Category: Bank

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Bank

The paradoxes of central bank credibility

At the end of October, the ECB maintained the status quo on key interest rates. Christine Lagarde then clarified that a reduction, or even the possibility of it, was “totally premature”.

For any action, credibility is essential. It makes it easier to achieve the desired objective because everyone thinks that the person who acts is trustworthy. In the appropriateness of the desired goal. In the determination to achieve it. Likewise in the judicious choice of the means. This is the case both in business management and in politics and obviously in monetary policy as well. However, there are paradoxes in this subject which in no way contradict the principle stated here, but which make it more complex.

The first lies in the fact that central banks, by showing their credibility in the 90s and the first half of the 2000s, both in obtaining regular economic growth and low inflation (aided by globalisation and the digital revolution), consequently considered that a long period of regular growth and controlled inflation should simultaneously induce financial stability id est : a reasonable increase in asset prices (stocks and real estate), and a stable level of indebtedness of economic players.

However, the financial crisis of 2007-2009 clearly showed that long term interest rates too low for too long- relative to the growth rate – easily led to financial bubbles. Therefore the credibility of central banks must henceforth go beyond this first paradox. It must be exercised simultaneously aiming at these three objectives: balanced growth, controlled inflation and financial stability. Even if it is far from easy to make these three objectives compatible in the short term, in the medium to long term, however, it is much more effective in terms of growth to not neglect any of them.

There is a second paradox that central banks face currently. The more credible they are in their desire to not allow an inflationary regime to take hold, the more easily and quickly inflation expectations, both of households and businesses, converge towards the aim pursued, therefore the more effective the monetary policy is. The ability of central banks to bring inflation back to the desired level is in fact due to the impact on the level of demand of the increase in their key rates – thus impacting long-term rates – but also, through their credibility, in maintaining the anchoring of expectations on the desired inflation target. Otherwise, the drift in expectations leads to an indexation of prices on prices, of wages on prices and of prices on wages.

So where does the paradox come from? This credibility, so necessary and so useful, can however lead the financial markets, anticipating the success of the central banks’ fight against inflation, to push long-term interest rates to lower levels too soon, thwarting the effect of the rate weapon’s fight against inflation. Likewise, as soon as they think that the central banks have completed the upward cycle of their key rates they immediately lower long-term rates. However, historically monetary policies slackened prematurely have often led to significant and very damaging subsequent rebounds in inflation. Hence what we are currently seeing in the announcements from the central banks: affirming that they are not about to lower their rates, or even that they can still increase them if necessary. Central banks are thus showing their determination to not weaken their position prematurely for the objective reasons mentioned above, equally through the necessity of a tactical game with the markets. They must in fact not let them believe that the battle is won in advance, despite their credibility . In fact, in the short term, and as long as underlying inflation remains too high, only a severe economic-financial crisis could lead central banks to modify their announcements and their policy.

These paradoxes show, among other things, that monetary policy is as much a science as it is an art.

Categories
Bank Finance Teaching

Olivier Klein, the art of transition

Managing Director of Lazard and CEO of Lazard French Bank after having personified BRED for more than ten years, Olivier Klein continues his teaching and his work as an author. A few months ago, he published “Crises and Changes: Small Banking Lessons”. A read which is easy to follow and to be relished.

Olivier Klein, recently appointed CEO of the Lazard Frères Bank, teaches financial macroeconomics and monetary policy at HEC, writes numerous articles on banking strategy, monetary policy, monetary economics and structural reforms, and participates in numerous conferences where he loves to rub shoulders with the greatest economists and leaders of financial institutions. Finally, a few months ago he published a major essay with Eyrolles and RB Édition, “Crises and Changes: Small Banking Lessons”.This book is a must read! Olivier Klein has a way with words and a penchant for well-chosen quotes. Above all, this professor- banker, based on his very well-documented field experience, offers analyses that shine a new light on strategic thinking. For example, how do you change things without breaking them? Followers of the “stakeholder” approach as well as those who support the notion of
respecting the identity of companies will find convincing arguments here.

