PARIS — François Hollande began his campaign for the French presidency in January with the declaration that he and his Socialist party were prepared to break from policies that they said had contributed to the financial crisis, notably promising a separation of investment banking from consumer banks.
“My real adversary has no name, no face, no party; it will never be a candidate, even though it governs,” he told supporters at Le Bourget, near Paris. “It is the world of finance.”
Of course, 11 months is a long time in politics. The banking overhaul bill rolled out Wednesday by Mr. Hollande’s finance minister, Pierre Moscovici, was a far cry from the tough talk of January. Les Échos, a French financial daily, summed up the general reaction in a Page One headline: “Hollande’s signature bank law project is on the rails.”
Gone is the strict separation of investment banking from the consumer, or retail, business and its insured deposit base, with banks required simply to “ring-fence” trading for their own books in separately capitalized subsidiaries that remain within the organization. And loopholes in proposed bans on high-frequency trading and agricultural commodity speculation have left those measures essentially toothless.
The banking bill fell well short of a proposal put forth by Erkki Liikanen, the governor of the Bank of Finland, that all banks on the European Union quarantine their risky trading activities. It also fell short of the strictest version of the so-called Volcker plan in the United States, which would prohibit lenders from engaging in proprietary trading altogether.
But French bankers and officials including the Bank of France governor, Christian Noyer, had argued forcefully that Mr. Hollande’s original plans would have put the country’s financial firms at a competitive disadvantage to foreign rivals. Expectations for the bill had been ratcheted down in recent months.
“This isn’t reform for the sake of the banking lobby,” Mr. Moscovici said after he presented the proposal to the cabinet. “It preserves the French universal banking model that has stood the test of time.” The bill represents, he said, a campaign promise Mr. Hollande has kept.
The French Banking Federation said in a statement that the bill would “create new constraints and additional charges at an inopportune moment, when the banks must make considerable efforts to adapt to the Basel III capital rules.”
But analysts played down the significance of the measures, and shares of the biggest French banks — BNP Paribas, Crédit Agricole and Société Générale — rose in Paris on Wednesday.
“It’s all mirrors and smoke,” Christophe Nijdam, a banking analyst at AlphaValue in Paris, said. “In blunt terms, this is not banking reform.”
As evidence, Mr. Nijdam estimated the proposal would require BNP, the largest French lender, to segregate activities that represented just 0.5 percent of its net banking income. In contrast, he said, the Liikanen proposal would require BNP to segregate activities that represented an estimated 13 percent of that income. The difference is important, because if the riskier activities were separated, their financing costs would rise, reducing profitability.
The bill also calls for the creation of a guarantee fund, paid for by a levy on financial institutions, that could be called on to help pay for any banking disaster.
It also gives the government greater reach. The existing Prudential Supervisory Authority would be given the power to wind up any faltering banks. A new agency, the Financial Stability Council, would be charged with anticipating systemic risks to the banking sector, and have the power to order banks to raise capital or take other measures when they encountered difficulties.
Nicolas Véron, a senior fellow at Bruegel, a research institute in Brussels, said the new resolution authority might turn out to be the most important element in the bill. “France has long had a tradition that banks don’t fail,” he said, “and this represents a significant step away from that.”
The banking bill was adopted by the cabinet but must still obtain parliamentary approval. It must also be brought into conformity with emerging European Union rules.
“I was always skeptical that France could do it alone,” Mr. Véron said, adding that it was “not suitable” for the government to be pushing for integration at the E.U. level through a banking union while pushing for a different policy at the domestic level.
On a day when Mr. Hollande was making headlines on a state visit to Algeria, it also fell to Mr. Moscovici to warn that further pension overhauls might be necessary — a revelation that carries political risk for the government.
Mr. Moscovici told RTL radio that changes to the retirement system would have to be considered, despite fixes made in 2010 by Nicolas Sarkozy, Mr. Hollande’s conservative predecessor. Mr. Sarkozy’s changes, including an increase in the retirement age by two years, to 62, were to have kept the system solvent until 2018. But a new study by a government body, the Conseil d’Orientation des Retraites, estimates the retirement plans would have a combined deficit of €18.8 billion, or $23.8 billion, in 2017, up from €15 billion last year.
The study, first reported this week in Le Monde, proposed several means of addressing the gap, including an increase in payroll deductions, a reduction in the average pension, or adding six months to the retirement age.
Mr. Moscovici also sought to play down suggestions of policy differences among members of Mr. Hollande’s government, saying it was natural that ministers would express themselves differently even though they agreed on overall direction.
Referring to the recent dispute with ArcelorMittal, in which Mr. Hollande’s governmentthreatened to take over one of the company’s steel plants, Mr. Moscovici said that temporary nationalization could be “useful” when strategic interests were in play, but could not be an end in itself. He spoke after the industry minister, Arnaud Montebourg, told Le Monde that “temporary nationalization is the solution of the future.”
“Temporary nationalization is a part of the future, not the entire future,” Mr. Moscovici said.
France Details Plan to Shrink Banking Risk
This article
France Details Plan to Shrink Banking Risk
can be opened in url
http://newsinevitability.blogspot.com/2012/12/france-details-plan-to-shrink-banking.html
France Details Plan to Shrink Banking Risk
