (item L13). Unrealised losses are recorded in profit and loss item 1.2.1 as financial transaction expenses. Unrealised gains and losses are not offset.

Foreign currency gains and losses on gold and foreign exchange reserves

Realised gains and losses are calculated for each currency. A weighted average price is calculated daily, firstly on inflows (spot or forward purchases on the trade date, and foreign currency denominated income, in particular daily accrued interest), and secondly on outflows (spot or forward sales on the trade date, and foreign currency denominated expenses). The realised gain or loss is calculated by applying the difference between these average prices to the lower of the day’s inflows or outflows.

When outflows exceed inflows, a second realised gain or loss is calculated, which equates to the difference between (i) the net outflows of the day valued at the average outflow price and (ii) the net outflows of the day valued at the average price of the day’s opening position. When inflows exceed outflows, the net inflow is added to assets held at the beginning of the day, thereby changing the average price of the position.

Revaluation reserve for state gold and foreign exchange reserves (RRRODE)

The agreement between the state and the Banque de France dated 20 December 2010 and published on 2 February 2011 neutralises the impact on the Banque de France’s profit and loss account of realised gold and foreign currency gains and losses (including currency option premiums) and unrealised losses at year-end, thanks to a mechanism whereby the counterpart in the profit and loss account is symmetrically offset against the RRRODE. The amount of net foreign currency gains taken to the RRRODE is limited to the net profit for the year before transfers to the reserves.

The agreement also stipulates that:

• the amount of the RRRODE must be at least equal to 12% of the gold and foreign currency positions and must also be sufficient to cover the losses that would arise if prices fell to their worst level of the past ten years;
• if the RRRODE falls below its minimum amount as defined above, it shall be replenished by way of an appropriation from profit for the financial year (not exceeding 20% of net profit).

Foreign currency gains and losses other than on gold and foreign exchange reserves

The Banque de France applies ANC Regulation 2014-03 to foreign currency transactions that are not connected to its main responsibilities as a central bank. Foreign currency deposits and investments are marked to market on the last business day of the year. Realised and unrealised foreign currency gains and losses are recorded in profit and loss item 1.2.3, “Other income and expenses on financial transactions, net”. Accrued income and expenses are converted into euro at the rate prevailing on the day the transaction is recorded. Forward foreign currency hedges are valued at the closing date exchange rate.

Securities portfolios

Securities held by the Banque de France are recorded in the following balance sheet items:

• A2 for foreign currency denominated securities held in connection with foreign exchange reserve management;
• A7.1 for securities held for monetary policy purposes;
• A11 for euro-denominated securities earmarked against the Banque de France’s own funds, provisions and customer deposits recorded in items L4 or L10;
• A12 for securities held in the Banque de France Employee Reserve Fund;
• A4 or A7.2 for other euro-denominated securities depending on whether they are issued by non-residents or residents.

Securities held for monetary policy purposes

Debt securities held for monetary policy purposes (item A7.1) are valued at amortised cost, regardless of their holding intention. They may therefore be sold before maturity if the ECB Governing Council so recommends. Impairment tests are conducted annually.

Other securities

Other securities are recognised as follows.

•  Debt securities that the Banque de France has decided to hold to maturity are recognised in the financial statements at amortised cost. They are tested for impairment annually and may be written down if there is a risk of non-recovery.
•  Debt securities that may be sold before maturity and equities (or similar securities) are marked to market on a line-by-line basis on the last business day of the year. Unrealised gains are recorded as liabilities in the revaluation accounts (item L13). Unrealised losses are recorded in profit and loss item 1.2.3 as financial transaction expenses. Unrealised gains and losses are not offset. Gains and losses arising from sales carried out during the year are calculated on the basis of the weighted average price of each line of securities and are recorded in profit and loss item 1.2.3, “Other income and expenses on financial transactions, net”.

For all debt securities, differences between the acquisition price and the redemption price are spread over their remaining lives on a discounted basis. Implicit options that may be included in these securities are not valued separately.

Marketable investment fund units, held for investment purposes without the Banque de France intervening in the decisions on the purchase or sale of the underlying assets, are recognised at their year-end net asset value. No offsetting is performed between unrealised gains and losses on the various units of the marketable investment funds held.

