## _cr13186

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### Executive Summary — Key findings
- The French banking system weathered the crisis 2007–09 relatively well.
- During 2007–09 the authorities provided capital support and guarantees to banks; Banque de France (BdF) provided significant liquidity as part of the Eurosystem.
- Overall intervention in individual banks was limited; banks mostly addressed balance-sheet problems through private capital infusions, deleveraging, and reducing dividends.
- As of end-January 2012, France had a comprehensive framework for crisis management and bank resolution that, with some exceptions, contains instruments and measures aligned with international best practices and likely to be recommended in an expected EU Directive on a bank resolution framework.
- Legal processes for liquidation or bankruptcy of financial institutions may not be sufficiently separate from general corporate liquidation processes to handle bank-resolution–specific issues (distinct features exist for cessation of payments and appointment of an administrative liquidator by the Autorité de Contrôle Prudentiel (ACP), but much of the process follows the same path as for nonfinancial corporations).
- The Fonds de Garantie de Dépôts (FGD) can use its funds either for depositor compensation or for recovery actions to prevent disorderly bank failures; recovery-function activation requires invitation from the ACP and the FGD may accept or decline such invitation. Decisions are generally based on a “least-cost” consideration.
- Banque de France roles in crisis management: provision of liquidity via standing or extraordinary facilities (including emergency liquidity assistance (ELA)), macro-financial stability analysis, and ensuring payment-system functioning; all liquidity provision subject to Eurosystem rules and restrictions.
- Ministry of Finance (MOF, Le Trésor) roles in crisis management: initiating and drafting financial laws and regulations; negotiating international agreements; monitoring financial-sector developments and individual banks via participation in bodies such as the ACP. During 2007–09 the government provided significant solvency and liquidity support through various vehicles.
- Close cooperation and information sharing among authorities is ensured mainly through cross-Board memberships (MOF and BdF represented on the ACP Board; BdF governor is President of the Board). The ACP is organizationally, though operationally independent, part of the BdF.
- Recurring conclusion: close organizational links between authorities facilitate cooperation and information sharing (positive in crisis) but could blur transparency and accountability for separate responsibilities.
- Authorities awaited precise international proposals (e.g., EU Commission proposal on bank resolution framework) before making specific legislative adjustments; French authorities expressed a preference for harmonized EU-wide regulations rather than unilateral national steps.
- Due to cross-border structures of major French financial groups, authorities emphasize the need for cooperation and information sharing in crisis management groups (CMGs) including both home and host authorities.
- Recovery and Resolution Plans (RRPs) requested from large groups on a group-wide, cross-border basis. For the three largest banks, the drafting is advanced and RRPs are expected to be presented shortly; for other French systemically important banks RRPs to be presented before end-2012 in accordance with the Financial Stability Board (FSB) regime on Key Attributes for Effective Resolution.
  - Footnote: the three largest banks referenced are BNP Paribas, Société Générale, Crédit Agricole.

### Institutional features and tools
- ACP crisis-preparation/management: comprehensive and well structured for crisis preparation, identification, and management.
- ACP remedial powers: wide range including the right—under defined circumstances—to appoint an interim administrator in a bank; ultimate power to revoke a bank’s license which automatically starts judicial liquidation.
- ACP capital tools: active use of Basel II Pillar 2 to require individual-bank add-ons to minimum regulatory capital requirements; Pillar 2 add-ons in practice used frequently and affect presently some 80 banks.
- ACP ratings and monitoring:
  - Institutions rated on a scale from 1 to 5 (5 being the grade for banks in the worst condition).
  - Ratings for grades 1, 2, and 3 generally reviewed on a yearly basis; grade-4 reviewed twice yearly; grade-5 reviewed quarterly. Individual-bank ratings can also be reviewed on an ad-hoc basis (exceptional occurrences).
  - Each rating category is linked to a range (“bucket”) of capital adequacy requirements; a lower rating automatically leads to a higher capital requirement.
- FGD governance: president appointed with specific agreement from MOF; by-laws, rules, and financing determined by—or with agreement of—the MOF; FGD Supervisory Board mainly consists of active bankers; FGD is a private organization funded by contributing institutions.

### Crisis preparedness, stress testing, and macroprudential analysis
- Domestic crisis exercise: March 2008 based on EU Memorandum of Understanding (MOU) on Crisis Management; thereafter priority given to handling the “real crisis” before another exercise.
- Macroprudential analysis: BdF (via internal Comité de stabilité financière and for COREFRIS, chaired by MOF) in cooperation with ACP conducts macroprudential analysis following ESRB forms; results reported to BdF and ACP Board. Such analyses have led to strengthening rules/monitoring of banks’ exposures to the commercial property market.
- ACP stress testing: conducts stress tests using the same format as the European Banking Authority (EBA).
- ACP off-site monitoring: uses quantitative regulatory reports for peer reviews to identify vulnerable “outliers.”

### ACP supervisory approach and SREP/ORAP2
- ACP does not implement a formal U.S.-type “PCA-regulation” but seeks similar outcomes via SREP and ORAP2 methodology:
  - SREP includes structured review of main risks, compliance, adequacy of internal control, close dialogue with supervised entities, and a final global rating.
  - ORAP2 relies on a wide range of quantitative and qualitative information from firms and external sources; cross-border inputs included for groups.
  - SREP outcomes may lead to capital add-ons through Basel II Pillar 2.
- In case of nonfulfillment of minimum capital requirements (including any Pillar 2 add-on), ACP must require restoration of capital adequacy within the near future, under threat of license withdrawal.

### Appointment and powers of an interim administrator
- ACP may appoint an interim administrator on its own initiative, or on bank management’s initiative, when the supervised institution can no longer be run under normal conditions or when managers have been temporarily suspended or dismissed.
- Powers and process:
  - Full powers of the entity’s administration, management, and representation are transferred to the interim administrator.
  - Administrator subsumes powers of the CEO and administrative powers of the Supervisory Board; the Board remains in place.
  - Administrator may sell a bank’s assets and liabilities (but not the whole bank).
  - Appointment process geared for quick implementation—within 24 hours, when necessary.
  - If urgent, the President of the ACP Board may appoint the administrator on a temporary basis without prior hearing; decision should be endorsed afterward by the ACP Board.
  - Institution may appeal appointment; while court deliberates, interim administrator remains and continues work.
  - The ACP has used this mandate on several occasions, notably when existing management is unable or unwilling to take urgent recommended actions.
  - Footnote example: a mutual insurance institution case where the court repealed ACP decision and reinstated original manager; activities had been transferred in the meantime.
- ACP informal assistance and supervisory actions:
  - ACP may seek suitable merger partners for problem institutions.
  - Supervisory instruments include letters, injunctions, administrative policy measures (warning, formal notice, remedial action program, protective measures, appointment of interim administrator).
  - Emergency administrative measures may be taken by ACP Board chairman (BdF governor) on a temporary basis without prior hearing.

