* 'Universal banking model' to be mostly untouched
* Hollande's campaign rhetoric softened in legislation
* Prop trading reduction had already largely happened
* Shape of final bill keeps investors in suspense
By Christian Plumb and Lionel Laurent
PARIS, Nov 30 (Reuters) - French banks will be able to adapt easily to changes proposed by President Francois Hollande and will escape the more stringent measures being adopted by the United States and Britain.
"This is really not 'finance as the enemy'," said Fabrice Asvazadourian, a consultant at Roland Berger in Paris, referring to the softening of Hollande's stance towards the industry since his anti-bank election campaign.
The overhaul, a key plank in Hollande's campaign last spring, leaves most of France's vaunted "universal banking model" untouched, according to a draft of the bill. This model, where investment banking relies on cheap funding from a bank's retail or commercial deposit base, has been challenged in some countries since the financial crisis.
The central demand of the French plan is that banks like BNP Paribas and Societe Generale separate or exit proprietary trading activities, where they risk the bank's own money rather trading on behalf of clients.
French banks' investment banking units, which remain major profit centres despite having scaled back after the financial crisis and a later dollar funding crunch, will be left largely unscathed by the reform.
"We've ended up with a draft law which is really neither Vickers nor Volcker and which in my opinion will allow the French banks to adapt quite quickly," Asvazadourian said.
The soon-to-be-finalised draft law differs from the Vickers reform in the UK where banks are required to "ring-fence" their retail operations from riskier investment banking activities and in the U.S. the Volcker rule bans proprietary trading. The French plan also falls short of the pan-European Liikanen proposals that call for a ring-fencing of nearly all types of trading activities, including market making.
French banks successfully argued that activities such as market-making, where a bank quotes buy and sell prices at which it will trade specific securities, were vital to their ability to help sovereign and corporate clients access financial markets and to keep liquidity flowing. Those activities would be left untouched by the proposed reform in France.
"This maintains the essential of what the banks wanted - a bit of a unique model where the banks will be allowed to engage in all activities even if speculative activities are contained," said Francois Chaulet, a fund manager at Montesegur Finance in Paris.
French lenders had already reconciled themselves to scaling back riskier activities to comply with looming Basel III capital rules, designed to discourage risk.
Chaulet said the reforms wouldn't make French banks any less attractive as an investment.
Still, French banks are far from being home and dry. The draft which is circulating has already come in for criticism from some consumer advocates and Hollande's more radical allies could push in parliamentary debate to give it more teeth.
And the law will probably result in tougher oversight from the Bank of France's ACP regulatory body, which will have more authority to ensure a wall is maintained between proprietary trading and other activities.
Finance lobby groups are pushing to water down a section of the law that would give the Bank of France extra powers to make banks, brokerages and trading houses pay for the cost of winding down or bailing out a failed bank.
They argue that the ACP would be given too much leeway to punish "good" institutions for others' crimes by making everyone contribute to a fund for failing institutions and deposit guarantees.
The last minute lobbying by banks over the regulator, though, is a relatively minor battle considering the more drastic measures, such as being forced to split up, that could have been proposed.
"The ACP is a regulator which the banks have a good dialog with," Asvazadourian said. "We're talking about an adjustment, not a transformation."