The 2008 financial crisis revealed major flaws in banking supervision. Regulators have since strengthened the regulatory framework. These constraints make the system more secure, but they also make life considerably more complex for banks.
Why monitor the banks?
Banks occupy a unique position. They manage the public's savings while financing the economy. A bank failure can set off a chain reaction. The legislator is therefore imposing strict rules.
Article L.511-41 of the Monetary and Financial Code states that "credit institutions are required to comply with management standards designed to guarantee their liquidity and solvency in relation to depositors and, more generally, third parties".
These standards have three objectives:
- Protecting depositors
- Maintaining the stability of the financial system
- Preserving confidence in the economy
Banking supervisory authorities
The Autorité de Contrôle Prudentiel et de Résolution (ACPR)
Created in 2010 and renamed in 2013, the ACPR merges several previous bodies. It oversees the stability of the French financial sector.
Main tasks:
- Issue approvals to establishments
- Monitor their financial situation
- Checking compliance with prudential rules
- Penalising breaches
Article L.612-1 of the Monetary and Financial Code gives it the power to "ensure the stability of the financial system and the protection of customers".
The European Central Bank (ECB)
Since 2014, the ECB has directly supervised the significant banks in the eurozone. This transfer of competence is the result of EU Regulation 1024/2013 establishing the Single Supervisory Mechanism (SSM).
The ECB may :
- Granting or withdrawing banking authorisations
- Assessing acquisitions of qualifying shareholdings
- Impose additional capital requirements
The High Council for Financial Stability
This council, chaired by the Minister for the Economy, coordinates macroprudential supervision. It may impose additional requirements on institutions presenting systemic risks.
Article L.631-2-1 of the Monetary and Financial Code allows it, in particular, "to set the conditions for the granting of credit by entities subject to supervision by the ACPR".
Essential prudential rules
Solvency ratio and capital requirements
The solvency ratio measures a bank's ability to absorb losses. It is the ratio of shareholders' equity to risk-weighted assets.
Article 92 of EU Regulation No. 575/2013 (CRR) sets out the minimum requirements:
- Total capital ratio: 8%
- Tier 1 capital ratio: 6%
- Tier 1 capital ratio: 4.5%
A financial analyst told me recently: these ratios may seem technical, but they determine the banks' ability to finance the economy.
Liquidity ratio
Liquidity is governed by two complementary ratios:
- The Liquidity Coverage Ratio (LCR) requires banks to hold sufficient liquid assets to withstand a 30-day crisis.
- The Net Stable Funding Ratio (NSFR) aims to ensure stable long-term funding.
Risk Division
To avoid risk concentration, large exposures (exposures exceeding 10% of equity) are capped at 25% of equity per counterparty.
Article 395 of the CRR states: "An institution shall not assume an exposure to a client or group of connected clients the value of which [...] would exceed 25 % of its eligible own funds."
Basel III agreements
These international agreements tighten prudential requirements in the wake of the 2008 crisis. Basel III introduces :
- Additional capital cushions
- A leverage ratio limiting overall debt
- Harmonised liquidity standards
These rules have been transposed into European law by EU Regulation 575/2013 (CRR) and Directive 2013/36/EU (CRD IV).
The single European supervisory mechanism
ECB/ACPR division of responsibilities
Order no. 2014-1332 of 6 November 2014 adapted French law to the Single Supervisory Mechanism (SSM).
The ECB directly supervises significant banks, while the ACPR retains supervision of less significant institutions under the ultimate responsibility of the ECB.
The ACPR remains responsible for :
- The fight against money laundering
- Consumer protection
- Supervision of payment institutions
Significant and less significant establishments
An establishment is considered significant according to several criteria:
- Size (assets > €30 billion)
- National economic importance
- Cross-border activities
- Recourse to public aid
Currently, around 130 banking groups are directly supervised by the ECB, representing more than 80% of banking assets in the eurozone.
Consequences for customers and businesses
This increased supervision is producing concrete results:
- Strengthening the security of bank deposits
- Tighter credit conditions
- Increased compliance costs passed on in tariffs
- Standardising European banking practices
For companies seeking financing, these rules may seem restrictive. They lead to a more detailed analysis of risk and greater selectivity in applications.
A solid credit file is crucial. Legal advice can play a decisive role in structuring a financing application that complies with the new prudential requirements.
SMEs are particularly hard hit by these tougher regulations. They are now required to provide stronger guarantees and more comprehensive documentation.
Sources
- Monetary and Financial Code, in particular articles L.511-41, L.612-1, L.631-2-1
- Regulation (EU) no. 575/2013 on prudential requirements (CRR)
- Directive 2013/36/EU relating to the taking up and pursuit of the business of credit institutions (CRD IV)
- Regulation (EU) No 1024/2013 conferring prudential supervisory tasks on the ECB
- Order no. 2014-1332 of 6 November 2014 adapting French law to the ESM
- Banks and credit institutions - Hélène AUBRY - May 2006 (Commercial law repertoire)
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