Beyond the abundant ideas that give structure to this book, it is the author’s ability to take action, to express an idea, and to teach that holds our attention. Olivier Klein is, without doubt, a “ferryman” and these days our society is missing this type of profile. We have excellent researchers, who publish in the best scientific journals, we have very high-level business leaders, but the problem of the “transition” between theory and practice like that between research and pedagogy remains subtle and complex.

Olivier Klein’s career, like his works, is, in many respects, an example of a successful “transition” and can enlighten us on the importance of this idea.

First, because his career and his approach in his macroeconomics articles show us how practice is enriched by scientific processes and models produced by research. When reading his book, we see clearly that there is no action that is not carried out without reference to clear knowledge. Chris Argyris, a Harvard professor and one of the theorists of organisational learning, spoke of “a theory of use”. Thus, practice, if it cannot resolve to “fit” into a single paradigm, necessarily relies on models, on theories.

From science to practice

We still need to be able to transfer these models into practice at least cost. “At least cost” here means “minimising the risk of misinterpretation of the available scientific results”. This is where Olivier Klein succeeds brilliantly as well. This is no easy task, if only because a single scientific discourse cannot simultaneously resolve all the problems put before the practitioner. This difficulty often results in frustration which leads some to throw the baby out with the bath water, that is to say, to reject all the contributions of theory and science, under the pretext that they cannot solve all the problems at hand. This is where the “ferryman”’s contribution lies. He must help with the transition between science and practice. He must choose the most effective aspects of the theory, propose a rigorous interpretation of the facts and finally, participate in the nuances of the categories of thought. He must, in some way, offer what we will call a “lesson.” That is to say, his approach must be analogous to that of “good essays”. We know that “good essays” are those which, rigorously, choose certain parts of theories to challenge them without complacency with a
particular situation, located in time and space. The “good essay” must also propose to rigorously erase certain boundaries between the different sciences. If these are in fact structured in terms of paradigms, the “ferryman” must be able to propose a “negotiated” synthesis, that is to say created through diverse influences, combining multiple scales of analysis and that is prescription-oriented.It is therefore not a popularisation of science because the “ferryman” must demonstrate great intellectual vigilance
when articulating in a global vision several theoretical referents, several insights and several habits of interpretation specific to each practice.This is what Olivier Klein also achieves, especially in his book, and this demonstrates great discipline of thought. The Capitol is in fact close to the Tarpeian Rock: the difficult task of “translation” risks being transformed into a hasty collection of the latest fashions and cursive interpretations of poorly assimilated theories. The “ferryman” can, if he is not careful, become a “soup seller”. This is what Olivier Klein avoids, page after page, demonstration after demonstration.

To conclude on Olivier Klein’s role as a “ferryman”, I believe it is important to emphasise that his works certainly enlighten us, but above all, and this is a major point, that they encourage us to face the future. In our time we are afraid of modernity which excludes, which replaces man, which explores the boundaries, which builds a threatening order against, apparently, “the good old days”. There is a significant temptation to be reactionary and to condemn. In Olivier Klein’s ideas, he invites us to live in the future, optimism (or pessimism) is never the fundamental question. We must “simply” understand our world, and then commit ourselves to exercising our freedom to invent the new tools that are needed! Olivier Klein is undoubtedly a “ferryman” who mobilises.

References

  • Argyris Ch., with contributions from Moingeon B. & Ramanantsoa B. (1995), Knowledge for action. Overcoming Obstacles to Organizational Learning, trans. by Loudière G.), lnterEditions.

  • Boutinet J.-P. (ed.) (1985), From discourse to action. The social sciences question themselves, Social Logics, L’Harmattan.

