The world’s biggest bank isn’t in the US, where regulators banned lenders from proprietary trading, nor in Switzerland, which is doubling capital requirements. BNP Paribas SA is in France, which is doing neither.
BNP Paribas’s assets rose 34 per cent in the three years through June, reaching ¤2.24 trillion ($3.2 trillion), equal to the size of Bank of America Corp, the largest US bank, and Morgan Stanley combined. The Paris-based company may also have one of the lowest capital ratios among major European banks under new Basel rules, Morgan Stanley analysts estimated.
Regulators around the world are considering how to rein in their biggest banks to avoid future bailouts without stifling an economic recovery. France, which will hold the rotating chair of the Group of 20 nations in 2011, is taking a laissez-faire approach even as concerns persist that Europe’s sovereign debt crisis may pose renewed risks to financial stability.
“The French are pretending not to see this,” said Carmen Reinhart, a senior fellow at the Washington-based Peterson Institute for International Economics and co-author of a 2009 book examining financial crises throughout history. “What policy makers are doing is delaying the inevitable. But delaying malaise is not unique to the French.”
Basel rules
The Basel Committee on Banking Supervision, which sets capital standards for banks worldwide, softened planned capital and liquidity requirements in September and gave lenders about a decade to comply. France and Germany led efforts to weaken regulations proposed by the committee in 2009, concerned that their banks and economies wouldn’t be able to bear the burden of tougher rules until a recovery takes hold, according to bankers, regulators and lobbyists involved in the talks.
The Basel committee agreed to increase the minimum common equity requirement to 7 per cent of assets, weighted according to their risks, from 2 per cent previously. Individual countries may enforce higher capital requirements for their biggest lenders.
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Switzerland, which pushed for tougher rules, is moving ahead with additional restrictions to curb risks from its biggest banks. A government-appointed committee proposed last month that UBS AG and Credit Suisse Group AG, the country’s largest banks, should hold almost twice as much capital as required under the new Basel rules.
Britain may follow with similar requirements, Morgan Stanley analysts said in an October 20 report, while a UK government commission is also examining whether the largest banks should be broken up. In the US, the Dodd-Frank Act, signed by President Barack Obama in July, prohibits banks such as New York-based Goldman Sachs Group Inc from engaging in trading for their own account.