2000/480/EC: Commission Decision of 8 July 1999 on aid granted by France to the Crédit Agricole group in connection with the collecting and keeping of notaries' deposits in rural municipalities (notified under document number C(1999) 2147) (Text with EEA relevance) (Only the French text is authentic)
Date: 1999-07-08
Institutions: European Commission
Subjects: France, State aid, application of EU law, commercial bank, control of State aid

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 8 July 1999

on aid granted by France to the Crédit Agricole group in connection with the collecting and
keeping of notaries' deposits in rural municipalities

(notified under document number C(1999) 2147)

(Only the French text is authentic)

(Text with EEA relevance)

(2000/480/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Populaires (CSBP) concerning the rights granted by the
State to Crédit Agricole.

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

(2)

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to those provisions,

Whereas:

I

PROCEDURE

letter

Journal of

in the Official

initiating the procedure

The French authorities replied by letter dated 9 April
1998, providing a fully detailed reply to the questions
asked in the
and
announcing that they planned to end the right of Crédit
Agricole to collect notaries' deposits by mid-1998.
Following publication of the notice on the initiation of
the European
proceedings
Communities (1), Crédit Agricole,
to the
Commission dated 5 June 1998, explained why the
measures in question did not constitute State aid. By
letter dated 22 September 1998, the Commission asked
the French authorities for further details on the basis of
their reply of 9 April. The French authorities replied on
7 January 1999. The Commission sent a further letter
on 25 January asking the French authorities to confirm
that the rights granted to Crédit Agricole were to be
abolished. The authorities informed it by letter dated 28
April 1999 of the measures it planned to take to put an
end to the rights in question by 1 April 2000.

in a letter

II

(1)

By letter dated 22 January 1998,
the Commission
informed the French authorities that it had initiated a
procedure under Article 88(2) in respect of the advan-
tages granted by the French State to Crédit Agricole
through the exclusive right
to collect deposits from
notaries in rural areas. The procedure was initiated
following a complaint lodged by Association Française
des Banques (AFB) and Chambre Syndicale des Banques

CRÉDIT AGRICOLE — DESCRIPTION OF THE NOTA-
RIES' DEPOSIT SYSTEM

(3)

Before the merger of Société Générale and Paribas
announced in February 1999, the Crédit Agricole group
was the leading French banking group and the fifth

(1) OJ C 144, 9.5.1998, p. 6.

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(6)

It consists of a
largest banking group in Europe (2).
group of mutual societies, the first of which was set up
at the end of the 19th century to meet the financial
needs of farmers. The ‘Caisse nationale du Crédit Agri-
cole’ (CNCA), responsible for the allocation of advances
among the branches, was set up by the State in 1926.
CNCA was privatised in 1988 and the group has since
then been completely private, being owned by the
group's ‘Caisses régionales’ (91 %) and by its employees
(9 %). The Caisses régionales are themselves owned by
the ‘Caisses locales’ consisting of some 5 million share-
holders. The group's activities evolved towards large-
scale deposit and universal banking. By the end of 1997
it had a network of some 8 200 branches and 9 200
‘green points’, services delegated to traders for simple
operations. In rural areas, Crédit Agricole accounts for
about 33 % of branches, far more than the three main
AFB banks together.

Caisses de Crédit Agricole to receive funds held by nota-
ries in municipalities with under 30 000 inhabitants (3).

The funds deposited earn a 1 % commission (4) paid to
the notaries. As the Commission also pointed out when
it initiated the procedure, until 1990 Crédit Agricole had
given nothing in exchange for its access to virtually free
financial resources. In 1990 a fund for easing the finan-
cial burden on farmers (FAC) was set up (by agreement
between the State and Crédit Agricole on 26 September
1990), to which Crédit Agricole agreed to contribute
FRF 500 million in 1991 and 1992, FRF 600 million in
1993 and FRF 500 million in 1994 and 1995. An
agreement between the public authorities and Crédit
Agricole was reached in 1996 on the renewal of the
contribution to FAC, amounting to FRF 1 billion for the
period 1996 to 1999. FAC is financed by the Caisses
régionales of Crédit Agricole,
in proportion to the
resources obtained for managing the notaries' deposits.
The fund grants interest subsidies (especially to young
farmers) and funding loans and also finances debt write-
offs,
farming.
Crédit Agricole has full freedom to manage FAC funds
according to those criteria.

in particular to facilitate cessation of

(4)

(5)

The Crédit Agricole group continues to play an essential
part in the financing of agriculture, but its customers
have considerably diversified towards other socioprofes-
sional categories of the population and other sectors of
the economy. It held the monopoly for the distribution
of subsidised loans to agriculture until 1990, when the
subsidies were opened up to banking competition.