### Selected supervisory practice observations and recommendations
- Comments on practice:
  - ACP’s crisis prevention builds on comprehensive risk analysis, ratings, Pillar 2 add-ons, and supervisory judgment.
  - Interim administrator is powerful and appropriate, but letting institutions try to handle problems is preferred where possible.
  - Identified weakness: time delay between ACP request for remedial measure and on-site verification; infrequent on-site schedule for non-systemically important institutions cited.
  - Concern about excessive focus on quantitative form over qualitative strategy (example: Dexia liquidity oversight).
- Recommendations (numbered as in source):
  - Recommendation 1: The follow-up process on ACP requests for remedial measures must ensure validation of the taken measures without too much delay (depending on the nature and gravity of the situation). Example: targeted visit outside regular schedule where on-the-spot validation is necessary.
  - Recommendation 2: Introduce and implement a formal rule for automatic and early information to the FGD about banks whose deteriorating situation may call for subsequent FGD action. Information should be provided in written form to the FGD Management Board of Directors; FGD may only use such information for internal preparations until explicit involvement warranted.
  - Recommendation 3: Authorities should conduct a domestic-crisis exercise to test cooperation and information-sharing arrangements and current laws, regulations, and processes.

### Bank resolution framework — assessment highlights
- No dedicated “special resolution regime” for credit institutions in French legislation as of end-January 2012; traditional judicial liquidation or insolvency processes apply (Commercial Code), with some CMF-specific triggers and powers (Articles L 312-4 and L 613-24).
- A regulated financial institution may enter liquidation or bankruptcy only after a court decision; court may act on application from ACP, the bank (including ACP-appointed interim administrator), or other parties.
- ACP decision to withdraw a bank’s license implies automatic start of liquidation; typical trigger: violation of capital adequacy requirements and failure to respond to supervisor.
- Bank-resolution measures can be applied prior to license withdrawal (liquidity or capital support, guarantees, asset sales, reorganization, merger).
- ACP often triggers resolution by appointing interim administrator who will conduct resolution; ACP may refer to “le Tribunal de Grande Instance” to order transfer of shares held by executives (Article L 613-25 CMF).
- ACP may recommend preventive action by the FGD to avoid disorderly default (Article L 312-6 CMF).
- ACP plays roles in judicial procedures: certain procedures cannot be initiated without ACP opinion (Article L 613-27 CMF); court can empower receiver only with supervision of bank management’s operations.

### Judicial procedures relevant to banks (company law)
- Composition procedure (Article L 611-4 ff): applies when not in cessation of payments for more than 45 days; conciliator appointed; confidential.
- Safeguard procedure (Article L 620-1 ff): applies to problems leading to cessation of payments; reorganization; continuity via safeguard plan adopted by judge.
- Reorganization procedure (Article L 631-1 ff): applies to institutions already in cessation of payments; temporary suspension of judicial proceedings, observation period, reorganization plan.
- Comment: “Payments” includes any current liability, including deposits.

### Role and mandate of Banque de France (BdF)
- ACP and BdF closely linked (same president/governor) but independent with different roles; BdF maintains central bank functions important for crisis management and resolution.
- As member of the Eurosystem, BdF may provide general liquidity facilities within system restrictions; did so during 2008–09, including in non-euro currencies.
- BdF may provide ELA to individually solvent banks facing liquidity problems; national central bank providing ELA must provide ECB with a predefined set of information.
- Granting ELA remains national central bank decision (carried at its own risk); ELA may require prior approval from ECB Governing Council depending on circumstances.
- BdF collects market intelligence and frequent liquidity-position information for individual banks; information shared with ACP and used in ACP assessments.
- BdF continuously informed about problem banks via representation in ACP Board; BdF does not have specific powers outside ACP to trigger or conduct bank resolution.
- Under exceptional circumstances to prevent Eurosystem losses, BdF may suspend or limit a counterparty’s access to Eurosystem monetary operations on prudential or event-of-default grounds, seeking ex-post ECB Governing Council approval without delay.
- Coordination practices:
  - BdF and ACP regard themselves as a single, integrated organization cooperating closely on an informal basis and do not find it meaningful to consult one another formally:
    - BdF does not formally ask ACP for a written assessment on solvency and systemic importance of a bank applying for ELA.
    - ACP does not ask BdF for a written assessment when it intends to withdraw a bank license.
- BdF comments and recommendations:
  - Recommendation 1: Establish a rule so that BdF must always consult (a priori) the ACP on its assessment on solvency and systemic importance of a bank seeking ELA.
  - Recommendation 2: Establish a rule so that ACP—if considering that a situation may have systemic implications—must consult (a priori) BdF on its assessment on suitability of an ACP proposal to withdraw a bank license or request liquidation.
  - Recommendation 3: BdF should publicize a Financial Stability Report on a regular basis. (BdF currently produces an internal informal version and a Financial Stability Review but does not publish an FSR.)

### Role and mandate of the Ministry of Finance (MOF)
- MOF prepares and proposes primary legislation and drafts secondary legislation on delegated financial sector issues.
- French legal/organizational framework for crisis management and bank resolution expected to be significantly modified in 2012 after adoption of the Resolution Directive being drafted by the European Commission.
- MOF active in international fora: FSB, BCBS.
- Current domestic role:
  - At present, most measures for crisis management and bank resolution are decided by ACP and the judicial system.
  - MOF is an observer of the ACP Board and can ask the Board for reconsideration (power never used).
  - MOF discusses crisis-management issues in CMGs of major French banks.
- MOF envisages a more active future role:
  - In international negotiations on new rules/guidelines.
  - By being updated closely on domestic potential problem bank situations that might call for public financial support.
- Options under consideration for a resolution authority:
  - Distinguish between a “trigger authority” and an “implementation authority/authorities.”
  - Create a “Resolution Board” with all relevant authorities represented (binding or nonbinding decisions; nonbinding decisions would be confirmed within each authority respecting independence).
- MOF finds it necessary to play a major role when public monies are requested.
- Recommendations:
  - Recommendation 1: MOF should review its involvement in ongoing banking supervision, in line with the EU directive on resolution, focusing on systemically important institutions while ensuring timely and adequate information; the ministry should be involved early when there is risk of a request for using public funds.
  - Recommendation 2: MOF should adopt an explicit and transparent strategy with stringent conditions for providing financial support, including: (i) shareholders should take the first loss; (ii) bank management should be replaced; (iii) restrictions on compensation and dividends; (iv) a clear exit strategy.

### Public financial support instruments (2008 measures; status)
- Société de Financement de l’Economie Française (SFEF):
  - Mutualized funding vehicle with minority state participation and public guarantee for its obligations.
  - May provide guarantees to creditors of banks.
  - During 2008–09 issued guarantees for senior debt in banks amounting to €77 billion.
  - Scheme terminated for issuing new guarantees at end-2009.
  - Amount of outstanding guarantees at end-2011 was approximately €55 billion.
- Société de Prise de Participation de l’Etat (SPPE / SPPS):
  - Fully state-owned vehicle with a public guarantee.
  - May purchase shares or buy Tier 1 debt instruments.
  - During 2008–09 the SPPS bought shares for €1 billion (only in Dexia). These were preferential shares with priority to dividend payments over ordinary shares and with a gradually increasing reimbursement price.
  - SPPS invested €19 billion in banks in the form of hybrids or other Tier 1 capital; these have been redeemed in full by the banks.
- Conditions for support included adherence to MOF guidelines on directors’ remuneration and commitments to maintain lending to SMEs and local government bodies.

