12 July 2012

Bloomberg: French bank legislation seen by December keeping universal model

French President François Hollande's legislative proposal to overhaul the finance industry will aim to keep lenders' retail and investment bank operations under the same roof, while isolating the riskiest businesses, said an official working on the plan.

The blueprint, to be ready by year end, may maintain the universal banking model represented by the country’s biggest institutions, BNP Paribas SA (BNP), Société Générale SA (GLE) and Crédit Agricole SA (ACA), the official, who asked not to be named under government ground rules, said in an interview.

To follow through on Hollande’s campaign promise to split up banks, French officials are studying the work of a UK panel chaired by John Vickers that called for firewalls between consumer and investment banks and the so-called Volcker rule in the US that would ban commercial lenders from proprietary trading.

“Finance will have to service the real economy”, Socialist Prime Minister Jean-Marc Ayrault said on July 3 in his first policy speech. “That’s why we will separate banks that are useful to investment and jobs from their speculative activities.”

The French plan will come after recommendations of a European panel headed by European Central Bank policy-maker, Erkki Liikanen, that is charged with looking at whether banks should build internal firewalls to protect taxpayers and customers when failure of one part threatens to cascade throughout the company.

The Liikanen panel, whose report is due in September, is considering “prohibiting banks from carrying out some activities or requiring banks to put certain activities (e.g. taking deposits from retail customers) into separate legal entities”, according to a February 22nd European Commission statement.

France’s first Socialist president since 1995 wants to limit the excesses of investment banking activities such as proprietary trading without damaging the economy, said a French banker who asked not to be named because his talks with government aides are private.

French bank representatives have criticised the planned split, telling the government they already face burdens including Solvency II rules for insurance businesses and Basel capital requirements, the official said.

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