Although notaries are members of a profession, they are
public officers subject to specific rules laid down by the
public authorities.
they may not hold
In particular,
deposits of
their customers relating to transactions
subject to notarial acts: the State requires notaries to
place such deposits in establishments listed by it. The
funds temporarily held by the notaries stem chiefly from
inheritances, real estate transactions, the setting-up of
companies and transfers of goodwill. When it initiated
the Article 88(2) procedure, the Commission, on the
basis of the information submitted by the complainants
and the French authorities, stated that, in 1972, the State
(by Decree of 25 August) had adopted a list of establish-
ments authorised to collect and keep deposits of less
than three months, which includes Caisse des dépôts and
consignations (CDC), the Service des chèques postaux
and Caisses de Crédit Agricole (for municipalities with
under 5 000 inhabitants). In 1973 the State authorised

(2) Moody's 1997 ratings.

(7) When it initiated this procedure, the Commission took
the view that the reserved rights granted to Crédit Agri-
cole to collect and keep notaries' deposits:

— distorted competition to an extent liable to affect

trade between Member States,

— gave Crédit Agricole an advantage it would not have

obtained on the market,

— mobilised State resources.

(8)

the Commission considered that

On that basis,
the
measures in question were liable to contain a large
proportion of State aid within the meaning of Article 87
of the Treaty. On the basis of the information in its
possession,
it took the view that, should such aid be
identified, it would be fresh aid within the meaning of
the Treaty and that therefore the procedure laid down in
Article 88(2) of the Treaty should be initiated in order to
examine the measures.

(9)

The arguments of the complainants (AFB and CSBP)
were set out in the notice initiating the proceedings (5).

III

COMMENTS FROM INTERESTED PARTIES

(10) Apart

from the comments from Crédit Agricole, no
other comments from interested parties were received by
the Commission.

(3) With the exception of municipalities with between 5 001 and
30 000 inhabitants forming part of areas with over 50 000 inhabi-
tants, and municipalities in areas of rural renewal and hill-farming
areas forming part of areas with over 50 000 inhabitants.

(4) The commission consists of an annual interest rate of 1 %, applied
pro rata temporis
to the amounts deposited. Thus an average
amount of FRF 20 billion over one year would give rise to
commission payments to notaries of some FRF 200 million.

(5) See footnote 1.

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(11)

Like the French authorities, Crédit Agricole:

(13)

— stressed that its branches had been authorised to
collect notaries' deposits since 1930 and that the
rights granted were not exclusive as CDC and the
Service des chèques postaux were entitled to such
deposits throughout
including rural
areas,

the country,

— pointed out that the notaries' deposits could not be
regarded as State resources and could not therefore
constitute State aid under Article 87,

— referred to the public service tasks of notaries and
the statutory constraints attached to the scheme in
question,

— pointed out that the costs of managing the notaries'
the total

deposits amounted to some 1,77 % of
deposits,

— referred to the ceiling on short-terms loans to
farmers to which it had been subject until February
1997 and which it considers was imposed on it in
exchange for the notaries' deposits,

— referred to the setting-up of

the FAC and the
FRF 3,9 billion it had allocated since it was set up in
1990,
financed in proportion to the resources
provided by the notaries' deposits and hence consti-
tuting a counter-concession to the deposits,

— denied that trade between Member States had been
adversely affected on the grounds of the rural and
local nature of its clientele and the small amounts
involved, which account for an infinitesimal propor-
tion of total deposits in France.

