France unveils bank reforms - FT.com France unveiled its long-promised reform to overhaul its banks to protect taxpayers from risky operations but ran into immediate criticism that the measures were not as tough as the Socialist government had promised. 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 €2bn, rising to €10bn, to a resolution fund that would pay out to cover a bank failure, with potential further calls for bailout cash if required. Pierre Moscovici, finance minister, rejected criticism that the measures were timid and less than outlined in the Liikanen report. "It is an ambitious reform," he insisted. "The law today puts France in the leading position in Europe in regulating banking activity," he said. It is an encouragement to our partners to accelerate the rhythm of the discussions at the European level. He stressed the importance of new supervision and resolution measures. The law allows us to enhance the capacity of the public authorities to intervene during crises, making shareholders responsible for ensuring that savers and taxpayers do not pay for the risks taken by others. But Christophe Nijdam, bank analyst at AlphaValue consultancy in Paris, said, referring to France's biggest bank by assets: "You can't call it a reform as [ringfencing] only affects 0.5 per cent of BNP Paribas" total net banking income." He added: "The objective of taking away the implicit French state guarantee from risky activities is not fulfilled." Fitch, the rating agency, said the reform would not affect the degree of state support for France's banks. "The key aim of policy makers is to preserve banking stability, and the willingness to provide state support remains high," the agency said. Describing the reform as "essentially cosmetic," Thierry Philipponnat, secretary-general of Finance Watch, a Brussels-based public interest group, said it fell well short of President François Hollande's radical promises. The French Banking Federation also 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). On the campaign trail, Mr Hollande had pledged to rein in the excesses of the financial world, describing it as his "true adversary." Mr Philipponnat said: "Credit and trading will still be mixed, and trading will still be subsidised." 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. French banks have lobbied hard against a greater degree of separation, arguing it would raise the cost of funding and erode competitiveness. They hope that the EU, which is currently digesting the Liikanen recommendations, will adopt a model closer to that of the French reform. "We went as far as possible," Mr Moscovici told Le Parisien newspaper, published on Wednesday, saying national economic interests had to be defended. A stricter separation risked "giving a gift to the Anglo-Saxon banks," he said. [We must] protect the interests of Paris as a financial centre. Mr Noyer said the reform was "the optimal for the French economy." A stricter separation, such as that going through the legislative process in the UK, where the Vickers report aims to ringfence the retail banks from the investment bank, would have been "against the national interest." It would have weakened French banks, he added, to the extent that "the French state would have found itself with only the big Wall Street banks to place its debt. Companies would have found only Wall Street banks to finance their operations. The reform also received the backing of the opposition centre-right UMP Philippe Marini, the party's banking expert in the Senate. Any new rules or split of activities that goes too far would likely have a harmful economic impact . . . The Socialist government has come back down to earth," he said.