  • Geertz C. (1986), Local Knowledge, Global Knowledge. Places knowledge, Phew.
  • Cain T., Wieser C. & Livingston K. (2016), “Mobilizing Research Knowledge for Teaching and Teacher Education”, European Journal of Teacher Education, flight. 39, no. 5, p. 529-533.
  • Gaussel M. & Rey O. (2016), “The Conditions for the Successful Use of Research Results by Teachers: Reflections on some Innovations in France”, European Journal of Teacher Education, vol. 39, no. 5, p. 577-587.

  • Gaussel M., Gibert A-F., Joubaire Cl., & Rey O. (2017), “What definitions of the passer in education? “, French review of pedagogy, 201-2017, 35-39.

  • Munerol L., Cambon L. & Alla F. (2013), “Knowledge brokering, definition and implementation: a review of the literature”, Public Health, vol. 25, no. 5, pp. 587-597.
  • Ward V. L., House A. O. & Hamer S. (2009), “Knowledge Brokering: Exploring the Process of Transferring Knowledge into Action”, BMC Health Services Research, vol. 9.
Categories
Bank Finance

A Banker’s Life

The Economics Professor who transformed BRED, which he ran for over ten years.

He arrives slightly out of breath, apologising for being late, with a big smile. Elegant in his dark suit and sky blue silk tie, Olivier Klein the Managing Director of BRED invites me into his contemporary office high above the Seine populated with his collection of African statues. But the real passion of this fan of primitive art is banks, and in particular his own that he has managed skilfully for over ten years and successfully since the net banking income has increased by 70% in a decade. This boss is also a professor at HEC and the author of numerous publications. A busy life, “an achievement,” he says, of which he is proud. He can thus spend hours discussing world markets adding humorous remarks, using pedagogy to decipher a complex world, inaccessible to laymen.

However, at 65 after an exemplary history of leading large establishments he was obliged to leave BRED at the end of May. When he brings up his imminent departure on this day in April, the eyes of this man with his joyful personality become misty. “It’s not easy to say goodbye,” he frankly admits. Having reached his age limit he regretfully left his position. A brief moment of abandonment quickly forgotten when he begins to recount his banking saga, which started at the beginning of the 1980s.

Expert in Acquisitions and Mergers

Economics and nothing but economics. When Olivier Klein graduated from the National School of Statistics and Administration (ENSAE), finished his postgraduate studies at HEC, and received his diploma from Panthéon Paris- Sorbonne, he hesitated. Should he become a distinguished economist, diving deeply into study and forecasts? Tempting, but this young man finally prefers banking which is at the “crossroads of the economy”. He recalls “I needed to act, to make concrete things happen.” And so in 1985 he joins the French Bank of Foreign Trade (BFCE) and becomes head of the risk management consulting department in charge of change and interest rate risk and puts together complex offers for large groups. He then sets up the business banking at BFCE where he takes the helm. He finds this work very satisfying. But it’s not enough for him to be fulfilled. So to continue moving towards macroeconomics and to satisfy his great curiosity he becomes an affiliate professor at HEC: “I don’t play golf, I have no hobbies, but I need to reflect and to transmit; this helps me become a better banker,” he pleads, affirming that he was able to predict the 2008 financial crisis thanks to his constant watchfulness, an overall understanding of the system and an ever critical eye. “Constantly on the lookout for any signs of weakness in the markets, he’s a visionary; he knows how to anticipate and develop his strategy,” points out Françoise Epifanie head of development at BRED. A double life which makes him a rare breed in the world of banking, “He’s on the one hand an intellectual, an economics professor and on the other he’s very hands-on : a very rare balance!” confides Eric Lombard, Managing Director of Caisse des Dépôts. Determined, a hard worker -“he has an extraordinary capacity to work,” according to an executive manager- he has never given up on his teaching. Even when he joined Caisse D’Epargne in 1998 where he was initially appointed as president of the board of directors for the western Paris region before being sent to Lyon. For this fourth generation Parisian it’s his first job in France outside of the capital. But this food lover and fan of good wines loves the area. And he,“then values the crucial role of the regions in the equilibrium of France,” he affirms. Olivier Klein realises that it is the dedicated involvement of the directors of the established regional banks that are behind the success of a decentralised retail banking group. An expert in acquisitions and mergers, he is given the task of fusing Caisse D’Epargne from the Alps region with the Rhone-Alps Lyon Caisse D’Epargne. A prelude to future mergers, such as the merger between Banques Populaires and Caisse D’Epargne in 2008 (later to become BPCE) in which he was actively involved.