### Deposit Insurance Fund (FGD) — structure, coverage, and recommendations
- FGD mechanisms:
  - i. Pay-box pay-outs to depositors in failing insured banks up to a maximum of €100,000 per depositor. Criterion: immediate or near-future non-accessibility to depositors’ funds, assessed by ACP. EU legislation: pay-outs should be implemented within 20 days of triggering.
  - ii. Financial intervention mechanism to ensure orderly liquidation (extension of credit lines or guarantees, buying assets or shares).
  - iii. Investment guarantee scheme for compensation to clients affected by frauds or other losses (except market losses): maximum coverage €70,000 for losses on securities and an additional €70,000 for cash losses. If the investment has been done with a bank the maximum limit for cash losses is €100,000.
- FGD background and funding:
  - Created in 1999; rules aligned with EU Directive on Deposit Insurance (March 2009, amended September 2010 when ceiling raised).
  - Privately owned institution funded by participating 745 credit institutions, of which 651 are deposit-holders (numbers as of end-2010).
  - Contribution types: one-time joining contribution; yearly fee based on deposits covered; exceptional contributions.
  - A contribution amounting to €270 million was decided in September 2010 to cope with increase to €100 000 coverage; amount to be paid in three yearly installments.
  - At end-2010, funded amount in the FGD was slightly above €2 billion; this equals 0.21 percent of total covered deposits (present target amount for the fund).
  - Planned amended EU Directive expected to raise recommended target level significantly, maybe to €8–€10 billion.
- FGD operational points:
  - If funds exhausted, FGD may require extraordinary contributions from participants or raise funds in financial markets; no contingency credit lines from the government.
  - FGD may—but is not obliged to—intervene when risk of non-accessibility to deposits exists.
  - FGD interventions require ACP Board recommendation; Conseil de Surveillance may accept or decline and set conditions for intervention.
  - FGD financial support is not subject to an explicit “least-cost” criterion, though such considerations weigh heavily in practice.
  - Recovery of outlays mainly through subrogation in liquidation (no depositor preference), claims against institutions/managers/owners for wrongdoing, and repayment by recovered bank or subsequent liquidation.
- Recommendations on FGD:
  - Recommendation 1: Reduce perceived risk of conflict of interest when making decisions involving other, competing banks or financial institutions.
  - Recommendation 2: Amend FGD rules to include an explicit “least-cost” assessment while acknowledging imprecision in emergencies; FGD should consider expected long-term costs to itself and be prepared to use funds where authorities declare danger to overall financial stability.
  - Recommendation 3: Pre-agreed financing back-up option should be available to the FGD in case of non-access to other replenishment means after a major pay-out.
  - Recommendation 4: FGD should explore “peace-time” technical options to ensure speedy pay-out, including IT alignment with banks and requiring a single customer concept.
  - Recommendation 5: FGD and ACP should conclude an MOU formalizing cooperation and information-sharing.
  - Recommendation 6: FGD prepaid deposit insurance fund should be gradually increased above present level without waiting for a new EU Directive, taking into account market and regulatory demands and fair competition concerns.
- Bank Resolution Fund:
  - No French “bank resolution fund” exists at present.
  - Authorities are positive about creating such a fund but await common EU decision on ownership and modalities.
  - Authorities proposed collecting such a fund ex ante and aligning or merging it with the existing deposit-protection fund (FGD).

### Cooperation and information sharing (domestic and cross-border)
- Domestic gateways for exchange of information on potential problem banks:
  - ACP Board meetings (ACP, BdF, MOF, AMF represented).
  - Monthly Réunion des Autorités Financières (RAF) meetings organized by ACP, AMF, BdF.
  - No domestic MOUs for information sharing and cooperation on crisis management issues.
- CMGs: crisis management groups exist for BNP Paribas, Société Générale, and Crédit Agricole with regular meetings (two meetings per CMG planned for 2012); CMGs may meet in “limited composition” (only French authority representatives).
- COREFRIS provides a national framework for cooperation between ACP, AMF, BdF, MOF for general issues and EU negotiation positions, not for individual institutions.
- Article L 631-1 CMF authorizes BdF, ACP, AMF, and FGD to exchange any information required for their tasks.
  - BdF Governor is President of ACP Board; MOF is ACP Board nonvoting observer with power to ask for “reconsideration” (never used).
  - Retired financial sector representatives are appointed by MOF to the ACP Board.
- Cross-border cooperation within EEA:
  - ACP signed two European MOUs on crisis management (March 2003; April 2005, revised 2010) with banking supervisors, central banks, ministries of finance.
  - Legal powers under CMF allow ACP to share information with analogous foreign authorities and to carry out on-site inspections of foreign subsidiaries/branches and to share with foreign supervisors (Articles L 632-1, L 632-12, L 632-4).
  - Obligations on court notifications require ACP to convey information to system operators (BdF, AMF) and to inform EU member-state authorities when French procedures affect entities with branches or services in other member states (Articles R 613-18-I and R 613-18-II CMF).
- Cross-border cooperation with third countries:
  - MOUs with third countries generally include crisis-management provisions; main condition: foreign authorities subject to a professional secrecy regime similar to France.
  - ACP has signed bilateral MOUs with all significant third-country authorities relevant for large French banking-group crisis management.

### Recovery and Resolution Plans (RRPs)
- Scope and status:
  - ACP, in cooperation with BdF, requested each French-domiciled G-SIFI to draft RRPs including operational interdependencies, exploration of extreme recovery scenarios, and analysis of critical functions.
  - "The entire RRP scheme will be completed by end-2012."
  - At report time the three French G-SIFIs completing RRPs were BNP Paribas, Société Générale, Crédit Agricole; French domestic SIBs were to enter the exercise during 2012.
- Linkage to supervisory processes:
  - RRP preparation and implementation is main issue discussed in CMGs.
  - RRPs build on existing supervisory information: risk-management framework, liquidity management, contingency funding plans, stress testing. RRPs are closely linked to supervisory processes.
- Comments and recommendations:
  - RRPs help authorities and management understand vulnerabilities and interdependencies in large cross-border groups.
  - Ownership principle: recovery plans responsibility of institution management; resolution plan execution responsibility of relevant authorities.
  - Need to ascertain clear division of roles among home/host authorities and group management; ensure ongoing updating and integration into processes.
  - RRPs should be supplemented by bank-resolution plans since divestment of group entities may be impossible in market turmoil.
  - Recommendation 1: Establish clear roles and responsibilities for authorities and group management/Board in implementing RRP components; recovery part to be primarily bank responsibility, resolution part primarily authorities’ responsibility, with close cooperation.
  - Recommendation 2: Integrate RRPs into ongoing processes of authorities and groups; avoid one-off exercises.

### Expected developments and authorities’ stance
- Intensive international work ongoing on crisis management/bank resolution (CM/BR); FSB and BCBS working groups discussing alignment; European Commission expected to issue a resolution regime proposal for credit institutions.
- French authorities generally positive and active in international negotiations; they have not introduced major unilateral legislative changes but expect harmonized EU framework to guide national adjustments.

*Source: Executive Summary and selected sections from _cr13186 - Executive Summary (reflecting developments as of end-January 2012).*

### Executive Summary ......................................................................................................

### _cr13186 - Executive Summary ......................................................................................................

