Savers told tokeep cash safety net

by OLIVER ROWLAND

30 September 2011
By

KEEP some money at home! That’s the advice from a bank users group over fears that French banks could fail if Greece defaults on loans they have made.

The general secretary of Association Française des Usagers des Banques (Afub), Serge Maître, said there was a “significant” exposure of French banks to the consequences of Greek bankruptcy and this would increase if Italy – the latest country causing concerns – was also pulled down. He said: “If Greece falls it risks revealing Italy as a weak link and French banks have considerably more money tied up there. They are generally exposed twice, up to 10 times, as much.”

Mr Maître was speaking after Société Générale and Crédit Agricole were downgraded one notch by ratings agency Moody’s due to the amount of money they were owed by Greece. He said these banks, and BNP Paribas – which Moody’s has “under surveillance” – were those most at risk.

Mr Maître said French banks had invested much more in other countries’ sovereign debt than other European banks and “while they have a direct exposure to Greek debt they have also made guarantees to each other. If one bank falls, that’s meant to be more or less borne by the other establishments – so there’s a house of cards and if one falls it risks dragging the others down, too.”

However, the French Banking Federation said that the situation was “limited and perfectly manageable”.

The country’s banks were also rated in the safest 50 in the world by Global Finance magazine. The magazine said BNP Paribas was the “safest”, in 15th place (after the state’s Caisse des Dépôts et Consignations), followed by Crédit Agricole at 21, Crédit Lyonnais on 27 and Société Générale at 35.

Mr Maître said there was nonetheless “real danger, real worry” and he highlighted several problems with the bank guarantee fund which protects savers’ deposits.

Banks pay into the fund to ensure that if a bank goes bankrupt each saver per bank (regardless of number of accounts and of whether or not the accounts are personal or business ones) gets back up to €100,000, or €70,000 for shares accounts. A similar fund exists giving €70,000 per insured person, per insurer, for assurance vie policies.

Beyond those sums you become a non-priority creditor in the bankruptcy, with little chance of reimbursement.

Mr Maître said: “We suggest those who want to be prudent keep some cash at home – not all of it, but if there is a real catastrophe and the guarantee comes into play there are 30 days before you get money back.” It may also help to have money in several banks.

There were fears the €2 billion guarantee fund would not be enough and he said banks would have to turn to the government which is “counting its pennies”. President Sarkozy promised in 2008 that the government would bail out banks threatened with bankruptcy, but Mr Maître said: “With today’s debts, how would it pay for it?”

He added: “It’s normal to be worried and we should remain vigilant; though there is no need to panic yet.”

Paris School of Economics banking specialist Dr Jean Imbs said, however, that Greece should not cause alarm. “It is a small country, less than 3% European GDP; so it would not create serious worries in terms of the exposure of the banks.” Italy was another matter and French banks had more invested there than Greece, as its economy was larger. If Greece defaulted and Italy followed, he said, it is not clear where Europe could find the money to bail out the country, or where France could find money to help banks.

The EU has bailed out Greece and while a second tranche was expected to be paid last month, EU leaders have not yet given final approval.

The salvage plans include a so-called 20% “haircut” to Greek debt (eg. on €100 of debt, only €80 would be repaid) and he said this could be seen as a kind of managed “default”. While a more severe haircut was possible, a “cataclysmic” (100%) one was “extremely unlikely”. As for Italy, Imbs said that fear of a default is “irrational”

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