The Main Features of the Financial Systems in France - Coursework Example

Financial Systems in France French financial systems French monetary system is bases on two types of economies. There is consideration of bank-based economics where there is underdevelopment and only a small portion of corporate financial requirements are met through giving out of securities. These securities have predomination of leads that are banking financial based. In French economy, there is consideration of market based economy where companies cover most of the needs through issuing of shares, bonds and commercial papers (Baubeau, Patrice and Anders, 2010). In this coverage, there is less financial fundamental. Market based financial system is mostly used in France. Additionally, the financial systems in France are much contributed due to actions and events that occurred in the country in 1980s. Initially, the French financial system was mainly governed through banking systems. The banking systems were governed by an act that was created in June 1941 and amended in 1945. This acts that governed the French monetary system, distinguished between the bank deposits, investments, credits and the terms in the credits given to the commercial banks (Baubeau, Patrice and Anders, 2010). The banking systems were restricted in roles and restrictions based on duration of conducting given transactions. Deposits in the banks were only allowed in short term transactions while credits were allowed to be of medium and long terms. The aim of such restrictions was to regulate creation of money and proper allocation of money in times of economic growth. Restriction in the system resulted due to role of state in monetary controls. Due to the restriction idea, there was setting up of deposit network by French treasury which consisted of a given number of banks that had monopoly in giving out loan. The action resulted to subsidized loans being half of all loans that were allowed in private sector (Baubeau, Patrice and Anders, 2010). Occurrence of the situation was in 1979 with distinction of 200 subsidized loans. Banking system in France at the time could not be easily realized with impending of good allocation of savings with available market interests playing no role of action in the allocation. Control through the method was important due to inflation which occurred in France during 1970s. At the times, there was minimal development of French capital market due to availability of credit institutions and few authorized non-financial institutions. Non-financial institutions that were authorized had access to money market and were allowed to issue bonds and stocks. Financing of activities was mostly through the intermediation of institutions that gave cred. Underdevelopment of financial markets also came due to the strict capital controls which made limiting inflow of capital. There was excessive control on the financial system in France that was criticized in 1960s with modernizing of the system occurring in 1966 through actions of Finance Minister at that time, Michael Debre (Baubeau, Patrice and Anders, 2010). The minister facilitated opening of more new branches but economists still thought that France financial system was not still strong enough to expand significantly. There was need in changing the financial systems to allow entry of France to enter European Monetary union and also to adapt French economy to compete internationally. Need for international economic competition led to development of Eurodollar resulting to creation of risk in capital flows out of France. Extensive reforms that occurred in France were in capital markets that occurred in 1980s. French financial reforms in 1980s Among reforms that occurred in the periods was due to 1984 banking acts. In 1984, the banking acts came up with legal frameworks for banking industries. The acts also brought about no more distinction of financial entities in France. Institutions in France were ruled under the same law and commissions (Martin, Irina and Irina, 2011). This leads to more competition of institutions in credit institutions. Revolution continued in monetary sector with reorganization to come up with two sections, interbank market and a market that allowed negotiation in debts. Modernization resulting in creation of sectors, money markets allowed borrowing of small scale firms in short term capital. Others that were included in negotiable debt instrument were nonresident investors and issuers. End of credit control in France Credit control was in French monetary system and was gradually removed between 1985 and 1987. The suppressing of control was done gradually considering subsidized loans. The end of credit control made bankers to be responsible with choices that they made (Gil and Ann, 2005). Choices that bankers had to decide on include those on determination of loan size and also interest rates with them having bearing of management of risks in the impacts. Introduction of risk hedging. Risk hedging in French financial system is due to future markets in the country through MATIF created in 1985 and MONEP that was created in 1987. Elimination of currency control Elimination of currency control in France in 1988 allowed free inflow and also outflow of foreign capital in