Managing Director of commercial banking and insurance at the head of the newly formed group, Olivier Klein quickly covets BRED bank- which he made into, “a little jewel” points out admiringly his old teacher and former Minister of Economy, Edmond Alphandéry. Taking advantage of the retirement of his predecessor, he takes over in 2012. It’s an entrepreneurial bank,”the most complete in the group” he rejoices. He develops the bank with steady progress going against the tide of the rest of the banking sector rushing to bring in the digital to replace the bricks and mortar banking. He, on the other hand, keeps the branches open, opens more and increases employee recruitment. Convinced of his strategy he launches the, “bank without distance” in opposition to the pure players focused on remote banking, increasing the training budget by 40% so that his employees can best accompany their customers in their life projects. “He understood that the success of a company rests on the quality of its teams,” points out someone close to him. He wants to make BRED 100% dedicated to giving advice, much to the dismay of his team, which finds him a little audacious and in a rush.

Perfectionist

And yet the Covid-19 crisis proved him to be right and speeds up the transformation. Being ambitious he also decides to conquer new markets and quickly moves into Cambodia and the Fidji Islands: “He set up shop in places which bankers generally avoid, and he was right to do so,” notes Edmond Alphandéry. Without any false modesty, Olivier Klein is delighted with his results which he sends to all those that are close to him. His fondness for grand strategy doesn’t prevent him from following closely the day- to-day business. He frequently travels around visiting regional branches and banks outside of France and always begins each visit with exchanges with the local teams. A man of communication- and speeches- he enjoys these trips during which he reassures and rallies his employees. On the other hand he will not accept anything that is slapdash. “He doesn’t let anything go by, he’s always on the frontline no matter what the activity,” acknowledges Françoise Epifanie and jokes, “He always encourages people to go beyond themselves”. And he knows how to delegate when he believes in the person, this indulgent boss keeps an eye on everything at all times. Even when he is on holiday he has difficulty in letting go.

As his departure approaches this sixty-something feels he is in great shape. As much as he loves his collection of African statues as wells those from Papua New Guinea which sit in state in a dedicated room, Olivier Klein is ready to head towards new horizons.

L’Hémicycle – Corinne Scemama
Article published on 19 June 2023.

Key Dates

  • 15 June 1957: Birth in Paris.
  • 1985: Head of the risk management consulting department in charge of change and interest rate risk for key accounts at the French Bank of Foreign Trade (BFCE). He then sets up Business banking at the heart of the group.
  • 1985: Affiliate Professor at HEC.
  • 1998: President of the board of directors at Caisse D’Epargne for the western Paris region, followed by the Rhône-Alpes Lyon Caisse D’Epargne.
  • 2010: Managing Director of the BPCE Group, in charge of commercial banking and insurance.
  • 2012: Managing director of BRED.
Categories
Bank Event Management

Farewell message to BRED Group employees

Dear Colleagues,

As you know, I will be relinquishing my functions at BRED on 31 May.

We have been working together for ten years now. And how much progress we have made! We have written some wonderful chapters in BRED’s story.

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Ten years of success. We have posted historic results every year since 2012, continuously growing our NBI and net income. These results are not the fruit of chance; they are the result of the ongoing and renewed commitment of each and every one of you in implementing a strategy that has enabled us, year after year, to adapt to economic and social transformations, so that BRED always comes out on top. We addressed the challenge of the ramp-up of digital, not only through significant investments in tools to enable us to match the performance of our “pure player” competitors, but above all via the human aspect. We have invested in professional training, stepped up equal opportunities, and freed up our advisors by digitalising repetitive tasks in favour of a trustworthy and quality expert business relationship designed for the long-term. 

