The Bank of France, the Prudential Supervision and Resolution Authority and the Financial Markets Authority have published an interim methodological report on France’s first system-wide stress test. Launched in August 2025 with more than 20 French financial institutions, the exploratory exercise is designed to assess how severe market stress could spread across the French financial system through interconnections between banks, insurers and asset managers, including all global systemically important banks established in France. The first round has been completed and is still being analysed, with a second round due to begin in the coming days ahead of a final joint report in autumn 2026. Unlike traditional sector-specific stress tests, the exercise examines interactions across the financial system and the effects of participants’ own defensive actions, particularly on liquidity. Its scenario simulates a market shock over 10 business days that is more severe than the worst two-week period seen in the past 20 years. The methodology combines bottom-up submissions of institutions’ expected responses with a top-down module used by the authorities to model non-participating actors and estimate second-round effects. The analysis focuses on three main transmission channels: cross-holdings and bilateral exposures, crowded positions and forced asset sales, and liquidity pressures linked to margin calls and repo activity. A distinguishing feature is that participants must specify the markets they would use, the timing of interventions, volumes and counterparties, allowing the authorities to detect system-level inconsistencies such as overlapping asset sales or reliance on the same liquidity sources. The authorities have received first-round estimates from all participating institutions and are conducting consistency checks, bilateral reconciliation between counterparties and system-wide aggregation. Those results will underpin the second round, in which participants will receive aggregated findings from the first round and the authorities will assess conditions under which defensive actions could become self-reinforcing. Participation is voluntary and the exercise does not carry consequences for the individual supervision of participants.
Bank of France2026-06-17
Bank of France, Prudential Supervision and Resolution Authority and Financial Markets Authority publish interim methodology report on France’s first system-wide stress test
The Bank of France, the Prudential Supervision and Resolution Authority and the Financial Markets Authority published an interim methodological report on France’s first system-wide stress test, covering more than 20 financial institutions across banking, insurance and asset management. The exercise tests how a severe 10-day market shock could spread through cross-exposures, fire sales and liquidity pressures, using both participant-reported reactions and top-down modelling. A second round will start shortly, with a final joint report due in autumn 2026.