(12)

Crédit Agricole pointed out that only the Caisses régio-
nales were entitled to receive notaries' deposits.
It
considered that, by opening the procedure in respect of
the whole network formed by those Caisses and CNCA
as the possible recipient of aid stemming from the nota-
ries' deposits, the Commission had committed a legal
and factual error. Crédit Agricole referred to the modest
extent of its international development and considered
that the notaries' deposits could not have financed its
international development,
i.e. that of the CNCA, the
recipients of the notaries' deposits being the group's
regional branches. It stated that the monetary resources,
which include the notaries' deposits, were entered solely
in balance sheets of the Caisses régionales. Any surpluses
from the Caisses régionales, which include notaries'
deposits, would certainly be reinvested in CNCA, but at
market rates and without yielding any profits for the
latter.

the State waiver of any
Crédit Agricole denied that
return on the notaries' deposits and the resulting loss of
earnings from the scheme constituted aid; it stated that
many aid measures were implemented by the State and
that an obligation to produce a return would jeopardise
the discretionary nature of financial assistance from the
State as well as the principle that administrative acts
must not be profitable. Crédit Agricole also denied that
there was any obligation under Community law for the
State to derive benefit from the rights granted to Crédit
Agricole.

(14)

(15)

(16)

Crédit Agricole claimed that, because of the obligations
attached to the scheme, it would in any event have been
chosen by the public authorities, irrespective of the list
of
the notaries'
deposits.

financial establishments eligible for

It pointed out that the judgment of the French Council
of State of 27 March 1997 had held that the arrange-
ments for the notaries' deposits were compatible both
with Article 82 and with Article 86 of the Treaty and
were therefore not incompatible with Article 87 of the
Treaty. Crédit Agricole considered in particular that the
member banks of AFB offered a comparable guarantee
to that of Crédit Agricole only since the adoption of a
regulation by AFB on 8 February 1994 providing that
notaries' deposits would if necessary be reimbursed in
full

if an AFB bank were to fail.

Crédit Agricole also considered that the Commission
had confused the hypothetical aid with the benefit of the
aid. It pointed out in particular that, in its assessment of
the benefit derived by Crédit Agricole from collecting
and keeping notaries' deposits, the Commission failed to
take account of the ‘natural’ market share held by Crédit
Agricole in France in rural areas (if the scheme became
generally available) or the share of which it is currently
deprived in urban areas. Crédit Agricole calculated that,
on the basis of its ‘natural’ market share of notaries'
deposits in the event of generalisation of the scheme, it
would acquire deposits totalling FRF 12,1 billion which,
on the basis of total deposits of FRF 21 billion in 1996,
would therefore mean that the extra amount collected
through its reserved rights would total only about FRF 9
billion.

(17)

Crédit Agricole considered that, in view of the auditing
obligations accompanying the right to hold notaries'
deposits,
it was incompatible with the objective of
security for such deposits to be collected by establish-
ments located abroad.

(18)

Lastly, Crédit Agricole considered that assistance for
agriculture in the form of short-term loan subsidies was
justified on the grounds of public interest.

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IV

COMMENTS FROM FRANCE

(19)

By letter dated 9 April 1998 to the Commission, the
French authorities commented on a number of points
raised by the Commission when it initiated the proce-
dure.

(a) Origin of the rights granted to Crédit Agricole

(20)

The French authorities stated in their letter of 9 April
1998 that the possibility granted to Crédit Agricole to
three
collect and keep notaries' deposits of under
months was established by a law of 9 March 1953,
without any limit being placed on such deposits.
According to the French authorities, the later decisions
adopted by decree of
the Garde des Sceaux on 25
August 1972, supplemented on 7 June 1973, had the
effect of imposing restrictions in relation to the earlier
situation by limiting the rights to deposits of under three
months in rural areas.

(21)

request of 22
In response
to the Commission's
September 1998 for documentary evidence that
the
rights granted to Crédit Agricole preceded the entry into
the Treaty, on 7 January 1999 the French
force of
authorities provided the Commission with:

(24)

— a copy of the decree of the Garde des Sceaux of 9
March 1953 stating that the so-called ‘untied’ funds
of notaries (apart from the deposits of more than
three months which must be transferred to CDC)
could, on the basis of an earlier Circular of 1930, be
deposited in several establishments,
including the
Caisses de Crédit Agricole,

— a copy of a Chancellery circular of 24 December
1930 showing that Crédit Agricole was already one
of
the establishments entitled to collect notaries'
deposits as early as 1924.

