The financial stability of any nation depends on the robustness of its banking system. In recent years, concerns have been raised about the possibility of bank failures in France, with international bank creditors fearing the loss of their investments.
The French banking law is primarily governed by the French Monetary and Financial Code (Code monétaire et financier), which contains provisions related to bank licensing, regulation, and supervision. In case of bank failure, the European Union (EU) Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR) also apply. These laws aim to ensure the orderly resolution of failing banks while minimizing the impact on taxpayers and the financial system.
Several French banks have received hefty fines for misconduct and violation of regulations in recent years. Some prominent examples include BNP Paribas, which faced a $9 billion penalty in 2014 for violating US sanctions, and Crédit Agricole, which was fined $787 million in 2015 for similar reasons. Despite the severity of these penalties, the banks were not shut down, as the French government considered the wrongdoings as isolated incidents and believed the banks could continue to function after addressing the issues and paying the fines.
Bank failure in France is defined as the inability of a bank to meet its financial obligations, maintain sufficient capital, or continue its operations in a viable manner. The determination of bank failure is based on several factors, including the bank’s solvency, liquidity, and capital adequacy. The European Central Bank (ECB) and the French Prudential Supervision and Resolution Authority (Autorité de contrôle prudentiel et de résolution, ACPR) are responsible for assessing the viability of banks and determining if they are at risk of failure.
The ACPR, under the legal mandate of the French Monetary and Financial Code and the BRRD, is responsible for supervising and ensuring the stability of the French banking system. The ACPR works closely with the ECB, which is responsible for the direct supervision of significant banks in France. If a bank is deemed to be failing or likely to fail, the ACPR and ECB have the authority to take corrective actions or initiate resolution proceedings.
When a bank is declared to have failed, the resolution process begins. The most common reasons for bank failure in France include inadequate capital, poor management, and non-performing loans. Resolution planning in France aims to preserve the critical functions of the bank and ensure the continuation of the organization during financial distress. The ACPR serves as the resolution authority and takes the necessary steps to resolve the failing bank.
Upon determination of a bank failure, the ACPR can implement various resolution tools, including the sale of the business, the establishment of a bridge bank, and asset separation. These tools are designed to reorganize, recapitalize, restructure, or dissolve the failed bank in an efficient and orderly manner, while minimizing the impact on the financial system and taxpayers.
In France, account deposits and creditor interests are protected by law through the French Deposit Guarantee and Resolution Fund (Fonds de Garantie des Dépôts et de Résolution, FGDR). The FGDR provides coverage for depositors up to €100,000 per depositor and per institution, ensuring that their funds are secure in case of bank failure. In addition, the French legal framework aims to prioritize the protection of creditors during the resolution process, safeguarding their rights and minimizing losses.
The French banking law and resolution framework ensure that non-viable firms exit the market in an orderly manner. The ACPR, as the resolution authority, has the power to take the necessary steps to manage the resolution process effectively, minimizing disruption to the financial system and avoiding contagion risks.
In the event that resolution measures fail or are deemed inappropriate, the failed bank may be subject to liquidation under French law. The liquidation process involves the appointment of a liquidator, who takes control of the bank’s assets and liabilities, selling them to repay creditors in accordance with their ranking in the liquidation hierarchy. This process aims to maximize the value of the failed bank’s assets while ensuring an orderly and transparent winding-up procedure.
Account holders of a failed bank in France must take specific steps to safeguard their position during the stages of statutory administration, deposit insurance, and bank liquidation. Firstly, account holders should stay informed about the status of their bank and any measures taken by the authorities. Secondly, they should ensure that their deposits are covered by the FGDR, as this provides protection up to €100,000 per depositor and per institution. Finally, account holders should closely monitor the liquidation process and cooperate with the appointed liquidator to ensure their claims are duly registered and addressed.
In conclusion, France has a comprehensive legal framework and resolution system in place to address the potential failure of banks. The ACPR and ECB work together to ensure the stability of the French banking sector, with robust supervision and resolution measures designed to protect depositors and creditors. By understanding the intricacies of the French banking law, the role of bank supervisors, and the resolution process, international bank creditors can be better prepared to navigate the complexities of bank failure in France and safeguard their investments.