the country. Taking of the action led to permission of entrance of large amount of capital to the country. There was also readiness in use of the new channels created by the reforms. Banking act in 1984 combined French banking system resulting to more competition in banking sector (Martin, Irina and Irina, 2011). More competition in this sector resulted to closing down of institutions that were not able to manage the competitive environment. Family-owned banks were the most closed and there was also more merging of institutions. Competition made the top ten banking institutions to control more that 85% of banking business which were majorly retail. Currency controls in the country deal enabled flow to be reduced and economic growth has been stimulated and the growth in different sectors. Competition in the banks led to more preservation in lending decisions which was majorly due to abolishment of subsidized loans. There was difficulty in banks that were not performing to be able to obtain loans. In 1985 most of the banking mangers majorly focused on controlling of banking risks, reducing costs and supervised tighter performance in their banks. Surveys in baking sector portrayed that reforms that were made in the sector resulted to better allocation of savings that allowed the speeding up of Schumpeterian movement. Bond and equity markets also tightened competition to banks in the economy. Modernization and reforms in the banking sector made the firms to be easily absorbed into the capital market without the need to pass through banks. Ability of firms to enter the capital market made banks to be much conservative in the allocation of savings and they were likely to increase equity finance. In charts that were obtained from sources by Banque de France, the financial intermediation by credit institutions, central banks, insurance funds and mutual funds there was increase in in the rates. When loans that are given by are the only ones considered, there is a very narrow intermediate rate. The investments by the institutions are seemed to increase in the banking sector. Playing of roles of being intermediaries by the banks has continued with the giving out of loans and also playing a role in capital market for the benefit of the sector and also their own benefit. Banque de France has played important role in making financial system in France more stable .with consideration of financial crisis and onset of consequences that occur due to policy makers in the country, there has been consideration of several factors by the bank. Approaches that have been made in consideration of policies have been in a macroeconomic approach to the financial system of France to enhance supervision. Supervision in the sector by the bank has been implemented to enhance solidity of the system guarantying economic development by financial policies in place. Current editions in French financial system have provided wide range of views that come from wide range of international experts. This allows sharing of policies that have been put in place and the needed policies to strengthen the financial system to increase development rate. Financial system impact to French economy Policies that were used in financial system in France have enabled France to be the world’s fifth largest economy. It has also been ranked to be of the second largest economy after Europe in normal figures. High ranking due to the monetary system that has been seen in the country has also come about due to industrial structure of French economy (Bertero and Elisabetta, 1995). Ranking of France that was done by 2010 showed the country to be the wealthiest country in Europe. In achieving of the rank, France implemented modernization programs in its financial sector with consideration of certain industries in the economy. Industries that were considered include those such as transportation, telecommunication and energy sector. There were also incentives for private sectors in engagement or merging in some projects of the government. French economy increased mainly in 1981 when there was nationalization of many industries and also making the private banks to be national. Economic regression was conducted by the French government making the economy of France to grow under the directions that were given by the government (Gil and Ana, 2005). Growth in the economy was due to proper planning of financial system and more planning those other European countries. French economy is highly liberated with the government continuing to play a significant role in the economy considering rise of GDP of the country to 56% in 2014. Financial system have made regulation in wages and labor in the country and continuation in owning of large shares in sectors such as in banking, automobiles, energy production and distribution, transport and communication. Financial systems in France led to impacts with major focus being improvement of economy. The improvements that occurred could be made only through regulations that were made in the different sectors of French economy. Bank regulations that were used in the system made the rise in economy. French government finance Election of French president in 2012 led to opposition of severity measures and there was promise in elimination of France