How banks benefited from the crisis thanks to state guarantees

During the crisis, the banking sector received at least 200 billion euros per year of implicit subsidies, according to a study.

Between 200 and 300 billion euros, a year is a financial advantage that European banks have drawn implicit guarantees provided by the states during the crisis, according to a study by independent financial expert Alexander Kloeck to the demand of the MEPs from the environmental group. “This is one of the serious dysfunctions revealed by the crisis and it has not yet been treated,” said the Belgian MEP (Group Greens-European Free Alliance), Philippe Lamberts.

Published Monday, January 27, this study could revive the debate on the subject, while Michel Barnier, the European Commissioner for Internal Market, is preparing to submit, Wednesday, January 29, its project of separation of banking activities, to better regulate the sector.


In 2010 and 2011, the question of these implicit guarantees agitated the European political class. When the bank Lehman Brothers went bankrupt in 2008, the authorities realized that some institutions were systemic, or “too big to fail”: “too big to be allowed to go bankrupt” without causing damage to the bank. real economy. This is the case of the major European universal banks, mixing savers’ deposits and market activities: BNP Paribas, Deutsche Bank, UBS …

“Investors are convinced that in the event of a serious crisis, governments will act to prevent them from defaulting,” said Laurence Scialom, a subject specialist at the University Paris-X – Nanterre. This is what economists call the implicit guarantee or subsidy of states.

A priori, we could say that this is a good thing since this guarantee is almost never used. The problem is that it has many perverse effects. First, it encourages banks to take more risks in the financial markets. “This is the moral hazard: the certainty of being helped by the state pushes to adopt the less cautious behavior, ” says Bruno Colmant, an economist at the Catholic University of Louvain.

Second, the implied warranty creates distortions of competition. Benefiting banks benefit from more favorable financing conditions than other institutions in the markets, as they are considered safer.


The rating agencies recognize this advantage. They attribute two types of valuation to banks “too big to fail”: one, known as stand alone, considering the only financial health assessment of the institution, the other so-called all-in, incorporating the guarantee of the States. “The second rating is always better than the first, evidence that these institutions are benefiting from lower interest rates, and therefore, are earning money from state support, ” says Lamberts.

Based on these differences in ratings, Alexander Kloeck determined that between 2007 and 2012, the European banking sector received the equivalent of € 208.8 billion to € 320.1 billion per year in implicit subsidies. States, which have, for the most part, benefited systemic institutions. The study also refers to estimates made by other experts in recent years, using different methodologies. The results, which vary widely, ranging from 96 to 293 billion euros per year.

“These purely theoretical calculations mean nothing, ” sweeps a Parisian banker, recalling that when they lent money to banking institutions, governments were fully reimbursed, plus interest.

These public guarantees still hurt the states at the height of the crisis, since the rating agencies considered that they could increase sovereign debt if you want debt consolidation. This is one of the motives evoked by Standard & Poor’s and Moody’s when they degraded the rating of the French state in 2012.


Governments are beginning to take action to mitigate these adverse effects: the Basel III rules have required banks to strengthen their equity so they can better absorb shocks; France, the United States, and the United Kingdom have adopted laws separating banking activities. “The objective is to impose a subsidiarisation of the activities of riskiest markets so that they no longer benefit from the public guarantee which legitimately benefits deposits of individuals”, summarizes Hubert de Vauplane, professor of banking law in Paris- II.

“This is a start, but these laws must go further, otherwise traders’ bonuses will remain, de facto, guaranteed by the state,” said Christophe Nijdam, independent analyst firm AlphaValue. Like many experts, he considers that these laws include so many exceptions – especially in France – that their effectiveness will be limited.

” We hope that Michel Barnier’s project will go further than the French law, too unambitious,” said one at Finance Watch, an NGO that fights for greater financial transparency.