(b) Reasons and aims underlying the decision by the French
State to introduce and maintain the rights to collect and
keep notaries' deposits

(22)

the rights in
The French authorities considered that
question were justified on three grounds: the specificity
of the profession of notary and the need for efficient
supervision;
the accessibility of banking services for
notaries in country areas; the absolute safety of the
that notaries are
funds collected. They pointed out
engaged in a public service activity while being members
of a profession.
In particular, they pointed out that
notaries are subject to specific supervision and that, in a
judgment of 19 November 1914, the French Court of
Cassation had held that notaries' accounts were public

documents. Secondly, the French authorities stressed the
geographical location of Crédit Agricole in a rural area
where it is by far the largest banking network in France,
currently still accounting for some 34 % of branches. Of
its permanent branches, 64 % are located in rural areas.
Thirdly, the authorities referred to the security offered by
Crédit Agricole to the notaries' deposits, based on a
system of unlimited preventive guarantees based on the
solidarity of all the regional branches and CNCA, so that
the group's internal guarantees made it unlikely that the
regional branches would default and the notaries' funds
were thus fully guaranteed.

(23) As noted by the Commission when it opened the proce-
dure,
the French authorities also referred to the
setting-up of a fund for easing the financial burden on
farmers which, they claimed, constituted a ‘counterpart’
in exchange for the notaries' deposits. From 1990 to
1999, Crédit Agricole contributed FRF 3,6 billion to the
fund from earnings on notaries' deposits, in addition to
FRF 300 million also earned from investing notaries'
deposits in the national fund for agricultural disasters.

(c) Deposit levels

The French authorities provided a summary of the nota-
ries' deposits received by Crédit Agricole since 1973
which shows that, from 1973 to 1997, the amount
fluctuated between FRF 15,6 billion and FRF 25.4
billion (calculated at 1997 rates) and that, discounting
medium-term economic cycles, total deposits remained
remarkably stable over the period. In 1997, they totalled
FRF 19,6 billion (average value).

(d) Cost of managing the notaries' deposits

(25)

the Commission
In response
to a question by
concerning the costs of managing the deposits,
the
French authorities stated that the costs amounted in
1997 to 1,77 % of the total amount and that they could
be broken down as follows:

(i) 0,29 % relating to the cost of managing deposit
transactions and transactions involving means of
payment like any business account;

(ii) 1,49 % for the extra costs relating to the particular
characteristics of managing notaries' accounts, of
which:

— 0,11 % for additional costs relating to certain

specific transactions,

— 0,96 % relating to exclusion of the usual rules on

transactions,

— 0,42 % relating to specific staff costs.

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The French authorities considered that this cost had
tended to decrease over a long period owing to the gains
in productivity achieved by Crédit Agricole in all
its
activities and in this one in particular. This was why it
had been higher in the past.

enjoyed by the French economy had subsequently
reduced the value of a specific protective device for
agriculture.

(e) Limitation by Crédit Agricole of the cost of short-term

financing for agriculture

(26)

In addition to the recent allocation of funds to FAC, the
authorities stated in their letter of 9 April 1998 that the
net financial return on the deposits managed by Crédit
Agricole had from the start been used to limit the costs
of providing short-term financing for agriculture. The
financing had, until 1981, been granted at rates fixed by
decree of the Ministers for Agriculture and Economic
Affairs. Thereafter the rates were fixed by CNCA within
a margin of fluctuation of approximately 30 % of the
monthly average money market rate. According to the
authorities, the rule establishing a maximum for short-
term rates was abrogated only recently by Decree of 3
February 1997. They stressed that the low-rate context

(f) Average cost of the Crédit Agricole resources

(27)

In reply to a request by the Commission when it
initiated the procedure, the French authorities submitted
data showing that, over the last decade, the average cost
of the Crédit Agricole resources had fallen from [...] % (*)
in 1987 to [...] % (*) in 1996 and that it had consistently
remained within that bracket.