budget deficit by 2017 (Jett and Stephen, 2004). There was also loan by the government to enact the taxes that were paid indifferent sectors of the economy, raising tax rate to 75%. Bonds in the government fell to 30% in the interest rates. This was less than 50 basis points above the government bond rates in Germany. There has been running of budget deficit by the French government every year since 1970s (Bertero and Elisabetta, 1995). Debt levels increased due to the deficits reaching 1833 billion dollars by 2012. The debt of the government was 91% percent of French GDP. There was breaking of European Union rules that required each member to maintain their debts to 60% and to run public deficits to a total of not more that 3% of the GDP (Jett and Stephen, 2004). Agencies concerned with credit rating warned French government on the increasing levels of debts. Increase in credit raised probability in subsequent higher borrowing cost for the government of the country. Financial systems in external trade Finance in France have been enhance due to involving in external trade. France has been ranked to be the second largest trading nation in Europe. External trades in the country have been balanced for different goods (Colson and Mary, 2012). Financial system that was implemented in was hit by economic down downturn and went very low in 2000. Trade in the country was 60% done to European Union. Financial polies led to trade between France and United States to increase in goods to 47 billion dollars. France used its finance to import several goods from United States. Gods that were imported from United States by France include scientific instruments, broadcasting equipment, computers and peripherals, programming and franchising equipment. Exports that France gave to United States include aircrafts and engines, chemicals, cosmetics, luxury products and perfume. Importance of French financial system in economic growth Financial systems in the country led to overcome asymmetric between the borrowers and lenders in the country. The function of this system led to positive economic growth in the country. The policies that were used in achieving this function were done in three implications. Analysis of factors by the country was of much importance in the maintained of strong legal foundations which is a reliability in the financial system (Colson and Mary, 2012). Reforming of tax system which applies to investment as these affected directly financial systems that were adapted in the country. In France, there was consideration of importance of financial development for economic growth. Government of France in running of central bank with authority as in the system brought about economic growth in the country as there was regulation of lending and borrowing by commercial banks. Regulations also made money in circulation in economy of the country to be governed and hence growth. Banking act in 1984 combined French banking system resulting to more competition in banking sector (Martin, Irina and Irina, 2011). More competition in this sector resulted to closing down of institutions that were not able to manage the competitive environment. Policies that were used in financial system in France have enabled France to be the world’s fifth largest economy. It has also been ranked to be of the second largest economy after Europe in normal figures. High ranking due to the monetary system that has been seen in the country has also come about due to industrial structure of French economy (Bertero and Elisabetta, 1995). Reference Baubeau, Patrice, and Anders Ögren. Convergence and Divergence of National Financial Systems. London: Pickering & Chatto, 2010. Print. Bertero, Elisabetta. Restructuring Financial Systems in Transition and Developing Economies. London: LSE Financial Markets Group, 1995. Print. Colson, Mary. France. Chicago: Heinemann Library, 2012. Print. France, Richard. Finance For Purchasing Managers. Print. Fund, International Monetary. France. Washington: International Monetary Fund, 2010. Print. Gil Lafuente, Ana María. Fuzzy Logic In Financial Analysis. Berlin: Springer, 2005. Print. Gofen, Ethel, and Blandine Pengili Reymann. France. Tarrytown, NY: Benchmark Books, Marshall Cavendish, 2003. Print. Jett, Stephen C. France. Philadelphia: Chelsea House Publishers, 2004. Print. Marklew, Victoria. Cash, Crisis, And Corporate Governance. Ann Arbor: University of Michigan Press, 1995. Print. Martin, E, Irina Yakadina, and Irina Tytell. France. Washington: International Monetary Fund, 2011. Print. Moss, Peter, and Thelma Palmer. France. Chicago: Children’s Press, 1986. Print. Moynahan, Brian. The French Century. Paris: Flammarion, 2007. Print. Nardo, Don. France. New York: Children's Press, 2000. Print. NgCheong-Lum, Roseline, and Ayesha Ercelawn. France. Milwaukee: Gareth Stevens Publ., 1999. Print. Premchand, A. Government Financial Management. Print. Robinson, Marc. Performance Budgeting. Print. Soguel, Nils C, and Pierre Jaccard. Governance And Performance Of Education Systems. Dordrecht: Springer Verlag, 2008. Print. Sookram, Brian. France. New York: Chelsea House, 1990. Print. Story, Jonathan, and Ingo Walter. Political Economy Of Financial Integration In Europe. Cambridge, Mass.: MIT Press, 1997. Print. Read More