French Banks Argue Against Basel III Mark-to-Market Requirements

The French Banking Federation (FBF), which includes French banks BNP Paribas, Sociètè Gènèrale and Crèdit Agricole, pushed for loosening proposed requirements for Euro-zone banks including mark-to-market valuation requirements.

A French study estimates that European banks would need to raise 360 billion Euros ($503.3 billion) to offset the core capital deficit that the requirements would create.  It also estimates that there is a shortage of stable funding of between 2 and 3.5 trillion Euros.

In an April 16 letter to the Basel Committee on Banking Supervision responding to Basel III proposals FBF Director-General Delegate Pierre de Lauzun writes, “Excessive capital and liquidity requirements would bring the economic recovery to a screeching halt.”

Among European banks the French are unusually exposed to stricter rules on capital because of cross-shareholdings rules.

Baudouin Prot, BNP Paribas Chief Executive and head of the FBF, has suggested that a new round of talks on these proposals be held later this year.

Mark-to-market accounting is destructive to capital, pro-cyclical and impractical. Let’s just disclose marks and let the market decide. Bad firms would go out of business and good ones would thrive (assuming we stop all of this TBTF and bailout nonsense).