### Executive Summary — Key findings
- The French banking system weathered the crisis 2007–09 relatively well.
- During 2007–09 the authorities provided capital support and guarantees to banks; Banque de France (BdF) provided significant liquidity as part of the Eurosystem.
- Overall intervention in individual banks was limited; banks mostly addressed balance-sheet problems through private capital infusions, deleveraging, and reducing dividends.
- As of end-January 2012, France had a comprehensive framework for crisis management and bank resolution that, with some exceptions, contains instruments and measures aligned with international best practices and likely to be recommended in an expected EU Directive on a bank resolution framework.
- Legal processes for liquidation or bankruptcy of financial institutions may not be sufficiently separate from general corporate liquidation processes to handle bank-resolution–specific issues (distinct features exist for cessation of payments and appointment of an administrative liquidator by the Autorité de Contrôle Prudentiel (ACP), but much of the process follows the same path as for nonfinancial corporations).
- The Fonds de Garantie de Dépôts (FGD, the deposit guarantee agency) can use its funds either for depositor compensation or for recovery actions to prevent disorderly bank failures; recovery-function activation requires invitation from the ACP and the FGD may accept or decline such invitation. Decisions are generally based on a “least-cost” consideration (compare cost of support vs. pay-out in liquidation).
- Banque de France roles in crisis management: provision of liquidity via standing or extraordinary facilities (including emergency liquidity assistance (ELA)), macro-financial stability analysis, and ensuring payment-system functioning; all liquidity provision subject to Eurosystem rules and restrictions.
- Ministry of Finance (MOF, Le Trésor) roles in crisis management: initiating and drafting financial laws and regulations; negotiating international agreements; monitoring financial-sector developments and individual banks via participation in bodies such as the ACP. During 2007–09 the government provided significant solvency and liquidity support through various vehicles.
- Close cooperation and information sharing among authorities is ensured mainly through cross-Board memberships (MOF and BdF represented on the ACP Board; BdF governor is President of the Board). The ACP is organizationally, though operationally independent, part of the BdF.
- Recurring conclusion: close organizational links between authorities facilitate cooperation and information sharing (positive in crisis) but could blur transparency and accountability for separate responsibilities.
- Authorities awaited precise international proposals (e.g., EU Commission proposal on bank resolution framework) before making specific legislative adjustments; French authorities expressed a preference for harmonized EU-wide regulations rather than unilateral national steps.
- Due to cross-border structures of major French financial groups, authorities emphasize the need for cooperation and information sharing in crisis management groups (CMGs) including both home and host authorities.
- Recovery and Resolution Plans (RRPs) requested from large groups on a group-wide, cross-border basis. For the three largest banks, the drafting is advanced and RRPs are expected to be presented shortly; for other French systemically important banks RRPs to be presented before end-2012 in accordance with the Financial Stability Board (FSB) regime on Key Attributes for Effective Resolution.
- Footnote: the three largest banks referenced are BNP Paribas, Société Générale, Crédit Agricole.

### Executive Summary — Institutional features and tools
- ACP crisis-preparation/management: comprehensive and well structured for crisis preparation, identification, and management.
- ACP remedial powers: wide range including the right—under defined circumstances—to appoint an interim administrator in a bank; ultimate power to revoke a bank’s license which automatically starts judicial liquidation.
- ACP capital tools: active use of Basel II Pillar 2 to require individual-bank add-ons to minimum regulatory capital requirements; Pillar 2 add-ons in practice used frequently and affect presently some 80 banks.
- ACP ratings and monitoring:
  - Institutions rated on a scale from 1 to 5 (5 being the grade for banks in the worst condition).
  - Ratings for grades 1, 2, and 3 generally reviewed on a yearly basis; grade-4 reviewed twice yearly; grade-5 reviewed quarterly. Individual-bank ratings can also be reviewed on an ad-hoc basis (exceptional occurrences).
  - Each rating category is linked to a range (“bucket”) of capital adequacy requirements; a lower rating automatically leads to a higher capital requirement.
- FGD governance: president appointed with specific agreement from MOF; by-laws, rules, and financing determined by—or with agreement of—the MOF; FGD Supervisory Board mainly consists of active bankers; FGD is a private organization funded by contributing institutions.

### Executive Summary — Coverage of crisis-management areas
- Scope of the note: identification and handling of potential problem institutions, liquidity assistance, bank resolution, deposit insurance, and coordination among authorities with different mandates. Also examines whether crisis-management processes are ex-ante defined and embedded in the regulatory framework and cross-border arrangements.
- Emphasis: prime responsibility for avoiding banking problems rests with institutions themselves; authorities must provide incentives and timely monitoring; nonetheless, a comprehensive crisis-management and bank-resolution framework is necessary because traditional corporate legal resolution frameworks are not appropriate for financial institutions (delays and value erosion can cause contagion).

### Executive Summary — Recent exercises, analyses, and stress testing
- A domestic crisis exercise was held in March 2008 based on the EU Memorandum of Understanding (MOU) on Crisis Management; thereafter priority was given to handling the “real crisis” before another exercise.
- Macroprudential analysis: BdF (via internal Comité de stabilité financière and for COREFRIS, chaired by MOF) in cooperation with ACP conducts macroprudential analysis following forms established by the European Systemic Risk Board (ESRB); results are reported to BdF and ACP Board. Such analyses have led to strengthening rules/monitoring of banks’ exposures to the commercial property market.
- ACP stress testing: conducts stress tests using the same format as the European Banking Authority (EBA), reducing burden for banks.
- ACP off-site monitoring: uses quantitative regulatory reports for peer reviews to identify vulnerable “outliers.”

### Executive Summary — Assessment of ACP supervisory approach
- ACP does not implement a formal U.S.-type “PCA-regulation” (considered too rigid) but seeks similar outcomes via SREP and ORAP2 methodology:
  - SREP includes structured review of main risks, compliance, adequacy of internal control, close dialogue with supervised entities, and a final global rating.
  - ORAP2 relies on a wide range of quantitative and qualitative information from firms and external sources; cross-border inputs included for groups.
  - SREP outcomes may lead to capital add-ons through Basel II Pillar 2.
- In the event of nonfulfillment of minimum capital requirements (including any Pillar 2 add-on), ACP must require restoration of capital adequacy within the near future, under threat of license withdrawal.

### Introduction — Scope and preparation of the note
- Purpose: as part of the Financial Sector Assessment Program (FSAP) for France, January 10–27, 2012, to identify challenges and measures to strengthen arrangements for crisis management and resolution of banks.
- Preparation: note prepared after discussions with MOF, BdF, ACP, FGD, independent think-tanks, and banks; information also gathered from other French FSAP work streams, in particular the Basel Core Principles (BCP) assessment.
- Note prepared by Göran Lind, Adviser to the Executive Board of the Sveriges Riksbank; reflects developments as of end-January 2012.

### Crisis Preparedness and Preparation — Assessment (selected details)
- Domestic crisis exercise: March 2008 based on EU MOU on Crisis Management; subsequent prioritization of real-crisis needs.
- Early-risk identification:
  - BdF (via Comité de stabilité financière and COREFRIS) and ACP perform macroprudential analyses using ESRB forms; reported to BdF and ACP Board.
  - Analyses have led to strengthened rules and monitoring of commercial property exposures.
- ACP stress tests: use EBA format.
- ACP monitoring and SREP:
  - Regular evaluation of all regulated entities through SREP with ORAP2 methodology.
  - Continuous dialogue with supervised entities and final global rating system (1–5).
  - Pillar 2 add-ons applied on an individual-bank basis; currently affect some 80 banks.
- Information sharing: ACP Board is regularly informed of rating changes and pending problems; BdF, MOF, and AMF receive information via Board composition. FGD is not represented on the ACP Board and there is no formal duty to inform FGD while a bank is in a going-concern situation; however, Article L. 613-34 CMF requires ACP to inform/consult the Chairman of the Managing Board of the deposit guarantee fund on matters concerning institutions for which it intends to implement the guarantee fund or propose a precautionary measure by the fund; the Chairman of the Executive Board may be heard by ACP at his request.

