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French Finance Minister Opposes European Bank Reform

Translated Tuesday 4 February 2014, by Gene Zbikowski

Pierre Moscovici thinks the European Commission’s proposals to limit the systemic risks posed by the big banks are too radical. He has adopted the viewpoint of the traders and the MEDEF, the French bosses’ association.

And yet, the European Commission’s bank reform is being pushed by a UMP (conservative) European commissioner, Michel Barnier, who was responsible for the terrible banking union. The idea isn’t new: It is necessary to regulate the risks posed by the all-powerful banks, which are described as being “too big to fail,” and which the government has to bail out from bankruptcy to prevent catastrophe from snow-balling over the economy. The regulation Barnier is pushing might have gone much further, but it puts forward at least two elements of progress with regard to the situation in France.

Under the new regulation, the banks will not have the right to use their own capital to speculate. In the final analysis, this is the sole guarantee for customers that some money will remain in the bank. The United States, for example, has already adopted such a law.

The other point concerns the 30 biggest banks in the European Union, which will have powerful incentives to create separate subsidiaries to handle savings and speculative activities (it would have been preferable to impose a complete splitting of these activities). The aim is that, should a bank’s speculative activities collapse, the government will be able to let it go under without its citizens’ good money being dragged down with the bad.

Michel Barnier explains that “Exactly what we’re doing is, we’re giving the supervisors the power to impose the creation of subsidiaries on banks that are too big to fail, too complex to be wound up without a systemic crisis, and too costly to be saved with public monies, when these banks take excessive risks.”

Socialist Party allied with the banks against the UMP commissioner

Michel Barnier’s reform is the bare-bones minimum, all the more so as it provides for exceptions which do not make the fire-walling of activities obligatory. The recent reform of the British banking regulations is surprisingly more restrictive. And in France, there are five banks whose failure would result in systemic risks. But they reject separating their activities, and reject even more strongly the creation of separate subsidiaries. Their situation of being “too big to fail” amounts to real impunity, because it guarantees that the government will save them by injecting new capital, and if possible without their giving anything in return, as was the case in 2008.

The same situation exists in Germany, where the bankers’ lobbies are exerting pressure to scuttle “the Brussels hard line.” Pierre Gattaz, the head of the MEDEF, the French bosses’ association, logically lines up with the opponents of regulation. “I regret that the proposed regulations interfere with our universal banks’ proposing complete services to businesses,” Gattaz said.

On their heels, Pierre Moscovici is also expressing his “serious reservations.” A Socialist Party minister who’s lining up with the bank bosses to prevent minimal regulation of finance by a UMP European Commissioner, now there’s a real kick in the pants for you.

And the most astonishing thing is that Christian Noyer, the governor of the Banque de France, and as such the “regulator” of French finance, and whose position would be reinforced by Barnier’s reform, said: “The ideas which Commissioner Barnier has put on the table are ideas, and I measure my words, ideas that are irresponsible and contrary to the interests of the European economy.”

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