I am extremely happy that our BRED has forged ahead with this new model, a model of banking without distance and a promise to our customers of a global close relationship that abolishes both physical and behavioural distances by combining the best of the human and the digital. Firmly focused on the future, this loyalty to the fundamentals of the banking business has underpinned our success. The results speak for themselves: Ten years of growth, with an 81% increase in our NBI and a 2.7x increase in our shareholders’ equity; ten years of performance, with a 2.8x increase in our net income; and ten years of continuous improvement in our efficiency, with a 13.1- point decrease in our cost/income ratio to reach an outstanding level of 54%. These results are not a self-congratulatory obsession – they are the real-lie illustration of how BRED, across its various businesses, has met the expectations of the market and successfully gained the loyalty of its customers. Our results have also been marked by the confidence granted to us by our members, the number of which has risen 47% in ten years. Bravo to us and to you. On the back of these results, profit sharing and incentives have also increased spectacularly, by a factor of 2.3 since 2012.

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Yet the climate has not always been favourable to us – far from it. In a low interest-rate environment for banks, we succeeded in outperforming. And how could I not mention the unprecedented situation we experienced during the pandemic? Amid a threefold, health, economic and financial crisis, our results testified to our resilience and the relevance of our trajectory, as well as our ability to succeed in the challenges having faced commercial banks for many years now.

This period considerably accelerated the major changes under way and required companies to reorganise quickly. It encouraged BRED to go even further in banking without distance and switch to 100% advisory banking. The solidity of our bank also enabled us to support the economic recovery of our country, and this is something we can be proud of.

The relevance of our strategy also extends far beyond our borders. In the last ten years we have pursued our international expansion and created new banks in dynamic countries, with the unwavering determination to provide expertise and added value commensurate with the highest international standards. We are now established and growing strongly in Cambodia, Laos, Fiji Islands, the Solomon Islands and Vanuatu; we are the number-one bank in Djibouti. Our international trade financing business launched six years ago in Switzerland and more recently in Dubai has proved an enormous success. These achievements can be seen directly in our performance, with international business contributing 16% of our NBI in 2022. 

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More than results, I have experienced a magnificent human adventure by your sides. From my time at BRED I will always remember our incredible collective power during tough times, as well as more joyous times that we shared at regional conferences and across the entire BRED Group. A particularly special memory for me was our 100th anniversary celebration at the Grand Palais, an exceptional event in all senses of the word, and one that I will never forget.

I am thankful to have worked with motivated, passionate and committed teams and to have been part of absolutely remarkable achievements across the division in France, including in mainland France, Guadeloupe, Saint-Martin-Saint-Barthélemy, Martinique, French Guiana, Reunion and Mayotte. All our business lines have put in strong performances: our branches and business centres, and our Private Bank, rated as the best private bank in France in 2022. Our Corporate Banking Division has taken on true stature and succeeded on the strength of its know-how and technical expertise. Our trading desk was recognised in late 2022 as the best European bank for placing the short-term debt of major European issuers. Last but not least, our international banking business, which has undergone tremendous structuring and development. Our BRED has also been acknowledged for its CSR performance, gaining an extremely high-level Sustainability Rating (A1) from Moody’s.

Our Promepar, Cofilease, Prepar-Vie Assurance, Sofider, Adaxtra, Ingepar and Vialink subsidiaries continue to step up their development and the distribution of their wide-ranging offers. They have now been brought together at a new building in La Défense.

Bravo to all ! Ten years of success in which we have enabled BRED to always come out stronger while many groups have aimed to get by through substantial cost-cutting.

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As I say my goodbyes, I would also like to remind you that our banking profession is passionate, and even essential to the economy, regions, and people themselves.

