Banks will have to ringfence speculative trading unrelated to the financing of the economy, such as proprietary trading, putting them in a separately funded subsidiary, according to the bill, published on Wednesday.
They will be able to keep other trading activities, such as market-making, within the deposit-taking bank – against the recommendations issued three months ago in the Liikanen report for the EU, which calls for almost all trading operations to be separately capitalised and funded.
Regulation of the main bank will be stepped up to ensure that market trades are useful for the economy and not purely speculative. Banks are also banned from taking stakes in or giving unsecured loans to hedge funds, and there are limits on high-frequency trading and speculative trading in agricultural commodities.
The banks will have to contribute €2 billion, rising to €10 billion, to a resolution fund that would pay out to cover a bank failure, with potential further calls for bailout cash if required.
The French Banking Federation strongly criticised the reform – but attacked it for imposing a burden on French banks that would place them at a disadvantage “particularly against their American competitors”. “This law creates constraints and extra charges at an inopportune moment”, the federation said in a statement, adding that the banks were already under pressure to meet tough new capital targets under the Basel III regime. “It will not favour the return to growth (in the economy).”
But Christian Noyer, governor of the Bank of France, defended the bill, saying: “I don’t agree at all that it’s a reform a minima. The president said that speculative activities must be separated from activities useful to financing the economy. That’s exactly what is in the reform law.”
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