Policy

This paper studies the transmission of an exogenous shock on assets valuation through a financial network. We use entity-specific data on 8,308 French financial institutions to build a network of banking groups, insurance companies and individual investment funds where each institution hold external assets as well as bonds, equities and investment fund shares issued by other institutions in the network. The network holds assets worth €11.4 trillion at year-end 2016. Our model considers two main contagion channels: securities’ market prices and potential default cascades. The securities market channel accounts for common exposures to the same set of securities and for the impact of an institution’s losses on the price of its own securities, i.e. the equities, bonds and fund shares issued by the entity and held by other financial institutions in the network. The second channel reflects institutions’ losses due to defaults by their financial counterparties, and is augmented with bilateral large exposure loans. In the specific setting of our model, the results show the importance of the market channel – versus the traditional cascades of default – for the propagation of small exogenous shocks across the financial network. For instance, a shock of a magnitude of 0.1% to external assets (i.e. the assets that do not represent bilateral exposures within the network), which represents an instantaneous €10 billion loss, does not trigger any defaults in our simulations but trigger contagion via the market channel. A reverse-stress test simulation is run to assess the general robustness of the network.

The State Aid Scheme No. SA40266 establishes the legal framework for a French public funding program aimed at supporting R&D&I and environmental protection from January 2015 to December 2020. This program is managed by ADEME, the French Agency for Ecological Transition. It is part of a broader initiative known as the PIA (Programme d'Investissement d'Avenir), or Investment Program for the Future, which was launched by the French government in 2010 (Part 1). This document aims to assess the impact of the PIA ADEME on its beneficiaries and the economy at large. To this end, both quantitative and qualitative impact evaluations have been carried out. These two methods have been employed complementarily to provide a comprehensive analysis (Part 2).