France’s Financial Sector Rewired: Regulation, Climate Risk & Sovereignty in 2024-25

In his speech of 27 May 2025, François Villeroy de Galhau, Governor of the Banque de France, asserted that the end of ultra-low interest rates and a return to monetary normalisation has begun. With European Central Bank (ECB) policy rates peaking at 4% in Sept 2023 and now cut to around 2.25%, inflation in France is declining to near-target levels (≈ 2 %), highlighted by a May 2025 inflation estimate of 0.6 %.

This disinflationary environment has brought relief to banks and insurers: French banking groups reported net profit of €36.1 billion in 2024 (up 12 % year-on-year), insurance profits stabilised, life insurance saw inflows of €23 billion in 2024 (and €16 billion in Jan–Apr 2025), and banks saw a margin recovery. However, despite improvements, French banks still lag European peers who benefitted more from variable rate loans.

Regulatory “stabilisation” has been a central pillar of the pivot, with major EU rules entering into force: CRD6/CRR3 (Basel III implementation), revised Solvency II, DORA for operational risk and critical third parties, and MiCA on crypto-assets. French banks have reported strong regulatory metrics: average CET1 ratio rose from ~11.8 % (2014) to 15.6 % (2024); Liquidity Coverage Ratio (LCR) in March 2025 was 144 %; Net Stable Funding Ratio (NSFR) ~114.6 % at end-2024. Insurers’ solvency at 238 %.

Nonetheless, risks are rising. Credit risk increased sharply for non-financial corporations and SMEs, with non-performing loan (NPL) ratios rising 7 basis points (business portfolio) and 42 basis points (SMEs) between Dec 2023 and Mar 2025. Exposure to commercial real estate remains limited at 3.24 % of balance sheets. Market risk and volatility have increased, particularly driven by US rates, trade and fiscal uncertainty. To better monitor this, the Banque de France and ACPR plan systemic stress tests involving banks, insurers, and investment funds.

The environmental and climate agenda is being integrated across banking and supervision. French banks in 2024 committed to ~€471 billion in green/sustainable loans (up from €372 billion in 2023), with ~€96 billion for renewable energies. Fossil fuel exposure dropped 15 % to €37 billion (<0.4 % of assets). Yet, supervisory reports highlight gaps: policies need clarification, alignment, transparency, and better methodologies for monitoring and disclosure.

Strategically, Villeroy emphasizes that Europe must leverage this moment to deepen its financial sovereignty, simplifying regulation, unifying capital markets and banking markets, and defending competitiveness. He proposes setting a firmer timeline—potentially January 1, 2028—for a unified Savings-and-Investments Union.

Open questions revolve around whether French financial institutions can sustain profitability in an environment of rate normalisation; the pace of credit deterioration in SME and business loan portfolios; effectiveness of regulatory simplification; harmonisation of ESG metrics; and how resilient the sector is to external shocks from the US or geopolitical fragmentation.