Ten years on, the Global Financial Crisis: A dive into the impact on the French banking system
On the surface, the French banking system appears less scathed by the GFC than in other European countries. But why do we believe that and was this really the case?
Alain Garnier, Partner in the Corporate practice practice in Paris who specialises in financial sector transactions, states that:
“there are a number of reasons why France was less impacted, among which the ‘universal bank’ model of French banks, their reduced exposure to the American market, efficient regulation and prudential supervision, besides a much more concentrated banking market than in other European countries. But, despite this, it is important to remember that the financial crisis still profoundly affected French banking through the increased regulation and the new banking practices coming into play worldwide.”
This impact was felt in a number of areas:
- Almost all banks owned by non-banking players had to be sold or be associated in some form with a banking group, notably for rating purposes and to secure access to liquidity.
- Smaller banks and insurers tended to merge with larger players in order to cope with the increased cost of complying with a more demanding regulatory framework.
- Larger banks divested entire non-core segments of their activity, often in a difficult price environment, in order to improve their equity capital.
Other post-crisis effects included banks selling off their international operations in numerous countries. Banks’ internal control and internal supervisory systems were also stepped up in response to the increased regulatory requirements and risk of sanctions, not just in France, but in the US and elsewhere as well.
As in many other parts of Europe, French banks have not only had to comply with regulatory change but actually anticipate it so as to demonstrate their financial soundness and establish a “model pupil” reputation. They have also been ahead of the game regarding the regulatory needs of equity capital levels, and closed down certain types of activities before being called out on them. As such, François Hollande’s ‘Law on the Separation and Regulation of Banking Activities’ had almost no effect - or rather its effects had been anticipated by banks.
If you would like to learn more about our work in this area, please contact Alain Garnier.