* '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 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.
LITTLE IMPACT SEEN
"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
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
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."