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French National Assembly Waves Through Banking Bill

by Ulrika Lomas, Tax-News.com, Brussels

25 February 2013


French Finance Minister Pierre Moscovici has welcomed the French National Assembly’s adoption of the Government’s banking reform bill, providing for the separation and regulation of banking activities in France.

The French Finance Ministry noted that the National Assembly’s vote followed in-depth, high quality discussions with the French National Assembly finance committee. The bill was adopted during a first reading by 315 votes to 161.

Highlighting the fact that the text was backed not only by members of the majority party, but also by members of the opposition, Finance Minister Moscovici said that the outcome of the vote confirmed that the decision to work closely together with parliamentarians and to engage in dialogue had once again proven highly successful, leading to improvements in the bill and therefore to significant advances, without upsetting the balance.

The Government’s bill, which forms one of French President François Hollande’s pre-election pledges, aims to compel banks in France to isolate their proprietary trading activities by 2015, to ban high-risk activities, including high-frequency trading, and to strengthen the powers of the Prudential Supervisory Authority (l’Autorité de contrôle prudentiel – ACP), attached to the Banque de France.

Banks in France have opposed the Government’s plans from the outset, underlining the need to preserve the universal banking model. Yet many have criticized the Government for not going far enough with its reform plans. Indeed, isolated activities are expected to represent between only 1% and 3% of the net annual banking product of financial institutions.

Determined to toughen the reform, members of the French National Assembly finance committee submitted around 300 amendments to the bill, including plans to fix a threshold beyond which market-making activities will have to be isolated in a separate subsidiary.

French Finance Minister Pierre Moscovici unveiled details of the bill providing for the separation and regulation of banking activities back in December 2012. At the time, the French Finance Ministry explained that the bill is designed to protect savers’ deposits while at the same time orientating finance towards the real economy. The ministry highlighted the fact that analysis of the causes of the financial crisis and the role played by the banks has led the Government to legislate to separate the purely speculative activities of banks from those intended to finance the real economy.

He underlined the fact that the reform was conceived in order to “profoundly change the sector,” to ensure that France becomes an example in Europe, and to re-shape the financial landscape for the next twenty years, away from speculation and towards the financing of the real economy.

Moscovici stressed that the bill places France at the head of Europe in terms of regulating banking activities, noting that although progress has already been made at Community level, different texts forming the basis of a banking union still need to be finalized. This bill is designed to encourage France’s European partners to accelerate discussions at European level and to join France in its efforts, Moscovici made clear.

The French minister explained that the bill provides for the separation of banking activities useful for investment and employment from speculative activities that banks carry out for their own account, to better trace the risks and to allow for quicker action. The law will improve and strengthen the authorities' capacity to intervene during a banking crisis, it will prevent and limit systemic risks, and it will protect the banking consumer, the minister said.

Underscoring the need to protect consumers, in particular those most vulnerable, Moscovici ended by noting that the bill provides for a series of measures aimed at capping certain costs for the most vulnerable in society, improving access to banking services, and guaranteeing a more effective procedure for debt.

French President Francois Hollande said at the time of his election that the world of finance was his "enemy," and has doubled the financial transactions tax imposed on many types of securities trading since August, although he has so far not singled out bankers for particularly adverse tax treatment.

Rejecting claims that the reform does not go far enough, the governing Socialist Party (PS) underlined the fact, following the National Assembly vote, that France is the first nation in Europe to address the issue of financial regulation. Indeed, while conceding that Germany is currently in the process of drawing up a similar bill, and that the European Commission is in the throes of drafting its own proposals, the PS concluded by insisting that "the French reform has initiated the movement."

The French Senate is due to begin its examination of the bill shortly.

TAGS: Finance | tax | investment | speculation | law | banking | France | Germany | regulation | services

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