75 French Economists Blast Bank "Reform" Draft, Call For "Strict Separation of Banking Activities"
February 21, 2013 • 10:34AM

On Feb. 13, four days before the National Assembly vote, three leading economists, Jacques Généreux, Jacques Sapir and Dominique Taddeï (former President of the Caisse des Dépots et Consignations, France's equivalent to Germany's Kreditanstalt für Wiederaufbau), wrote a call for "a strict separation of banking activities" which they regret is dramatically lacking in the government's proposed banking reform draft legislation, voted up in the lower house yesterday. Their call in the daily Libération was signed by 73 other economists. Last year, several of them had signed the "Call for a Global Glass-Steagall" issued by Bürgerrechtsbewegung chairwoman Helga Zepp-LaRouche of Germany, and Jacques Cheminade and Solidarité & Progrès of France.

The economists' call, "Banking Law: Taxpayers Shouldn't Pay For Finance," reduces the issue of Glass-Steagall to a mere financial regulation, and leaves out any mention of Glass-Steagall or Cheminade, or the crucial issue of how to create a return to productive credit generation and nation building. The text, which condenses many of S&P's critiques over years, clearly shows to what extent Cheminade's French Presidential campaign last year has made the issue of banking separation a household word in France, and forced any economist on two legs to take a stand.

Here are excerpts from the call:

"We economists think that the draft legislation for banking separation presented at the National Assembly does not accomplish what it claims to and will provide no better protection for French households' deposits....

"The purported objective of the bill consists in separating the deposits and to do so, to separate dangerous market activities from credit/deposit activities. The intention is good, given the excessive size of French banks. As a matter of fact, the French banking assets represent up to 340% of France's GDP (as compared to 85% in the United States). There are at least four banks whose default can bring down the entire country, in contrast to Germany which has only one such bank. These banks are simultaneously "too big to fail" and also "too big to save" [written in English].

"The French banking sector represents a systemic risk level among the highest in the world; Dexia already cost the French and Belgian taxpayers EU12 billion and the state added EU85 billion in guarantees. The Crédit Agricole is expecting to show a record loss for 2012 close to EU6 billion and Societé Générale would have lost EU11.9 billion euros in 2008 without being saved by the American taxpayer.

"Otherwise, the French "model" obviously is failing its job of financing the economy: Only 10% of our banks' balance sheets are devoted to lending to non-financial enterprises and 12% to lending to individuals. The rest is picking up essentially speculative market trades: Of EU200 billion in bonds uttered by the French banks to "finance real estate loans," only EU22 billion went to households and EU27 billion to firms. And how much was devoted to job creation, research and investment?

"By removing the implicit public guarantee for highly profitable and risky banking products as the markets propose, the separation of speculative activities from commercial activities, Hollande's election commitment #7 would permit the latter to be entirely dedicated entirely to financing the real economy....

"What does the current draft accomplish? It obliges the banks to confine certain speculative activities within subsidiaries, but this measure applies to only between 0.75 and 2% of the net banking product of banks. All the activities prohibited to the parent company are accompanied by exemptions that empty the law of content. [The word "exemptions" is translated from the term "d'exception," which is used to denote Carl Schmitt's legal theory of emergency law. — ed.]...

"Should it fail to prevent a crisis, would the draft allow us to hope that we could now cure it? No. ... those in charge of the eventual dismantling of French bank will be the Governor of the Banque de France and the Director General of the French Treasury. They alone will decide whether the state will come to the aid of a bank (abandoning the French citizen to ruin) or let it go bankrupt.

"The decisions will be taken with no obligation to consult Parliament, blindly, and at taxpayers' expense. The EU3.7 billion taken from Dutch citizens, who were not consulted, to unconditionally rescue SNS Reaal, the fourth-largest bank in the Netherlands, is a textbook case of what threatens to become generalized....

"...Thus the draft ends up maintaining the legal parachute that "universal banks" and their allies in the speculative funds, dream of, to be allowed to continue their speculative trading totally undisturbed.... Under these conditions, how can one claim to be separating the dangerous lending activities and safeguarding deposits?...

"The government draft law resolves nothing. Quite the opposite, it leaves the door wide open for a new crisis. The crisis has demonstrated the necessity for a strict separation between banking activities useful to the economy and those that are harmful...."