(g) Utilisation of FAC allocations

(28)

In their letter to the Commission of 9 April 1998, the
French authorities provided a number of details
concerning the annual allocations to FAC and their use.

(29) According to the authorities, the amounts allocated to
FAC and their utilisation from the beginning were as
follows:

TABLE 1

Amounts allocated to and by FAC

(million FRF)

1991

1992

1993

1994

1995

1996

Total

600
295
86
219

394
213
45
136

564
410
46
108

494
340
51
103

40

8

467
324
45
93
5

33

197
160
17
15
5

203

2 716
1 742
290
674
10

284

Total

600

394

604

502

500

400

3 000

Rescheduling of farmers' debts
— defrayal of interest
— consolidation loans
— waivers of claims
— carried forward

Other
(agricultural disasters)

Source: French authorities.

(30)

The French authorities stated that the transactions referred to above concerned the restructuring of
the debts of Crédit Agricole farming customers and that another part of FAC was earmarked for
specific actions, especially allocations to the National Agricultural Disaster Guarantee Fund. They
pointed out that FAC's priorities were agreed every year by Crédit Agricole and the State. They felt
that public interest tasks in agriculture were attached to the scheme and that the beneficiaries of FAC
were Crédit Agricole's farming customers and not Crédit Agricole. They justified the allocations on
the ground that Crédit Agricole held some 80 % of the farmers' bank debts. They also pointed out
that budgetary resources having the same purpose had been made available at other banks benefiting
from an annual allocation of FRF 20 million.

(31)

The French authorities considered that FAC's activities did not constitute a substitute for Crédit
Agricole's provisioning policy inasmuch as the bad loans granted by the Caisses régionales of Crédit
Agricole had benefited, depending on the year, from only 15 to 19 % of FAC allocations, 10 % of the

(*) Business secret.

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transactions having been in the form of waivers of claims, the larger part being allocated according
to the situation in various production sectors and to the setting-up of young farmers. The average
amount of aid per farmer (some FRF 6 000) is modest and, according to the French authorities, has
a social purpose.

(32)

(33)

(34)

(35)

(h) General comments on the notaries' deposit scheme

The French authorities denied that notaries' deposits were State resources and that competition had
been distorted as stated by the Commission when it initiated the proceedings. In particular, they
challenged the notion that State resources should produce a return, on the ground that adminis-
trative acts should not be profitable. They therefore disputed that there were any aid elements
attached to the notaries' deposit scheme. They also considered that the scheme was not liable to
affect trade between Member States.

The French authorities also considered that the notaries' deposit scheme had been set up in order to
safeguard, in rural areas, essential public interest requirements relating in particular to the profession
of notary.

Lastly, the French authorities referred to a decree of the French Council of State of 27 March 1997
pursuant to which the rules governing notaries' deposits were not contrary to Article 82 of the
Treaty.

(i) Future of the notaries' deposit scheme

In their letter of 9 April 1998, the French authorities informed the Commission that the notaries'
deposit scheme would be revised before the summer of 1998 so that only the Caisse des dépôts et
consignations would in future manage all notaries' deposits, irrespective of duration; in this way,
Crédit Agricole would lose the financial benefit derived from the returns on notaries' deposits (see
the reference below in recital 61 to the undertakings given by the French authorities in their letter of
28 April 1999).

V

ASSESSMENT OF THE AID

V.1. State aid content of the measures in question

(a) The aid recipient

(36)

In its reply to the initiation of the procedure, Crédit Agricole considered that the Commission had
made a factual and legal error by treating all the parts of the Crédit Agricole group as one and the
same recipient,

i.e. Crédit Agricole.