I have made economics my life, because I see it as the queen of the human sciences. Economics tries to explain how people organise themselves to live, to form a society and seek to improve their lot. And from my passion for economics has come my passion for banks, the place where we can best observe and act on the economy.

A bank is above all a business, with a strategy, resources, objectives and a corporate purpose. To my mind, running a business is first and foremost a responsibility towards its constituent teams. Over these ten years, my unfailing question has been to ascertain whether everything has been done for BRED to move in the right direction, to be profitable on a lasting basis to protect jobs, so that working here is both an individual and collective achievement, and so that we take pleasure in our work and are proud of belonging to the bank. I have always endeavoured to be fair and ensure that everyone else is, because a fair business is a guarantee of job satisfaction and success. It is a business that provides equal opportunities – the same opportunities for everyone, regardless of their, gender religion, skin colour, social origin or educational background. And as I have said on numerous occasions, for me it is a question of combining efficiency and ethics, both with regard to employees and to customers and society. Both are necessary. Efficiency without ethics does not work for long, while ethics without efficiency cannot exist because there are no means to make it work.

I hope with all my heart that you share the idea that our work as bankers has meaning, that what we do is useful, because as commercial banks we are absolutely indispensable to the economy and to the individuals, thus to society as a whole. What a marvellous job we have! We support and facilitate the life and business projects of our customers, over the long term. We are a relational bank, an advisory bank, in the long term, with trust. 

We are also the parties that match financing capacities with financing needs. To do so, we take on the credit, interest-rate and liquidity risks instead of leaving them to be borne by households and businesses who are unwilling or unable to take them. And at BRED, a cooperative regional bank, we are crucial to the regions in which we operate, both in France and internationally, as we are tied to them through convergent interests. There is a true osmosis between our territories and ourselves. If the territory is doing well, the bank is doing well. And if the bank is doing well, the development of the territory will go well. So the concept of CSR is even more real and concrete. Our bank is truly committed to each of these territories. First and foremost by doing our job well, which is essential. And through our investment in favour of equal opportunities, as well as culture, which are powerful drivers of social cohesion and, hence, well-being. In a highly globalised world, we have seen the emergence in recent years of an even stronger need for closeness, a need to which I feel that we respond.

For all these reasons, commercial banks, and BRED, are essential. And rest assured: we have a wonderful future ahead. Because our mutual and cooperative model enables a fruitful alliance of efficiency and ethics, I am convinced that we will be around for a long time to come. We prove this every day and in the long term, even though people have for years been announcing that traditional banks will give way to new competitors. But this position is often based on a false understanding of the essence itself of banking, the forecast demise of which is overly hasty. At BRED, despite the health, financial and economic crises, despite the emergence of low-cost online banks, despite cryptocurrencies, despite excessively low interest rates for an excessively long time and despite all the obstacles in our path, we have not reduced our workforce. On the contrary. Neither have we closed branches – again, on the contrary. Our results have not slipped; they have nearly tripled in ten years. We have come out strong because we are committed together with efficiency and conviction in a strategy that has succeeded and continues to deliver. And to remain strong, to continue to make headway, we need to make the necessary changes while safeguarding the essence itself of our banking profession. We need to maintain our momentum, our talent for overcoming obstacles, our fighting spirit and the pride we have in our profession, and in our bank. This is absolutely essential.

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We have experienced ten years of collective success. I am certain that you will continue to successfully write the story of our wonderful company, that you will stay your course through a rational management approach underpinned by the strengths and values of the BRED Group, namely value-added advice, close relationships with our customers, a proactive approach and entrepreneurial spirit.

And I am certain that you will find the same values with my successor, Jean-Paul Julia, recruited in 2015 to head Corporate Banking, and who then went on to become Chief Executive Officer of Banque Populaire Bourgogne Franche-Comté. Jean-Paul has extensive knowledge of BRED and its business lines.

In the coming years, I wish you as much pleasure and at least as much success as we had together.

