He is always alerted by the Banking Commission

April 16, 2012 5:56 AM
He is always alerted by the Banking Commission

While British Finance Minister Alistair Darling announced this weekend to triple the amount of deposits guaranteed by insurance in place, the French President of the guarantee fund explains how this device would apply if a case such as Northern Rock to declare on this side of the channel.

The incompetent of Northern Rock has highlighted the importance of the deposit guarantee to depositors in such circumstances. How do the French device

The deposit guarantee fund can first accept, or not, to intervene preventively, on a proposal from the Banking Commission, to organise the transfer of the business of a credit institution that is wrong to another, in good health. It ensures that this be done without any case for applicants. It may also be compelled to be curative, to compensate depositors in the event of bankruptcy of a credit institution. He then reimburses at height of 70,000 euros, which provides full coverage for at least 90 of applicants. To date, only the first case occurred: in 1999, the rescue of the Martinique credit cost and fund approximately 180 million euros. Fine in, whatever the mode of intervention, must be to ensure that the establishment which failed to disappear and management team that made the difference and, if justified, prosecuted in the courts.

What means have

Unlike its British counterpart, the Fund has a stock of cash of approximately 1.5 billion. It works on a system of compulsory membership for all banks, which is not the case for all European countries. Important disaster fund may borrow from its members or even grant a guarantee to a bank or a pool of banks to refinance a structure in difficulty.

The existence of the Fund would be sufficient to prevent a panic like the one that struck Northern Rock to the United Kingdom in France

Two things one. The establishment has not yet been formally bankruptcy and preventive intervention should ensure some privacy. He has already filed its balance sheet and the healing device provides while the Windows are closed and depositors informed immediately by individual letter followed by compensation. In one case as in the other, panic and queues before agencies should therefore be avoided since the Act support the Fund guarantee to initiate the procedure.

How is structured the relationship with the Banking Commission

Unlike many countries, the system set up in 1999 by Dominique Strauss-Kahn, then at Bercy, will not succumb to the mixture of genres. There is firstly the Banking Commission which controls and sanctions; on the other, the guarantee fund which, if necessary, pay. The Fund is never involved directly. He is always alerted by the Banking Commission. Conversely, if he considers that it did not properly its work of monitoring, it can attack him before the administrative court.

Improvements could be made to the current system to deal with new types of crisis

The device is still young and he showed his modernity compared to many other systems around the world. The current situation, is a classic crisis of illiquidity. What strikes me on the other hand, is prodigious speed with which the accident occurred on an area of relatively limited liquidity is extended to all the other compartments of the market. I do not see so, at this stage, lessons for the guarantee fund. A note however: Northern Rock paid it seems significantly more deposits of its customers to attract. This raises a question: deposits should be covered by the guarantee fund regardless of their level of remuneration I do not think so.