You’ve just taken over the reins as Chairman of the Fédération Bancaire Française (FBF). What are your priorities for the coming year?
Put simply, I want to make sure French banks continue to finance the economy efficiently and support the social transformations under way. We must be there providing support, whether it is about helping people get on the property ladder through the right mortgage offering or meeting the challenge of energy transformation through innovative ways of financing, such as green bonds.
You have made much of the solidity of French banks but a number of them came out in the lower half of the pack following this summer’s ECB stress tests…
There is no doubt on this point. The impact of stress scenarios on French banks’ capital is well below the European average and they all have very satisfactory capital ratios. Our banks have more than doubled their capital reserves in a few years and their resilience was amply confirmed by the latest stress test results.
Will the Basel Committee’s work particularly affect French banks?
Current debates about Basel 4 have nothing to do with a face-off between the USA, pushing for stricter and more prudent rules for banks, and Europe, which would be happier with a more relaxed approach. The situation is actually quite the reverse! The USA is seeking, supposedly in the interests of simplicity, a return to so-called standard models (i.e. Basel 1) while France and other countries want banks who have invested heavily in developing much more sophisticated Basel 2 and Basel 3 risk models to be able to keep them. I would add, in the interests of objectivity, that in Europe that it is self-evidently the banks which have gone furthest with internal or advanced models that have the best control over their risk levels. To put it simply: the danger is that Basel 4 should be no more than a Basel 1.5. That is unacceptable.
Do you see risks in the ECB’s policy of very low interest rates?
The ECB has done its job by cutting rates, a necessary but not sufficient condition for reviving growth. This policy, however, brings with it some perverse effects in the medium and long term. For the French banking system the situation is further complicated as our system of regulated savings accounts Livret A, LDD, PEL, etc.] dictates minimum rates of return, which prevents the wider financial intermediation system from adapting to a long-term low-rate environment. As for charging negative deposit rates on banks’ cash at the ECB, this is clearly ineffective except as a penalty on banks. What we need is a coherent approach between monetary and prudential policy.
Will the “Macron Law” making it easier to switch banks stimulate competition and be a game changer?
Competition is good, but we need to understand the context, here. If customers rarely switch their bank in France it is not mainly for technical reasons. It is also because customers have an objective interest in maintaining a broad and lasting relationship with their bankers who are professionally committed to supporting them over time.
Post-Brexit, could French banks pick up some of the business currently done in the City?
France can come out of this well, but for that to happen we obviously need an overarching strategy that is coherent and consistently pursued. Pragmatically, if tax on banking systems remains very high, if tax on salaries, which hits us particularly hard remains high, it will be hard to attract new finance jobs over here. This, then, is a political issue.
Internet operators are investing en masse in financial services. How should banks respond?
A number of new bank and non-bank operators are emerging. This is part of the normal run of competition. But in France digital transactions have been around for a long time, particularly in banking and payments. This is evident from our customers’ adoption of mobile technology which is now virtually universal. That said, as I see it, some people have been misreading the situation. Everyone now knows how to open accounts, do online banking and innovate in mobile banking. But banking is about more than just distribution and operating processes. Banking is first and foremost about professional commitment to relationships and trust plays a fundamental role, both in terms of the security of systems and trustworthy advice. Competition may be free and open, but the winners will always be those that can earn the trust of their customers.
The GAFAs (Google, Apple, Facebook, Amazon) are formidable players because they are powerful companies with a solid brand image. If they want to jump into banking, all I would say to them would be “Welcome to the Basel Committee”.