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22 may 2015

2015: Major international challenges for the french banking model


Reform measures are still on the table of international regulators (Basel Committee on Banking Supervision and the Financial Stability Board) and laden with challenges, although the priorities are to kick start the funding of economic growth in Europe. French banks' economic model and their capacity to finance the projects of their customers could be undermined by flawed calibration of these reforms. Among such reforms, we cite two major projects:

  • The Net Stable Funding Ratio (NSFR) will require banks to hold long-term resources (at more than one year) to finance the economy, even in the short term. French credit institutions will be particularly penalised due to the structure of French savings: life insurance and regulated savings, which do not appear on the balance sheet of banks and therefore cannot be used to meet the requirements of the ratio.
  • The Total Loss Absorbing Capacity or TLAC is designed to allow a systemically important bank to continue to carry on essential activities even subsequent to a loss that may have consumed all its regulatory capital; the TLAC, developed at the international level by the Financial Stability Board, does not take into account the requirement known as the minimum requirement for own funds and eligible liabilities (MREL) in the BRRD Directive that applies to all banks in the EU.
    These reformes are primarily inspired by defenders of the financing model used in anglo-saxon countries, and tailored to comply with US accounting rules. In fact, they could have devastating effects on continental Europe's banking industry.

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