Reuters/Paris
French President Nicolas Sarkozy has talked tough on banks this year but all signs are he has agreed to go easy where it matters – on forcing increases in their capital.
Sarkozy has agreed to go easy where it matters – on forcing increases in banks’ capital
Sarkozy was one of the hits of this year’s World Forum meetings in Davos, telling JP Morgan Chase chief Jamie Dimon the global crisis had shattered trust in big players and had proved they needed regulation.
But while he has saddled his own banks with more tax on bonuses and balance sheets, he has been softer than neighbouring Switzerland or Britain when it comes to forcing lenders to raise their capital base and discouraging risk-taking, analysts say.
“The capital positions of large French banks are now weaker than those of European peers ... even though they entered the financial crisis with stronger capitalisation,” Standard & Poors analyst Elisabeth Grandin said.
At end-September, top French banks BNP Paribas, Societe Generale and Credit Agricole had Tier 1 capital ratios of between 10 and 11.2%, behind Royal Bank of Scotland’s 12.5% or Credit Suisse’s 21.9.
While Britain and Switzerland are keen to impose capital burdens above a stricter minimum core capital ratio of 7% under Basel III, France has said it will put the needs of its economy first.
“Our pleas have been heard by the French president,” said one Paris bank executive, not wishing to be named.
France’s approach may have more international significance, particularly given its presidency this year of the Group of 20 rich and developing nations, which is steering banking reform.
The Basel III reform rushed through after the 2008 crisis, provides a broad basis for trying to stabilise the banking system as a whole. But regulators are still grappling with what to do about banks whose collapse, like that of Lehman Brothers, could bring the whole system crashing down.
As G20 delegates gathered in Paris to discuss international financial reform, France was siding with calls from top bankers like BNP chairman Michel Pebereau to avoid burdening large, complex lenders with additional capital surcharges designed to dampen their appetite for risk.
The government argues tighter capital requirements would hobble the sector’s crucial role in financing economic growth and is lobbying the G20 to steer clear of imposing additional capital levels on lenders deemed “too big to fail”.
“You can’t just solve this by asking big banks to take on more capital. It’s more complicated than that,” Bank of France chief Christian Noyer said this week.
France favours stronger surveillance of lenders, which it argues helped its banks emerge from the crisis relatively unscathed, as well as other mechanisms which would shift more of the burden of future bailouts onto the private sector.
It is leading a working group at the Financial Stability Board – tasked with dealing with the broader issues of preventing future crises – that is looking at “bail-in” instruments which allow creditors to take haircuts on the debt of a bank in trouble or convert debt into capital.
French officials also support hybrid instruments such as contingent convertible bonds (CoCos), with a recent issuance by Credit Suisse piquing market interest.
“This is not simply a divide between the Anglo-Saxons and the French,” said one G20 source. “The debate is moving very fast. The G20 has put these new instruments on the agenda.”
All of that, however, may also simply reflect France’s interest in staving off measures that would affect some of its own banks in the “too big to fail” category and its traditional stance of refusing foreign interference in its private sector.
“France remains a corporatist country where companies and banks work hand in hand with the state structure. That’s the French model,” said another analyst. “France sincerely believes it shouldn’t be made to pay for a crisis it didn’t start.”
