His Excellency the Minister of Economy and Finance,
Barely a few weeks ago, the bankruptcies of Silvergate Bank, Signature Bank and Silicon Valley Bank in the United States shook the financial markets and raised fears of the outbreak of a new crisis, similar to the one that followed the fall of Lehman Brothers in 2008.
sequel after announcement
The fear that has become more legitimate since the beginning of the global contagion was not caused by the failure of systemic banks, as one might fear, but by the failure of medium-sized banking institutions, which was reflected in the European continent. The downfall of one of the weak links in the sector, Credit Suisse.
If the massive intervention of the public authorities allowed to mitigate the trauma, one question remains: Are the fires still burning? The situation does indeed deserve our full and undivided attention, for at least two reasons. Firstly, because the 2008 crisis actually began in 2006 and grew in successive waves. Then because the contagion we just saw comes from bank failures that accounted for only 0.5% of global financial assets. It is therefore a mistake to think, on the pretext that the situation is now stable, that all dangers have been averted.
Replacement of losses and privatization of profits
If we don’t learn the lessons from this episode, we risk deeply regretting it. Remember, banking and finance are built on a fragile element: the trust placed in them. However, with these recent bankruptcies we can see that this trust now depends almost exclusively on the intervention of public authorities and their ability to bail out the banks in the event of trouble.
The aggregation of losses and the privatization of profits have limits and cannot replace the application and enforcement of strict rules for the sector, which would make it possible to maintain trust.
sequel after announcement
We do not question the need for bank bailouts to stop the panic. But this practice should be exceptional, but it has become public policy in itself, which often seems to go without saying.
From our point of view, it is necessary to adopt the rules enacted after the last crisis and above all to ensure their application. Indeed, almost fifteen years after the outbreak of the subprime mortgage crisis, few people know that prudential rules (relating to capital ratios and liquidity in particular) have only been partially implemented at the European level.
The situation was also denounced by three European supervisors: José Manuel Campa, head of the European Banking Authority, Luis de Guindos, vice-president of the European Central Bank, and Andrea Enria, head of the supervisory board of the European Central Bank. From the end of 2022, the latter announced itself “Very concerned that in the framework of the ongoing legislative debates in the Council of the European Union and the European Parliament on the EU banking package, many calls have been made to deviate from international standards.” He mentions that he is going “Reputation, Competitiveness and Ultimate Funding Costs for the EU Banking Sector”.
Our concern has been increasing since the members of your majority voted, in January 2020, on a resolution asking the government to relax the so-called “Basel III” rules, thus addressing the language of the sector. A decision supported by the government and although the governor of the Bank of France, François Villeroy de Gallau, considered that the Basel III accords “It was the best possible compromise.” And “Taking responsibility for not transferring Basel III would be very dangerous, because that would succumb to the temptation to forget ten years after the financial crisis.”
sequel after announcement
Today we do not say anything else. Minister of Economy and Finance, during the “troika” negotiations (Parliament, Council and Commission) on CRR and CRD [Capital Requirements Regulation, Capital Requirements Directive, NDLR] Beginning on April 17 and leading to the Final Text on Supervision of the Banking and Financial Sector, we ask you to take a responsible stance: namely, the full and complete implementation of the Basel III agreements.
France’s role will be central to these negotiations. It is now your responsibility to ensure the success of strong and effective European regulation of the banking and financial sector to prevent any new crisis. In the context of inflation, geopolitical tensions, and environmental emergencies, the last thing we need is another banking crisis.