Lastly, non-marketable investment fund units are recognised in the balance sheet at purchase cost. At the end of the financial period, the units are valued at the lower of their historical cost and value in use. When the latter is lower than the purchase cost, the units are written down.

Specific treatment of Banque de France Employee Reserve Fund securities

The rules described in the note on “Other securities” apply to the securities held in the Caisse de réserve des employés (CRE – the Banque de France Employee Reserve Fund). However, unrealised losses recognised on debt securities that can be sold, equities and units of marketable investment funds in connection with their mark-to-market, as well as the gains and losses on disposal of these securities, are booked to the Employee Reserve Fund’s equity capital. Consequently, there is no impact on the Banque de France’s profit and loss account. The same applies to any depreciation recognised by way of provisions for debt securities held to maturity and for non-marketable investment fund units (see Note 28).

Financial futures

Interest rate financial futures traded on organised markets are recorded off balance sheet at the notional amount, while daily margin calls paid or received are recognised in profit and loss item 1.2.3.

Interest rate swaps are marked to market at 31 December. Unrealised gains are recorded as liabilities in the revaluation accounts (item L13). Unrealised losses are recorded in profit and loss item 1.2.3 as financial transaction expenses. Unrealised gains and losses are not offset. Unrealised losses are amortised over the remaining life of the contract. The interest is recorded in profit and loss item 1.1 on an accruals basis.

Currency option premiums are recorded on the asset side of the balance sheet if they relate to purchases and on the liabilities side if they relate to sales. In the event that the option is exercised, the premium is included in the price of the currency purchased. If the option is not exercised, at its expiry date the premium is recorded in profit and loss item 1.2.1, “Net realised gains/losses and unrealised losses on foreign exchange”. At year-end, the premium amounts booked to the profit and loss account during the year are transferred to the state gold and foreign exchange revaluation reserve (RRRODE) in the same way as realised foreign currency gains and losses (see above).

Open positions on currency options are marked to market at the balance sheet date. Unrealised gains are recorded as liabilities in the revaluation accounts (item L13). Unrealised losses are recorded in profit and loss item 1.2.3 as financial transaction expenses. Unrealised gains and losses are not offset.

Forward foreign currency transactions with customers (see Note 26) are marked to market at 31 December.

Eurosystem claims and liabilities

Eurosystem claims and liabilities arise on cross-border euro payments made within the European Union and settled in central bank money. These payments are allocated to TARGET2 (the Trans-European Automated Real-time Gross settlement Express Transfer system) and give rise to bilateral balances in the TARGET2 accounts of the ESCB central banks. All these bilateral claims and liabilities are netted out on a daily basis within the TARGET2 system so that each national central bank (NCB) has a single net bilateral position vis-à-vis the ECB.

The Banque de France’s net position in TARGET2 is carried on the Banque de France’s balance sheet either as a net liability to the Eurosystem in item L7 (see Note 15) if it is a creditor or as a net claim on the Eurosystem in item A8 (see Note 7) if it is a debtor.
The Banque de France’s participating interest in the ECB is recorded in balance sheet item A8.1 (see Note 11). This item also includes the net amounts paid by the Banque de France in connection with an increase in the proportion of its subscription of the ECB’s equity value resulting from a change in the capital key.

The Banque de France’s claim on the ECB resulting from the transfer of a part of reserve assets is recorded in item A8.2; the claim that results from interim dividends and accrued income receivable from the ECB in respect of the allocation of the balance of monetary income (see Note 7) is recorded in item A8.4; and lastly the claim that results from the shared responsibility for issuing euro banknotes among NCBs and the ECB is recorded in item A8.3. Accrued expenses in respect of the pooling of monetary income are recorded in liability item L7 (see Note 15).

Tangible and intangible fixed assets

Tangible and intangible fixed assets are valued and accounted for in accordance with French reporting standards.

Land is carried at acquisition cost. Buildings and equipment are carried at historical cost, less depreciation or provisions for impairment booked since they were brought into service.

In accordance with Article 322-1 of the plan comptable général (French general chart of accounts), the depreciation period for each asset is determined on the basis of its probable useful life. The Banque de France’s property assets are therefore depreciated over 10, 20, 33 or 50 years, depending on the asset type. Computer equipment is depreciated over 2 to 10 years and other equipment is depreciated over periods ranging from 3 to 12 years. Purchased software is amortised over 3 to 6 years. Most fixed assets are depreciated using the straight-line method. In accordance with ANC Regulation 2014-03, the useful life of fixed assets is reviewed regularly and modified as required.