Thank you all. Thank you for your determination, your talent and your sense of individual and collective success. Thank you to Stève Gentili and Isabelle Gratiant, and the entire Board, for having enabled me to bring together everything I admire in banking: retail banking, private banking, corporate and investment banking, capital markets banking, and international banking. And thank you for having unwaveringly supported the integrity of our bank, while ensuring benevolent and exacting supervision. You have made my adventure at BRED the most wonderful experience. We can be extremely proud of what we have achieved together.

Long live BRED. And long live you!

Categories
Bank Management

BRED 2022 activity report

It has a very special meaning to me because it marks the end of 10 years of commitment to BRED.

Year after year, despite an adverse environment for commercial banks, the BRED group has significantly increased its net banking income and the results of all its activities.

In retail banking, BRED has further developed its local relationships by reorganizing and modernizing its branches and deploying the most effective digital tools to improve proactivity, responsiveness and convenience.

At the same time, it has further improved its advisory capacity by investing heavily in training and skills. Today, it is a 100% advisory bank, providing advice and support for the life and business projects, large and small, of each of its clients. A bank that is loyal to its clients and useful to the economy of its territories, in France, East Africa, South East Asia and the Pacific.

A bank supported by 6,300 employees, in France and outside France (one third of them), in retail banking, corporate banking, trading room, trade finance, etc., who work daily to provide the best quality of service and advice to their clients.


I would like to thank them for their invaluable contribution to BRED’s transformation over the past ten years!

Categories
Bank Economical and financial crisis Economical policy

Central banks: towards a policy of “small steps”

The global economy is slowing. This will complicate the situation of highly indebted governments and private players. But in principle it should facilitate disinflation, thus slowing the rise in interest rates and possibly facilitating their subsequent decline. However, activity is holding up better than expected and labour markets continue to be tight – high employment rates and low unemployment rates – which is maintaining the level of core inflation. This is consequently accompanied by very low or even zero productivity gains.

Monetary policies are therefore set to continue with their interest rate hikes, albeit with great caution. And at least maintain this level of interest rates, for longer than was expected by the financial markets. There are many reasons for this necessary caution. The new financial conditions have tightened, which in itself results in a slowdown in credit and the economy. Interest rates are therefore higher, risk premiums (“spreads”) larger, lending conditions more stringent, liquidity less abundant, etc. Further monetary policy tightening is therefore not necessarily required. Small steps will now be key, with a study of all the available data between each decision, so as not to do too much or too little.

But above all, the vulnerabilities of the financial system as a whole are obviously what has made central banks very cautious. Of course, the recent signs of this instability had partially idiosyncratic causes. Silicon Valley Bank was poorly managed and under-supervised. The simultaneous increase in the number of cases and the resulting contagion nevertheless show the potentially systemic nature of these events. Long-term rates too low for too long have made many balance sheets highly vulnerable. On the liabilities side, because many companies and governments, and even individuals, both in advanced and emerging countries, were able to take on debt without apparent pain, up to the point of over-indebtedness with a normalisation of interest rates. On the assets side, because in order to seek a little yield in times of zero or even negative interest rates, end investors, either directly or through various asset managers, were encouraged to take more and more risks, whether by extending the maturities of the assets purchased, by a greater dissymmetry between the duration of assets and of liabilities, by accepting higher credit or equity risks, by increasing leverage, etc. The rapid rise in interest rates marked an abrupt break from this long period of rates that were too low (i.e. below the growth rate), during which these weaknesses accumulated. Today, the large global real estate bubbles appear increasingly vulnerable, and the fall of the equity markets will be even greater if they continue to ignore the gradual effects of the general tightening of financial conditions. And the risk of insolvency of many highly indebted players has risen sharply.

Central banks are very aware of this situation, such as the risks generated by a very tense geopolitical situation, leading to, among other things, a costly fragmentation of economic zones. And although on average banks are much stronger than during the big financial crisis, with shadow banking remaining much less regulated, monetary policy authorities will double down on caution, but will preserve their indispensable credibility in their fight against inflation.