30 January 2013

FT: Paris pressure to get tough on banks

France's Socialist government is coming under domestic pressure to toughen up its flagship banking reform bill which falls short of EU-wide proposals to ringfence banks' trading activities.

The French government’s bill to ringfence banks’ speculative activities, such as proprietary trading – which it has presented as a template for upcoming EU reforms – has been criticised by some leftwing deputies as being a soft-touch measure which would leave the banks’ business models almost unchanged. They are pushing for the inclusion of tougher measures – such as a broader definition of speculative activities – when the bill starts its passage through parliament from February 12.

Christian Eckert, a Socialist deputy, said he wanted a ban on toxic loans, while Finance Watch, a Brussels-based public interest group, argues for a much larger separation: “The subsidiary charged with holding the separated activities will be virtually empty, which means that in effect there will have been no separation”, it said [see press release].

The debate in France has heated up just as Michel Barnier, the European commissioner in charge of regulatory reform, gave hope to banks that they would not be forced to hive off key parts of their market-making business.

Last year’s Liikanen report, commissioned by Mr Barnier, went further than the French bill, by recommending that banks’ trading activities – including market-making – should be separated into an independently capitalised unit.

Banks have argued that trading activities are essential in providing loans and services to companies, helping them expand given Europe’s anaemic economic growth.

Frédéric Oudéa, Société Générale chairman and chief executive, told the parliamentarians that the French draft reform as it stood, posed a threat to the competitiveness of its banks – and the European banking system – vis-a-vis US banks, in particular.

Christian Noyer, governor of the bank of France and a member of the European Central Bank governing council, welcomed the proposed banking law as “good” and “well balanced”. He supported France pressing ahead with its own measure, saying: “I’m very much in favour of France anticipating European developments".

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