Do not split our banking business


For Christian Noyer, Governor of the Banque de France, it is imperative to preserve the financing capacity of companies.

The hour of reality has come for Europe. The Governor of the Banque de France chairs the authority that supervises the banks, the Prudential Supervisory and Resolution Authority (ACPR). How can he oppose an initiative that aims to reduce risks, protect the taxpayer and fight against an excessive and dangerous concentration of banking activities?

The objective pursued by the Commission is legitimate, but the methods chosen are dangerous because they directly affect the financing of companies. His proposals stem from a misconception that there are banks on the one hand and credit markets on the other, and financial markets that focus unnecessary risks on the economy. This is no longer the case today. The crisis has taught us, on the contrary, that finance is a whole. Banks and markets are constantly interacting with financing companies of all sizes. This is true in times of crisis; it is also true in a more normal period.


This complementarity between banks and markets will, in the future, be even more necessary than in the past. Companies will still need banks, either for Thebestautoinsurancequotes payday loans or to raise funds from investors. But the new prudential requirements – which strengthen banks’ strength – will also lead to a more selective distribution of credit.

It is desirable that companies, including small and medium-sized enterprises (SMEs), can issue stocks and bonds and find financing in the markets and banks. The development of sound securitization – through transparent, simple, homogenous, regulated and monitored instruments – should help powerfully.

Banks must also be able to call on the major intermediaries who manage the savings of the French. And investors, individuals, small mutuals, complementary pension funds, managers of SICAV, will have to find the banks able to ensure the liquidity of their investments.

A healthy economy is therefore based on stable, robust and controlled relationships between banks, companies, insurance companies, pension funds and undertakings for collective investment in transferable securities (UCITS). That is deep, liquid, functional and well-regulated financial markets. To want to isolate totally from one another is to slow down the financing of companies, to slow investments, to penalize savings and to reduce growth.

The separation of activities, including in the form of subsidiarisation, as proposed by the European Commission would probably lead to very serious financing difficulties for our companies. For example, market-making by banks is not a highly profitable activity. If it disappears, which investors will buy corporate bonds without the prospect of being able to resell them easily when needed? The state itself would be seriously affected by the issuance of its debt.


Similarly, the resources raised, without the help of its parent company, by a specialized subsidiary will be limited and very expensive. I do not believe, under these conditions, that banks could continue to provide the same service and at the same cost, to mid-cap companies (SMEs) and SMEs. I do not think they could provide the same support for our export companies, by managing in the same relationship with companies their credit needs, their foreign exchange transactions, their needs for refinancing on the markets.

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It is an illusion, moreover, to think that a total specialization of banks through the separation of activities would enhance security. Our experience is the opposite. During the crisis, the largest banking claims occurred in highly specialized institutions. Lehman Brothers was a pure investment bank, as was Bear Stearns. Northern Rock, which was the finest example of a bank panic, was a pure retail bank. In contrast, the large, diversified universal banks withstood shocks better.

For five years, the international community, under the auspices of the G20, has made great progress in regulating financial activities. European Commissioner Michel Barnier has played an important role here – and I want to pay tribute to him sincerely.

The strengthening of banks’ capital, which is particularly important for the so-called systemic banks, the imposition of liquidity requirements, the establishment of resolution systems, and the development of stronger and more rigorous supervision are major advances.


In this new prudential landscape, regulation of market activities has its place. In particular, it is legitimate to prohibit a bank from taking directional positions on its own behalf. This is the purpose, in the United States, of the rule called “Volcker”, the name of the former president of the Federal Reserve that inspired, directly affecting the financing of companies.

It is also the object of the measures recently put in place in France and Germany – which are inspired by the same philosophy. It is not surprising that our two countries, the first in Europe to introduce legislation in this area, are now reluctant vis-à-vis a Brussels project of very different inspiration.

As for the idea of leaving a margin of appreciation to the supervisor to judge activities that must be cantoned, this good provision exists in French law. But this does not fundamentally change the essential question: what are the operations useful or not to the real economy? And what are really risky operations? If we start from bad reasoning, it is unlikely that we will achieve a good result. And I felt it my duty to say it clearly and without waiting.