*Source: Executive Summary and selected sections from _cr13186 - Executive Summary (reflecting developments as of end-January 2012).*

### 11.      The ACP may appoint an interim administrator on its own initiative, or on the

### 11.      The ACP may appoint an interim administrator on its own initiative, or on the

### Appointment and powers of an interim administrator
- The ACP may appoint an interim administrator on its own initiative, or on the bank management’s initiative, when the supervised institution can no longer be run under normal conditions or when the managers have been temporarily suspended or have been dismissed.
- The full powers of the entity’s administration, management, and representation are transferred to the interim administrator.
- The administrator subsumes the powers of the CEO as well as the administrative powers of the Supervisory Board; however, the Board will remain in place.
- The administrator may sell a bank’s assets and liabilities (but not the whole bank, as this could amount to a liquidation of the bank, which is the prerogative of the bank’s shareholders).
- The ACP has used its mandate to appoint an interim administrator on several occasions, in particular when existing management is not able, or willing, to take urgent actions recommended by the ACP.
- The process to appoint an administrator is geared for quick implementation—within 24 hours, when necessary.
- If urgent, the President of the ACP Board may appoint the administrator on a temporary basis, without a prior hearing of the entity; such a decision should be endorsed afterward by the ACP Board.
- The institution may appeal the appointment of an interim administrator; while the court is deliberating the issue, the interim administrator will remain in the institution and continue its work normally.
- Footnote: There has been a case of a mutual insurance institution, in which the court has repealed the ACP decision and has reinstated the original manager. (Attention is drawn on the fact that this case still to be considered as a legal question is pending. Indeed, in the meantime, all activities of the institution have been transferred.)

### ACP informal assistance and supervisory actions
- The ACP may assist informally by seeking suitable merger partners for problem institutions and has done so on several occasions.
- The ACP has available a broad range of supervisory actions, selected in view of the nature and severity of the situation:
  - A letter: intended to prompt the supervised institution to adopt appropriate measures to strengthen the institution or its management; as a rule sent after completion of an on-site inspection.
    - Moreover, for the five largest banking groups, the ACP General Secretary sends a yearly letter to the group’s Executive Board, after a bilateral meeting, to summarize the ACP’s assessment of the group’s risk profile and the main areas in which improvements are expected.
  - An injunction: requires that the entity takes specific measures to comply with prevailing regulations (e.g., restoring or strengthening the financial situation, improving management techniques, ensuring adequacy of organization); normally a precise requirement for a targeted action.
  - Administrative policy measures (Articles L 612-30 to L 612-34 CMF), which include:
    - (i) warning to prevent breaches related to best practices in the banking sector;
    - (ii) formal notice to remedy breaches of obligations placed under the control of the ACP;
    - (iii) requirement of a remedial action program to restore or bolster the financial situation, improve management methods, or ensure organizational suitability;
    - (iv) protective measures (such as placing under special supervision, the restriction or temporary ban of certain operations, restrictions on the disposal of assets, restrictions on paying dividends to shareholders, or suspension of managers); or
    - (v) the appointment of an interim administrator.
  - Administrative policy measures are normally taken only after a preliminary hearing of the concerned entity; however, in the case of emergency, the ACP Board chairman (i.e., the BdF governor) may take such measures—on a temporary basis—without prior hearing of the entity.
- Legal references: Article L 612-27 CMF noted for on-site inspection letter practice.

### Comments on crisis prevention and supervisory practice
- The ACP’s crisis prevention structure builds on a comprehensive risk analysis including quantitative and qualitative information, global ratings of banks, potential capital add-ons based on Pillar 2, and use of supervisory judgment.
- An assessment of increased risks in a bank, including declining capital funds, implies an assumption of the implementation of some form of supervisory action to remedy the specific weakness; notably, a lower rating will lead automatically to a higher capital requirement.
- The mandate to appoint an interim administrator is a powerful and appropriate instrument but, whenever possible, letting the institution itself try to handle problems (including changing management) is preferred and followed in practice.
- The interim administrator instrument is mostly used in the banking sector for institutions that often enter into liquidation a few weeks or months after the appointment; the interim administrator’s work facilitates winding-up measures, notably the FGD work.
- Many governance problem cases are still occurring in the insurance sector.
- The ACP’s supervisory analysis is appropriate in identifying emerging problems and dealing with them in an orderly fashion, reducing the risk of ultimate bank failure.
- Identified weakness: time delay between an ACP request for remedial measure and ACP verification by on-site visit was sometimes far too protracted; one cause was the infrequent on-site schedule for non-systemically important institutions.
- Concern about excessive focus on “form” and quantification; example given: Dexia criticized for not complying with regulatory quantitative liquidity ratio minimum targets, with less supervisory emphasis on overall liquidity strategy (which proved highly vulnerable).

### Recommendations (numbered as in source)
- Recommendation 1
  - The follow-up process on ACP requests for remedial measures must ensure validation of the taken measures without too much delay (depending on the nature and gravity of the situation).
  - Example: where on-the-spot validation is necessary, a strictly targeted visit—outside the regular schedule for on-site visit—to the institution should take place when the institution reports that it has implemented the required measure.
- Recommendation 2
  - Introduce and implement a formal rule for automatic and early information to the FGD about banks, whose deteriorating situation may call for subsequent FGD action, either in the form of pay-out to depositors or in providing financial support in a recovery situation.
  - The FGD may only use such information for internal preparations until its explicit involvement is warranted; communication from the ACP to the FGD should be formalized as to content and form (written).
  - Considering the composition of the FGD Supervisory Board containing active bankers, the information should only be provided to the FGD Management Board of Directors.
- Recommendation 3
  - The authorities should conduct a domestic-crisis exercise to test cooperation and information-sharing arrangements and current laws, regulations, and processes; the exercise could take a simple and not very time-consuming form.

### III. BANK RESOLUTION — assessment highlights
- There is not yet a “special resolution regime” for credit institutions in the French legislation, awaiting a harmonized EU regime; traditional judicial liquidation or insolvency processes apply, generally following the Commercial Code.
- Some particular rules in the CMF (Articles L 312-4 and L 613-24) lay down specific triggers and powers for the ACP and the FGD in conjunction with liquidation or bankruptcy of supervised financial institutions.
- A regulated financial institution may enter into liquidation or bankruptcy procedures only after a decision by a court; the court may act on application from the ACP, the bank (including by the ACP-appointed interim administrator), or other parties such as the bank’s creditors.
- A decision by the ACP to withdraw the bank’s license implies an automatic start of liquidation of the bank; the ACP would consider withdrawing a license when an institution has breached an important legislative or regulatory provision and failed to respond adequately and timely to the supervisor’s requests (typical situation: violation of capital adequacy requirements).
- Bank resolution measures could take place prior to the start of the license withdrawal/liquidation process (e.g., liquidity or capital support, guarantees, asset sales, reorganization, or merger).
- The ACP often triggers bank resolution by appointing an interim administrator who will then conduct the resolution; when appointed, the ACP, after seeking the opinion of the FGD, may refer the matter to “le Tribunal de Grande Instance” to enable it to order the transfer of shares held by one or more de-facto or de-jure executives (Article L 613-25 CMF).
- The ACP may recommend preventive action of the FGD to avoid a disorderly default situation in which deposits may become unavailable (Article L 312-6 CMF).
- The ACP plays roles in judicial procedures: certain procedures cannot be initiated to a credit institution until the opinion of the ACP has been obtained (Article L 613-27 CMF); beside the administrative liquidator appointed by the ACP, the court can empower the receiver only with supervision of the bank management’s operations.

