French banks diagnosed with denial

PARIS, Oct. 21 (UPI) -- French bankers ignored signs of troubles that could have made the current economic crisis in Europe easier to handle, an economics professor in Paris said.

"French banks failed to learn lessons from the 2007, 2008 crisis and became complacent," Professor Jezabel Couppey-Soubeyran at the Pantheon-Sorbonne University told The Wall Street Journal.

"They refused to put on a small sweater when the weather was still nice. Now that climate is ice-cold, it's not even sure that a heavy jacket will suffice."

Since 2009, French bankers have lobbied heavily to avoid or forestall regulations that would have reduced the threat of today's crisis, the Journal reported Friday.

In 2009, one French banker flew to Washington to meet Dominique Strauss-Kahn, who was then the director of the International Monetary Fund.

The goal of the meeting was to get the director to agree not to raise alarms over the state of French banks, which hold a significant portion of Greek, Italian, Irish, Portuguese and Spanish debt.

Strauss-Kahn agreed to keep his concerns private and the position of banks has deteriorated sharply since.

One of the first points made by Christine Lagarde, Strauss-Kahn's replacement at the IMF, was that banks in Europe were under capitalized.

Lagarde, took over the IMF after Strauss-Kahn resigned following his arrest on sexual assault charges in New York. But even then, as recently as this summer, Lagarde was criticized for mentioning in public that European banks were in trouble. Strauss-Kahn, by then, was privately alerting European leaders, the Journal reported.

On another regulatory front, French banks were critical of the Basel Committee on Banking Supervision, an international team of regulators that has recommended banks increase their cushion of capital.

"French banks have indeed resisted higher capital requirements," said Nout Wellink, governor of the Dutch Central Bank and chairman of the committee.

A spokesman for French bank BNP said the bank was working both ends against the middle.

"We did both: Try to get a better deal and prepare ourselves for something we knew was in the works," the spokesman said.