Regular restructuring and repeated reforms have brought in major changes in the banking sector in France since the late 1960s. The reforms have helped the French banking sector to gain substantially in terms of profitability, technical expertise, internal control methods and providing a strong financial structure. The banking structure having been rationalized generated a liberal environment for credit institutions to operate in. The results of reforms of over four decades have been encouraging. The French banking sector is now far more competitive, efficient and profitable. The current Economic reforms being undertaken in France is expected to further increase the importance of the banking sector as a major economic agent of development in the French economy.
Banking sector reforms in France during 1960s and 1970s
In 1965 the first signs of adopting a modern banking system was gradually began to show up in the French economy. There still continued to be regulatory distinctions between ordinary banks and special financial institutions governed by specific laws. The compartmentalized banking system was characterized by complicated laws and various supervisory authorities. Banking sector reforms were carried out in 1966-67. The highlights of these reforms were -
Flexible rules and reduction of restrictions for the banks.
'Despecialisation' - promoting the concept of universal banking.
Competition between banks encouraged.
Opportunity for banks to open new branches.
Improved financial processes.
These reforms gave a big boost to the banking sector in France. Bank branches doubled in number between 1967 and 1975.
Banking sector reforms in France during 1980s
Major banking sector reforms were carried out in France during the early 1980s and the 1984 Banking Act was formulated. This act focused on the principle of universality. The major highlights of the reforms of 1980s are -
A single regulatory framework was created for all credit institutions. All the banks and financial institutions were brought under the same supervisors. The only institutions to be exempted from this were Banque De France, the financial division of the French post office and the overseas note issuing banks.
Possibilities for market financing were opened up in 1985-86, by providing the right to issue money market instruments to economic agents.
The banking sector reforms in France during the 1980s led to a competitive environment and the ones that could not perform in such an environment closed down. There were also mergers and takeovers in the banking sector. Number of bank branches decreased substantially.
Banking sector reforms in France during 1990s
The recession of 1993 affected the French Economy. Credit demand was low and the banking sector was unable to create significant value. However, in 1996 growth was resumed and credit demand picked up significantly. Meanwhile leading French banks had experienced ownership changes. In the later part of the 1990s the Regulation 97-02 was adopted. This focused on internal control, managing risks and monitoring. This period saw reforms that led to a more efficient, transparent and productive banking sector in France.
Banking sector reforms in France after 2000
Reforms in 2001-2003 have attributed the French banking sector with increased profitability. The banking sector in France is now much better equipped to sustain a crisis than it was earlier. More recent reforms in 2006-2007 are expected to increase the competitive edge of the French Banking sector over its European Union counterparts. French President Nicholas Sarkozy has taken up major reform issues with the European Union.