### Judicial procedures to prevent bankruptcy (company law)
- The composition procedure (Article L 611-4 ff): applies to financial institutions not in a state of payment cessation for more than 45 days; a conciliator is appointed; confidential.
- The safeguard procedure (Article L 620-1 ff): applies to institutions with problems leading to cessation of payments; reorganization to promote continuity in respect to the safeguard plan adopted by the judge.
- The reorganization procedure (Article L 631-1 ff): applies to institutions already in cessation of payments; implies temporary suspension of judicial proceedings, an observation period, and a reorganization plan.
- Comment: Payments here should be understood as any current liability, including deposits.

### Comments on resolution framework
- Although no specific resolution framework exists yet, the ACP has a broad set of powers to initiate or execute resolution aimed at either (i) recovering the institution to avoid liquidation/bankruptcy, or (ii) ensuring orderly liquidation when necessary.
- The formalized interaction between the ACP (sometimes also the FGD) and the judicial system is intended to ensure fair treatment of owners and other rights’ holders as well as broader interests such as “financial system stability.”

### IV. ROLE AND MANDATE OF BANQUE DE FRANCE (BdF) — assessment highlights
- The ACP and the BdF are closely linked (same president/governor), but each authority is independent with different roles defined in different legislative provisions; BdF maintains several distinct central bank functions important for crisis management and bank resolution.
- As member of the Eurosystem, the BdF may provide general liquidity facilities within system restrictions; it did so during the 2008–09 crisis, for instance, in non-euro currencies.
- The BdF may provide ELA to individual banks considered solvent but facing liquidity problems; a national central bank providing ELA must provide the ECB with a predefined set of information.
- Granting ELA remains a decision of the national central bank (carried at its own risk); liquidity support through ELA requires exchange of information and—depending on circumstances—may require prior approval from the governing council because these operations may interfere with the single monetary policy.
- The BdF collects market intelligence and frequent information on liquidity positions, including for individual banks; this information is shared and discussed with the ACP and used in ACP assessments.
- The BdF is continuously informed about problem banks through its representation in the ACP Board, where it is expected to express its opinion and thereby influence decisions.
- Outside its role in the ACP, the BdF does not have specific powers to trigger or conduct bank resolution.
- Under exceptional circumstances—to prevent the Eurosystem from imminent losses—the BdF may decide to suspend or limit a counterparty’s access to Eurosystem monetary operations on prudential or event of default grounds; the national central bank must seek ex-post approval from the ECB Governing Council for such a decision without delay.
- The BdF and ACP regard themselves as a single, integrated organization cooperating closely on an informal basis and do not find it meaningful to consult one another formally:
  - The BdF does not formally ask the ACP for a separately written assessment of solvency and systemic importance of a bank applying for ELA.
  - The ACP does not ask the BdF for a written assessment (e.g., on potential market repercussions) when it intends to withdraw the license of a bank.

### BdF comments and recommendations
- Given the intertwined structure, it makes sense to leave the leading role in crisis prevention and crisis management to the ACP; the ACP is supported by BdF information on market intelligence and liquidity developments.
- Best practices for governance and accountability require that separate views of BdF and ACP—based on different objectives—be expressed transparently.
- Recommendation 1
  - Establish a rule so that the BdF must always consult (a priori) the ACP on its assessment on solvency and systemic importance of a bank seeking ELA.
- Recommendation 2
  - Establish a rule so that the ACP—if considering that a situation may have systemic implications—must consult (a priori) the BdF on its assessment on the suitability, e.g., considering market repercussions, of an ACP proposal to withdraw the bank license or generally to request the start of the liquidation process.
- Recommendation 3
  - The BdF should publicize a Financial Stability Report on a regular basis.
- Note: The BdF does not currently publish a so-called Financial Stability Report (FSR), although it produces an internal informal version, as well as a Financial Stability Review.

### V. ROLE AND MANDATE OF THE MINISTRY OF FINANCE (MOF) — assessment highlights
- The MOF, as part of government, prepares and proposes primary legislation to the French parliament and is empowered to draft secondary legislation (regulations) on delegated financial sector issues.
- The French legal and organizational framework for crisis management and bank resolution is expected to be significantly modified in 2012, after the adoption of the Resolution Directive, which is being drafted by the European Commission.
- The MOF is active in international fora preparing decisions and guidelines on crisis-management issues, such as the FSB and the Basel Committee on Banking Supervision (BCBS).

*Source: _cr13186 - 11.      The ACP may appoint an interim administrator on its own initiative, or on the*

### 35.      At present, most of the measures for crisis management and bank resolution are

### _cr13186 - 35.      At present, most of the measures for crisis management and bank resolution are

### Crisis management and the role of the Ministry of Finance (MOF)
- At present, most measures for crisis management and bank resolution are decided by the ACP and the judicial system.
- The MOF is an observer of the ACP Board and can take part indirectly through its power to ask the Board for reconsideration of an issue.
- The MOF discusses crisis-management issues, such as the implementation of RRPs, in the CMGs of the major French banks.
- The MOF envisages a more active future role:
  - In (mostly international) negotiations on new rules and guidelines.
  - By being updated closely on domestic potential problem bank situations that might call for public financial support.
- On a resolution authority, the MOF is considering options:
  - Distinguish between a “trigger authority” and an “implementation authority/authorities.”
  - Alternatively, create a “Resolution Board” with all relevant authorities represented; such a Board could make decisions either (i) directly binding legally on participating authorities, or (ii) nonbinding decisions that would be confirmed within each authority, thus respecting their independent mandates.
- The MOF finds it necessary to play a major role in resolution of any institution for which public monies were being requested.

### Public financial support instruments (created in 2008; not used since 2009 but may be reactivated)
- Société de Financement de l’Economie Française (SFEF):
  - Mutualized funding vehicle with minority participation by the state and a public guarantee for its obligations.
  - May provide guarantees to creditors of banks.
  - During the 2008–09 crisis, it issued guarantees for senior debt in banks amounting to €77 billion.
  - Scheme terminated for issuing new guarantees at end-2009.
  - Amount of outstanding guarantees at end-2011 was approximately €55 billion.
- Société de Prise de Participation de l’Etat (SPPE) (also referenced as SPPS/SPPE in source):
  - Fully state-owned vehicle with a public guarantee.
  - May purchase shares in financial institutions or buy Tier 1 debt instruments.
  - During the 2008–09 crisis, the SPPS bought shares for €1 billion (only in Dexia). These were preferential shares with priority to dividend payments over ordinary shares and with a gradually increasing reimbursement price.
  - The SPPS also invested €19 billion in banks in the form of hybrids or other forms of Tier 1 capital; these have now been redeemed in full by the banks.
- As conditions for support from SFEF and SPPE, the MOF requested that recipient banks would:
  - (i) adhere to MOF guidelines on restricting bank directors’ remunerations; and
  - (ii) undertake to maintain a certain level of lending to small and medium enterprises, and local government bodies.

