Friday, 26 June 2009

ECB Noyer: French Bks Solid, Must Reinforce Risk Management

French Bks Solid, Must Reinforce Risk Management

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PARIS -(Dow Jones)- Recent stress tests demonstrate the solidity of French banks, but a number of remaining uncertainties linked to the global financial crisis require a reinforcement of risk management measures, the head of the French banking commission said Friday.

"The different stress test exercises carried out in recent months appear to me to confirm my view on the solidity of French banks," Christian Noyer, who is also a European Central Bank governing council member, said at a press conference Friday.

Noyer heads France's banking regulatory commission.

Given the fast evolving nature of the financial and economic environment, Noyer said such tests needed to be employed "regularly" and with varying macroeconomic scenarios. He urged French banks to reinforce the conditions of their own stress tests.

Turning to specific risks, Noyer cautioned that any efforts by banks to capitalize on the rebounds seen in some financial markets must go hand-in-hand with the development of appropriate risk management processes, adding that the banking commission would keep a close watch on this.

Noyer singled out four other areas of concern, starting with the "second round" effects of the crisis that could "fragilize" banking commitments to collaterized loan obligations, or CLOs, as well as leveraged finance products, particularly leveraged buyouts.

He also noted risks stemming from hedge funds as well as the need to closely track real-estate linked assets across the globe. So far, French banks have prudently covered risks connected to assets hit by the U.S. subprime crisis, Noyer said, but added that real-estate markets are now weakening in several European countries.

Noyer also pointed to a "significant increase" in credit risk due to the economic recession, notably in corporate financing, in French banks' domestic businesses and in their international operations covering regions such as Eastern Europe.

The French regulator will also keep a watchful eye on French banks' corporate governance practices, particularly those concerning remuneration policies, Noyer said.

Questioned about the level of pay at U.S. banks, Noyer said it would be very unfortunate if they were to return to pay structures that encouraged excessive risk taking. Such a move may need to be discussed by the Group of 20 industrial and developing nations, he added.

-By Jethro Mullen, Dow Jones Newswires; 33 1 4017 1738; jethro.mullen@dowjones.com

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(END) Dow Jones Newswires

June 26, 2009 07:34 ET (11:34 GMT)


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