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The draft banking reform law does not favour a return to growth

French banks have taken note of the draft law on banking and financial stability. They recall that the Liikanen report acknowledged there was no link between bank failures and their organisational models, and that French banks, which are universal banks, demonstrated good resilience to the crisis. Even at the height of the crisis, French banks continued to lend to the real economy at a higher rate than the growth rate, unlike the situation in neighbouring countries. At the end of October, total loan outstandings in France had risen by an annual rate of 1.9 % for estimated growth in 2012 of 0.3 %.

This draft law creates constraints and additional costs at a time when banks already have a lot on their plate in meeting their Basel III requirements. The latter is already weighing on bank's lending capacity and is profoundly transforming the model by which the French economy is financed, while the country is faced with a growth deficit.

Moreover, French banks may find they are alone in having to comply with legal provisions related to the organisation of their activities: the US mechanism is still not finalised, the UK regulation is not set to come into force until 2019, and at European level, if a common form of legislation were to be devised, it would take years for it to come into force. The process of anticipating future European provisions for the prevention and resolution of bank crises is a further difficulty to be dealt with.

New constraints in financing the economy

The draft law is highly structuring, comprising several provisions. It gives new powers to the supervisor in the areas of bank organisation and procedures to prevent and resolve banking crises.

Aside from prohibited activities, it is, in fact, the supervisor that will decide which activities are to be segregated as a subsidiary, leading to a notable reduction in profitability since this subsidiary will have a higher financing cost.

French banks, therefore, will find themselves in a situation of inequality, particularly in relation to their US rivals. It is therefore vital that market activities* which contribute directly to financing the state and companies continue to be financed under similar conditions to those in place today, as international regulations are set to impose greater use of the market. There is a risk, moreover, that the activities segregated in the subsidiary would be gradually taken over by the parallel banking system and subject to more relaxed controls, which would run counter to the goal of stability and security sought by the regulators.

As regards the process for resolving bank crises, it takes procedures for exceptional cases and applies them broadly to all cases of banking crisis, regardless of their level of severity and their impact on the financial system, rather than reserving them for situations in which the failure of an establishment could have chain consequences for the banking system.

Finally, the provisions related to retail banking must be moderate and reserved for fragile populations in order to avoid overly drastic consequences on banks' operating methods and their relationship of proximity with customers.

At a time when banks are subject to multiple regulatory constraints, and since the priority for France must be a return to growth and employment, it is imperative that our country continues to benefit from a solid banking system that is competitive and well placed to assume its role of financing the economy.

*issuance of shares/bonds on the primary market for companies and governments and follow-up on the secondary market.


Colette Cova
email : ccova@fbf.fr
Tel : 01 48 00 50 07

Céline Meslier
email : cmeslier@fbf.fr
Tel : 01 48 00 50 70

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