(37)

The Commission notes that:

— although Crédit Agricole has specific characteristics, especially at local level, owing to its mutual
status, and although each Crédit Agricole branch appears to enjoy administrative autonomy, it is
nevertheless an economic entity forming a coherent whole. According to Crédit Agricole's 1997
report, it forms a united and decentralised group, based on a structure with three levels (Caisses
locales, Caisses régionales and Caisse nationale) which therefore has a financial capacity that must
be assessed as a whole. The 1997 report notes that owing to the common interest which binds
together the Caisses régionales and the Caisse nationale, Crédit Agricole produces financial
statements which reflect its economic position and are comparable to the consolidated accounts
of the other major banking groups. Thus neither the Commission nor the interlocutors and
partners of Crédit Agricole have any doubt at all that Crédit Agricole has all the legal and
economic structures to allow it to be defined as an enterprise. The consolidated accounts,
showing a consolidated balance of FRF 2,514 billion at 31 December 1997, are the basis for the
AA rating given to Crédit Agricole by Standard & Poor's and the Aa1 rating by Moody's. A
group's rating, especially that of a financial institution, determines its terms of access to the
financial markets and is therefore a basic element in the formation of the costs that are likely to
give it an advantage or a disadvantage in relation to its competitors,

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— Crédit Agricole, as part of this procedure, submitted a single set of observations, co-signed by the
Director-General of the Fédération nationale du Crédit Agricole and the Deputy Director-General
of CNCA. The reply was submitted on behalf of Crédit Agricole; if CNCA considers it is not
covered by this procedure, the Commission does not understand why it considered it necessary
to present observations jointly and severally with those presented by the Fédération nationale du
Crédit Agricole,

— the French authorities pointed out that one of the reasons why Crédit Agricole had been regarded
as eligible for the notaries' deposits was because of the security offered by the joint guarantee
provided by all the Caisses régionales and CNCA.

(38) On the basis of the foregoing, which clearly classifies the Crédit Agricole group as an enterprise, the
Commission has no reason to alter its assessment as to the beneficiary of the rights to the notaries'
deposits, i.e. Crédit Agricole as a group (see judgment of the European Court of Justice in Intermills
Case 383/82) (6). The question of the allocation within the group of the advantages gained from the
notaries' deposits is a matter of secondary importance not covered by this procedure.

(b) State aid content of the funds collected by notaries

(39) As the French authorities pointed out, notaries are public and ministerial officials whose profession is
strictly regulated by the State. The French authorities referred in particular to a Court of Cassation
judgment which held that notaries' accounts, which are strictly regulated, were public documents.
They therefore concluded, in their letter of 9 April 1998, that the body of regulations in force
showed that the funds deposited by notaries are not ordinary funds. The rules governing notaries'
deposits cannot therefore be assessed solely pursuant to the rules governing banking, but must also
be assessed in the light of public interest considerations. It is quite clear from the information
presented by the authorities in the course of this procedure that Crédit Agricole was at different
times considered eligible to receive notaries' deposits on the basis of formal acts of the public
authority, subject to certain well-defined conditions.

(40)

The Commission can thus clearly confirm, as it stated when it initiated the procedure, that:

— discretionary action by the State,

involving the granting of the reserved rights in question,

provides Crédit Agricole with resources as a direct result,

— the State exercises directive control over the allocation of the resources constituted by the

mandatory deposits by notaries, who are public officers subject to public authority.

(41) Accordingly, it must be concluded in view of the foregoing that the notaries' deposits mobilise
resources which constitute State resources. This conclusion is upheld by the French authorities'
statement that, according to case-law of the French Court of Cassation, notaries' accounts are public
documents.

(42)

the procedure,

In the course of
the French authorities described factors which it considered
constituted concessions granted by Crédit Agricole in exchange for the return on notaries' deposits,
cancelling the advantage gained from the virtually free notaries' deposits. These factors do not detract
from the finding that the scheme in question mobilises State resources.

(c) Advantage to Crédit Agricole and aid content of the measures in question

(43) As the Commission stated when initiating the procedure, ‘the concept of aid covers both positive
measures such as grants and public measures which, in various forms, reduce the charges usually
made on a firm's budget and have identical effects to grants’ (7).

(6) [1984] ECR 3809, paragraph 11.
(7) Case C-387/92 Banco exterior de Espana [1994] ECR I-902, para-

graph 13.

