UPDATE 1-French banks warn capital rules could hit growth

Tue Jul 5, 2011 9:51am EDT

* BNP, Socgen heads say regulators should proceed cautiously

* European economies more reliant on banks, Pebereau says

* Oudea seeks 'time to adjust' (Adds background, comments from SocGen CEO, releads)

By Christian Plumb

PARIS, July 5 (Reuters) - The heads of France's two biggest banks told regulators on Tuesday that tougher capital rules could slam the brakes on growth in a region that still depends on banks to provide most of its credit.

Global banking regulators decided last month to slap an extra capital charge on the world's biggest banks to make them safer, a move that could hit BNP Paribas and Societe Generale if they are deemed to be "systemically important."

That requirement would come on top of a new 7 percent minimum core capital requirement which all banks across the world will have to hold under new Basel III rules being phased in over six years from 2013.

"What we are questioning at the end of the day is the amount of pain we can suffer and for how long and then whether or not it will really be paradise," Societe General's chief executive, Frederic Oudea, said, referring to assurances that short-term sacrifice to meet the capital rules would be worth it in terms of greater safety.

Larger rival BNP Paribas's chairman, Michel Pebereau, sounded a similar note, urging banking regulators to proceed with caution because of the danger that new capital rules could stifle economic growth.

"We need to be quite cautious now with new regulations," Pebereau said at a conference in Paris, adding that he was optimistic that Europe would show in the coming month its capacity to deal with the Greek crisis.

UNEVEN PLAYING FIELD?

Pebereau called for final decisions regarding which banks are considered "too big to fail", and therefore require an additional capital cushion, to be postponed until 2015 given that under the current regulatory framework such banks would only need to raise capital between 2016 and 2019.

"It would be wise to seriously assess the overall impact of those regulations on the economy," said Pebereau, who is scheduled to retire as chairman of France's largest bank later this year.

He noted that 70 percent of European economies' financing needs are still provided by banks, as compared with the United States, where traditional lenders provide just 30 percent, with the balance coming from the financial markets.

Earlier the Bank of France's governor Christian Noyer said policymakers were fully aware of the macroeconomic impact of tougher regulations and said such rules should "neither derail financial systems nor favour some particular business models over others."

But Oudea said he worried that the new wave of regulation could result both in an uneven playing field -- as U.S. banks may not be held to the same standards as European ones -- and needless complication as regulations become fragmented geographically.

"We all agree that things need to change, that we need to have more capital, that liquidity requirements need to change," he said. What we want make sure (is that) we can still finance the economy on a reasonable level, that we have enough time to adjust." (Additional reporting by Leigh Thomas; Editing by Greg Mahlich)