France to force BNP Paribas, SocGen to wall off prop trading

Trading Assets

The EU report found that Paris-based BNP Paribas and Societe Generale, along with Barclays Plc of London, Frankfurt- based Deutsche Bank AG and Royal Bank of Scotland Group Plc of Edinburgh, had the highest proportion of trading assets, accounting for more than 30 percent of the total. Their value fluctuates with their market performance.

The French banking federation, the group representing the country’s institutions, said the bill “will not favor a return to economic growth.” The FBF said “the law creates extra constraints and costs at an inopportune time,” according to a statement posted on its website.

Hollande projects 0.8 percent economic growth next year. The median of 38 economist forecasts collected by Bloomberg points to a 0.3 percent expansion.

The industry group also warned against the potential handicap they face. “French banks may end up being the only ones applying such rules on their activities,” saying the U.K. and the U.S. rules implemention were ’’uncertain.’’

Protecting Consumers

“We cannot use the pretext that finance is too big and that the stakes too complex to accept the failures of the system,” Moscovici said. “I want this law to protect consumers, especially the most vulnerable ones.”

France is also setting up a system to help wind down ailing banks without relying on taxpayers, as well as creating a “macro-prudential” authority to better oversee systemic risks, or linkages among financial institutions.

Lawmakers will start debating the proposed law in February and the bill is likely to be voted in the first half of the year. Banks will have to complete proprietary trading ring- fencing by 2015.

French efforts to shield deposits from risky activities come after measures proposed in the U.S. and the U.K. Named after former U.S. Federal Reserve Chairman Paul Volcker, the U.S. plan would ban commercial lenders from proprietary trading.

Volcker-Type

While most French bankers opposed a separation between consumer and investment banks, they have said they would accept a Volcker-type rule. French banks, which are already adapting to rules including Basel III stricter capital requirements, “will have to run this on top of the rest,” Societe Generale Chief Executive Officer Frederic Oudea said Nov. 15.

BNP Paribas, France’s largest bank, would have less than 2 percent of its corporate- and investment-banking sales affected by the government split plans, Alain Papiasse, head of BNP’s corporate and investment bank, said last month, declining to further assess the impact of the law.

The U.K.’s Vickers proposals, from a group led by the former Bank of England Chief Economist John Vickers, recommended banks separate their consumer and investment-banking units.

Bloomberg News

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