### Comments on MOF involvement and recommendations
- During the crisis, the MOF acted on an ad hoc basis, largely harmonized within the European Union.
- Advantages of MOF involvement:
  - Receives early and comprehensive information on trends in individual institutions and the banking system generally.
- Disadvantages:
  - Participation in controversial ACP Board decisions may present political dilemmas and conflicts of interest.
- FSAP assessor view:
  - No view on organization of a resolution authority except that mandates and powers between authorities must be explicit and clear.
- Recommendation 1:
  - The MOF should review its involvement in ongoing banking supervision, in line with the implementation of the EU directive on resolution, focusing on systemically important institutions while ensuring that it will remain timely and adequately informed on all issues relevant to the ministry. In line with the expected EU directive on resolution, the ministry should, in particular, be involved at an early stage when there is risk of a request for using public funds.
- Recommendation 2:
  - The MOF should adopt an explicit and transparent strategy, including setting stringent conditions for providing financial support to banks, like (i) shareholders should take the first loss; (ii) bank management should be replaced; (iii) restrictions on compensation and dividends; and (iv) there should be a clear exit strategy. Such an explicit framework for public financial support will increase transparency and reduce moral hazard, and should thus achieve the intended objective of minimizing the use of public support.

### Role and mandate of the Deposit Insurance Fund (FGD) — Assessment
- The deposit insurance scheme has not been used in recent years; no record of recent application of the rules and procedures.
- The FGD operates three mechanisms:
  i. A “pay-box” scheme for pay-outs to depositors in failing insured banks up to a maximum of €100,000 per depositor. Criterion: immediate or near-future non-accessibility to depositors’ funds, assessed by the ACP. According to EU legislation, pay-outs should be implemented within 20 days of the date of triggering the scheme.
  ii. A mechanism for financial intervention in problem banks to ensure an orderly liquidation, e.g., extension of credit lines or guarantees, or buying assets or shares.
  iii. An investment guarantee scheme providing compensation to clients affected by frauds or other losses (except market losses): maximum coverage €70,000 for losses on securities and an additional €70,000 for cash losses. If the investment has been done with a bank the maximum limit for cash losses is €100,000.
- The FGD may operate preventatively—in a discretionary manner—to ensure orderly liquidation and reduce risk of loss to depositors/investors.
- FGD background and funding:
  - Created in 1999; rules aligned with EU regulations including the Directive on Deposit Insurance of March 2009 as amended in September 2010 (when ceiling raised to present level).
  - Privately owned institution funded by the participating 745 credit institutions, of which 651 are deposit-holders (numbers as of end-2010).
  - Board composed of active bankers representing several insured institutions.
  - Contributions:
    - One-time contribution for a credit institution joining the FGD.
    - Yearly fee based on amount of deposits covered in each institution.
    - Exceptional contributions to prevent depletion due to pay-outs and other costs.
  - A contribution amounting to €270 million was decided in September 2010 to cope with increase to €100 000 coverage; amount to be paid in three yearly installments.
  - At end-2010, funded amount in the FGD was slightly above €2 billion; this equals 0.21 percent of total covered deposits (present target amount for the fund).
  - The planned amended EU Directive on Deposit Insurance is expected to raise the recommended target level significantly, maybe to €8–€10 billion.
- If funds are exhausted, the FGD may require extraordinary contributions from participants or raise funds in financial markets; there are no contingency credit lines from the government.
- FGD interventions:
  - May—but is not obliged to—intervene when risk of non-accessibility to deposits exists.
  - May provide guarantees for part of a bank’s obligation.
  - FGD financial support is not subject to an explicit “least-cost” criterion, though such considerations weigh heavily in practice.
  - An intervention by the FGD to provide support may only take place upon recommendation from the ACP Board; the Conseil de Surveillance of the FGD may accept or decline the recommendation and, if accepting, will set conditions for intervention (e.g., ACP may require bank to sell affiliates or assets immediately).
- Recovery of FGD outlays mainly through:
  - subrogation in a credit institution’s liquidation (FGD assumes rights and priorities of insured depositors after reimbursement); there is no “depositor preference” in French law;
  - legally confirmed claims against credit institutions and their managers or significant owners for wrongdoing;
  - repayment by the recovered bank or in subsequent liquidation, where FGD claims will be on par with other senior creditors.

### Comments on FGD and recommendations
- The FGD’s dual role as pay-box and loss-minimizing organization provides flexibility and facilitates handling of problem banks.
- The ACP recommending—but not compelling—the FGD to intervene is appropriate; FGD discretion to accept or decline is also appropriate.
- FSAP assessor observations:
  - Resolution of a systemically important French bank would likely rely on resolution measures (e.g., sale of assets and liabilities) rather than pay-outs; such measures could cost far less than a payout but still could be significantly higher than the present fund.
  - Recommends the fund be gradually increased without waiting for an EU Directive. An initial contribution rate might be set at a low level.
- Deficiencies noted in the FGD framework:
  - Rules on communication from the ACP on problem banks are not formalized; information may arrive late.
  - Composition of FGD Board (active bankers) could lead to conflict of interest and risk of late information-sharing.
  - Powers lacking for the FGD in resolution process, e.g., power to subscribe to capital of a bridge bank (though FGD could buy shares of the bridge bank).
- Recommendation 1:
  - Measures must be taken to reduce the (at least, perceived) risk of conflict of interest when making decisions on measures involving other, competing, banks or financial institutions. (Note: governance and by-laws allow confidential information from the ACP to be discussed by Managing Board members in sessions without bankers.)
- Recommendation 2:
  - The rules of the FGD should be amended to include an explicit “least-cost” assessment, acknowledging imprecision in emergency situations. The FGD should, as a rule, consider expected long-term costs to the FGD itself, while assessing context precisely and allowing authorities to declare a situation of danger to overall financial stability; in such a situation, the FGD should always be prepared to use its funds to intervene if deemed necessary.
- Recommendation 3:
  - There should be a pre-agreed financing back-up option available to the FGD in case of non-access to other means of replenishing the funds quickly after a major pay-out.
- Recommendation 4:
  - The FGD should explore options in “peace-time” to ensure speedy pay-out, including technical options such as aligning certain FGD IT systems with banks and requiring banks to introduce a single customer concept. (An FGD working group on such issues has started.)
- Recommendation 5:
  - The FGD and the ACP should conclude an MOU, setting out formalized modalities of cooperation and information-sharing.
- Recommendation 6:
  - The FGD prepaid deposit insurance fund should be gradually increased above the present level without waiting for a new EU Directive, taking into account other market and regulatory demands on banks and the need to ensure fair competition with international banks.

### Bank Resolution Fund
- At present, there is no French “bank resolution fund.”
- International practice: resolution funds financed by levies on banks (and sometimes other institutions) aim to internalize costs of banking sector problems.
- French authorities are positive about creating such a fund but await a common EU decision on ownership and modalities.
- Authorities proposed that such a fund be collected ex ante and be closely aligned—or actually merged—with the existing fund for depositor protection. A merged fund is viewed as a logical extension of current French arrangements in which the FGD may act both as a pay-out scheme and as provider of financial support to insured institutions.

