Christine Lagarde, France’s minister of the economy, on October 20 announced details of a plan to lend a total of €10.5 billion to six French banks, just days after the unveiling of a €320 billion government scheme to prop up the financial sector.The Société Française de Financement de l’Economie, established last Friday to stabilise markets by guaranteeing medium and long term loans issued by banks, will also oversee the injection of €10.5 billion into banks in the form of subordinated loans.
Crédit Agricole will receive €3 billion, BNP Paribas €2.55 billion, Société Générale €1.7 billion, Crédit Mutuel €1.2 billion, Caisse d’Epargne €1.1 billion, and Banques Populaires €0.95 billion.
Lagarde stressed the purpose of these loans was to stimulate lending to households and businesses, rather than shoring up banks’ capital balance sheets - increasing lending is one of the preconditions of the loans.
The Bank of France echoed this sentiment, stating that “all of the banks concerned [in the government’s plans] currently show a completely satisfactory level of funds”. The loans merely seek to sustain a “high level of solvency”.
This contrasts with bailout plans in the US and the UK, where government injections were aimed at increasing banks’ low capital ratios and restoring market confidence.
Adhering banks will have to adopt “ethical rules” regarding the remuneration of company directors. This will include an upper limit for directors’ golden parachutes and establishing remuneration committees.
The move sparked a recovery in the Cac 40 equity index this morning, which reached 3258.12 at 1130 CET, up 2.31% from its closing level on Monday. Shares in Crédit Agricole rose by 12.63% to €11.77; BNP Paribas’ climbed 7.55% to €59.04, and Société Générale’s increased by 8.81% to €47.8.
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