External expenses relating to the development and integration of computer software are capitalised.

Projects developed by one or more Eurosystem NCBs are capitalised in accordance with the full cost accounting methodology set down by the Eurosystem. The Banque de France recognises any share in those projects – calculated at the Eurosystem level – in the total amount to be capitalised.

Accelerated tax depreciation is applied to fixed assets that can be depreciated more rapidly for tax purposes than for accounting purposes.

Banknotes in circulation

The ECB and the euro area member NCBs that together make up the Eurosystem issue euro banknotes. The total value of euro banknotes in circulation in the Eurosystem is allocated on the last business day of each month in accordance with the banknote allocation key.¹⁷ The ECB has been allocated an 8% share of euro banknotes in circulation, with the remaining 92% allocated between NCBs according to their share of the ECB’s paid-up capital.

The share of banknotes in circulation allocated to the Banque de France is disclosed in liability item L1, “Banknotes in circulation”.

The difference between the value of banknotes in circulation allocated to each NCB in accordance with the banknote allocation key and the value of banknotes actually put into circulation by the NCB gives rise to an interest-bearing intra Eurosystem position presented in item A8.3 if it is a debit and in item L7 if it is a credit. This position earns interest¹⁸ at the main refinancing operation rate. The corresponding interest income and expenses are included in profit and loss item 1.1, “Net interest income”. A mechanism to smooth any adjustments that may arise during the first five years following a country’s entry into the euro area has been implemented. No NCB was concerned by this mechanism in 2022.¹⁹

Dividend paid by the ECB

The ECB’s seigniorage income arising from its 8% share of euro banknotes in circulation, as well as the income generated on its monetary policy securities purchased under the SMP, CBPP3, ABSPP, PSPP and PEPP programmes,²⁰ are distributed in January of the following year in the form of an interim dividend unless the ECB Governing Council decides otherwise.²¹ This income is distributed in full unless it exceeds the ECB’s profit. The ECB Governing Council may decide to transfer all or part of this income to the provision for ECB financial risks. It may also decide to deduct the total expenses paid by the ECB for the issuing and handling of euro banknotes from the total income from euro banknotes in circulation to be distributed in January.

The amount distributed to NCBs is recorded in profit and loss item 1.4, “Income from equity securities and participating interests”.

Fund for general risks

The fonds pour risques généraux (FRG – fund for general risks) is intended to cover the possible risks to which the Banque de France is exposed through its activities, except for the exchange rate risk on gold and foreign exchange reserves, which is covered by the relevant revaluation accounts and by the RRRODE (see above). Its amount is determined on a discretionary basis based on exposures at the balance sheet closing date and an analysis of the attendant risks using a forward-looking approach. It is booked as a liability in item L14. Charges to and reversals from the fund are recorded through item 3 of the profit and loss account.

Pension scheme

See Note 28.

Changes in accounting presentation

There were no changes in accounting presentation in the annual financial statements for the year ended 31 December 2022.

Key events in 2022

In a context of high inflation, the ECB Governing Council adopted a series of measures aimed at normalising the Eurosystem’s monetary policy:

• key interest rates were raised four times in 2022 from 27 July onwards;
• securities purchases made as part of the PEPP and APP programmes were limited to the reinvestment of maturities from 1 April 2022 and 1 July 2022, respectively;
• new terms and conditions for the remuneration of TLTRO III operations were brought into effect from 23 November 2022²² with additional voluntary early repayment dates.

These measures resulted in a contraction in the total Banque de France balance sheet of 7.5%, in contrast to the robust growth reported in 2020 and 2021 of 52% and 17%, respectively.

Post‑balance sheet event

Between the end of the 2022 financial reporting period and the date on which the Banque de France’s General Council approved the financial statements, the ECB Governing Council twice decided, on 2 February 2023 and 16 March 2023, to increase each of the three key ECB interest rates by 50 basis points. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility were thus increased to 3.00%, 3.25% and 2.50%, respectively, as from 8 February 2023, and then to 3.50%, 3.75% and 3.00% in March 2023.