### Cooperation and information sharing on crisis issues
- Main gateways for exchange of information about potential problem banks:
  - Meetings of the ACP Board (ACP, BdF, MOF, and AMF represented).
  - Cooperation and exchange of information relevant to performance of duties and frequent informal contacts.
- According to L 612-11 CMF, the ACP Board must be informed as soon as a severe risk to the financial system is identified.
- There are no domestic MOUs for information sharing and cooperation on crisis management issues.
- CMGs exist for BNP Paribas, Société Générale, and Crédit Agricole with regular meetings (two meetings per CMG planned for 2012); CMGs may meet in “limited composition” (only representatives of French authorities).
- COREFRIS (Conseil de la Regulation Financière et du Risque Systémique):
  - Provides a national framework for cooperation between relevant authorities (ACP, AMF, BdF, MOF).
  - Intended for general issues (e.g., negotiating French position in EU on Resolution Directive and structuring a future French resolution authority), not for discussing individual institutions.

*Source: _cr13186 - 35.      At present, most of the measures for crisis management and bank resolution are*

### 57.      According to the legal framework (Article L 631-1 of the CMF) the BdF, the

### According to the legal framework (Article L 631-1 of the CMF) the BdF, the

### Domestic institutional cooperation and governance
- Article L 631-1 of the CMF authorizes the BdF, the ACP, the AMF, and the FGD to exchange any information required for the execution of their tasks.
- Institutional links and participation:
  - "The BdF Governor is, by virtue of his position, also the President of the ACP Board."
  - "The MOF is on the ACP Board as a nonvoting observer." The MOF has the power to ask the Board for a “reconsideration” after a decision on any Board issue; this prerogative has never been used in practice.
  - "There are also retired financial sector representatives on the ACP Board who are appointed by the MOF."
- Regular cooperation forum:
  - The ACP, the AMF, and the BdF organize monthly cooperation meetings called Réunion des Autorités Financières (RAF).
  - RAF meetings address general matters (policies and understanding of specific financial products) and some institution-specific issues, notably on troubled financial institutions.
- BdF participation in AMF governance:
  - "The BdF has a seat on the AMF Board and participates in AMF committees."

### Cross-Border cooperation within the European Economic Area
- MOUs and crisis-management frameworks:
  - The ACP signed two European MOUs specifically dedicated to crisis management: one in March 2003 (between banking supervisors and central banks of all EU member states) and one in April 2005 (revised in 2010). Signatories included banking supervisory authorities, central banks, and ministries of finance. The MOUs "contain common principles for dealing with cross border crises."
- ACP information-sharing powers without formal agreement:
  - Under Article L 632-1 CMF, the ACP can "share information with an authority that performs a role similar to the one entrusted to the ACP."
  - Under Article L 632-12 CMF, the ACP can "carry out on-site inspections of a subsidiary or a branch of a supervised entity that is located in another Member State, and share information with foreign authorities responsible for the supervision of credit institutions, investment firms, other financial entities, and insurance companies."
  - Under Article L 632-4 of the CMF, the ACP can "share information with the European System of Central Banks, the ECB, and other public authorities in charge of the oversight of payment and settlement systems for financial instruments."
- Obligations on court notifications:
  - If informed by the Registry of the Commercial Court of the opening of a safeguard, reorganization, or winding-up procedure, or any equivalent procedure by the foreign competent authority, the ACP "must immediately convey this information to the operator of the systems in which the involved institution is a participant, including the BdF and the AMF." (Article R 613-18-I CMF)
  - The ACP "must inform the authorities designed by the member states of the European Union, when entities that are subject to the opening of a safeguard, reorganization, or winding-up procedure in France have a branch or provide services in another member state." (Article R 613-18-II CMF)

### Cross-border cooperation with third countries
- MOUs with third countries generally include crisis-management provisions.
- Main condition for concluding MOUs: "the foreign authorities are subject to a professional secrecy regime similar to the French regime."
- In practice, the ACP "has signed bilateral MOUs with all significant third-country authorities that would be relevant for managing a crisis situation in one of the large French banking groups."

### Recovery and Resolution Plans (RRPs) — Assessment
- Scope and requests to firms:
  - The ACP, in cooperation with the BdF, requested each French-domiciled G-SIFI to draft RRPs including identification of operational interdependencies; exploration of extreme circumstances that could lead the bank into a recovery situation; and in-depth analysis of specificities and dependencies of the critical main functions of the group.
  - "The entire RRP scheme will be completed by end-2012."
  - At the time of the report: "the three French G-SIFIs presently completing their RRPs (BNP Paribas, Société Générale, and Crédit Agricole)" and "the French domestic systemically important banks (SIBs) will enter the exercise during 2012."
- Status and linkage to supervisory processes:
  - "RRP preparation and implementation is currently the main issue being discussed in the crisis management groups (CMGs)."
  - Work on RRPs is well advanced, with differences across firms. Firms "have adopted policies for RRP governance" and "Methodologies and timetables have been established."
  - RRPs build on information already reviewed regularly by authorities, including risk-management framework, liquidity management, contingency funding plans, and stress testing policies. RRPs are "closely linked to supervisory processes."

### Recovery and Resolution Plans — Comments and recommendations
- Utility and importance:
  - RRPs help authorities and institution management "understand better the potential vulnerabilities and interdependencies in large and complex financial groups."
  - Emphasis on completing group-wide RRPs due to wide cross-border activities.
- Ownership, roles, and updating:
  - It is important to "ascertain proper ownership and division of roles and responsibilities among the involved parties," including home and host authorities and institution management at group and entity levels.
  - Principle: "the responsibility for the recovery plans should be in the hands of the management of the institution" while "the execution of the resolution plan should be the responsibility of the relevant authorities."
  - Need for ongoing updating of RRPs and continuous dialogue between institutions and authorities, for instance in the CMGs.
- Balancing home and host interests:
  - Group-wide RRPs "will strengthen the involvement and mutual responsibilities of home and host authorities and group entities."
  - In crises, "fundamental home and host interests may well be contradictory;" agreeing arrangements in "normal times" increases chances of constructive solutions.
- Complementary measures:
  - RRPs should be supplemented by plans for bank resolution since "it may prove impossible to divest group entities at a time when the whole financial market is in turmoil."
- Formal recommendations:
  - Recommendation 1: "Clear roles and responsibilities should be established for the authorities and the group management/Board in relation to the implementation of the various components of the RRPs." General principle: "the 'recovery part' should be foremost the responsibility of the bank and the resolution part should be foremost the responsibility of the authorities; that said, close and continuous cooperation on both parts are necessary." The FSAP assessor notes French authorities are already using these principles and "will formalize them when the EU framework is completed."
  - Recommendation 2: "The whole RRP concept should be integrated into the ongoing processes of the relevant authorities and also of the group at large; it should not become a 'one-off' exercise." (Parts of the RRPs are already integrated into the ACP supervisory process.)

### Expected developments
- International work and harmonization efforts:
  - "Intensive international work is currently going on in the fields of CM/BR."
  - The FSB and the BCBS have working groups discussing alignment of different resolution regimes across jurisdictions.
  - "The European Commission is expected in the near future to issue a proposal for a resolution regime for credit institutions."
  - Work is ongoing in supervisory colleges of major cross-border banking groups to strengthen crisis management and resolution arrangements.
- French authorities’ stance:
  - French authorities "have generally taken a positive view toward these developments and have been active in the international negotiations."
  - They "have not yet introduced major changes in their own legislation, e.g., introducing a dedicated bank resolution framework, but expect to do so in a harmonized fashion when internationally agreed proposals have been concluded."

*Source: IMF Staff Report excerpt (paragraphs 57–74 of the supplied content).*

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