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(44)

(45)

(46)

The Commission also pointed out at the same time that, by waiving any return on the notaries'
deposits (apart from the 1 % commission to the notary), the State was waiving the profits it could
earn through the mechanism in question. If the transaction had been defined in accordance with
normal commercial conditions, the State could, from the start, have obtained a return on the
deposits in question. It could also have imposed a price (the interest on the deposits) which would
have been regularly revised to take account of changes in interest rates and gains in productivity in
the banking industry and the institutions eligible under the mechanism in question. The revision
would have benefited from competition between the different banking establishments in order to
select the most competitive ones, on condition that they satisfied a minimum number of prudential
requirements in order to guarantee the security of the deposits, so that the revenue in the form of
commission on interest levied by the State could have been increased.

Remuneration of the additional banking resources obtained by Crédit Agricole through the reserved
rights granted to it by the State would certainly normally be chargeable to a bank's budget if the
resources had been allocated to Crédit Agricole on a competitive basis, for example through an
invitation to banks to tender. However, Crédit Agricole does not remunerate its notaries' deposits
and simply pays notaries a 1 % commission on the amounts collected. Prior to the initiation of this
procedure, the authorities had justified the failure to remunerate on the ground of the ban in French
law on interest-bearing loans of under one month. In the course of this procedure, however, the
French authorities have not explained why, in view of the fact that a large proportion, estimated by
the authorities in a letter of 3 April 1997 at some 50 %, of the notaries' deposits held by Crédit
Agricole are for between one and three months (deposits for more than three months are not kept
by Crédit Agricole and are transferred to Caisse des dépôts et consignations), they cannot be
remunerated. Thus the granting of the rights to collect and keep notaries ' deposits on virtually free
terms derogates from the normal market conditions which would apply to the collecting of such
resources.

In reply to a question put by the Commission concerning the average cost of the Crédit Agricole
resources, the French authorities stated that the cost was inter alia [...] % in 1987 and [...] % in 1996.
However, the average costs of Crédit Agricole resources appear to include remunerated resources
such as long-term loans and free resources such as customer deposits. In order to determine the aid
relating to loans, i.e. the reduction in the charges borne by Crédit Agricole in relation to normal
market conditions, the reasoning should be based not on the average cost but on the marginal cost.
To that end, it should be noted that the short-term interest rates in France were 8,3 % in 1987 and
3,9 % in 1996 (8). Thus there is no doubt that the granting to Crédit Agricole of virtually free
resources (apart from the 1 % commission to notaries) reduces the costs usually charged to a bank's
operating account and has an equivalent effect to a subsidy.

(47) Accordingly, it must be concluded that the measures in question constitute State aid and more
specifically operating aid since they reduce the normal operating charges incurred by the bank.

(d) Distorting effect of the aid

(48) Operating aid has a particularly distorting effect because it has a direct impact on the results of
assisted firms and enables them either to maintain higher operating costs than their competitors
without being penalised despite their lack of competitiveness, or to achieve higher profits and thus
increase their financial capacity. The distortion is all the greater as the aid is permanent, competition
is strong and the margins of competitors are narrow.

(49)

The data available shows that, in the 1990s, competition between banks increased and their profit
margins were steadily eroded (9). Furthermore, French banks appear to be in a vulnerable position: in
recent years their profitability was among the lowest in the Community (see Table 2), and this has

(8) Three-month nominal rates. Source: EC economic data pocket book, No 12/1998, European Commission, Office for

Official Publications of the European Communities.

(9) European Central Bank,

‘Possible effects of EMU on the EU banking systems in the medium to long term’, February

1999, based on OECD data.

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improved only recently in 1998 to 1999. Where vigorous competition squeezes interest margins and
profitability, operating aid granted to a credit institution obviously has a particularly distorting effect.
This recent trend is very likely to continue over the next few years: according to the European
Central Bank, completion of economic and monetary union will create a more competitive environ-
ment and put greater pressure on banks' profitability (10). It will speed up integration of the sector at
European level,

in particular in the form of cross-frontier transactions (11).

TABLE 2

Return of equity

(net income as a percentage of equity)

1990

1991

1992

1993

1994

1995

1996

1997

Austria

Belgium

8,6 %

8,6 %

6,9 %

8,7 %

7,9 %

8,1 %

9,6 %

8,3 %

6,5 %

5,7 % 14,1 % 13,2 % 12,9 % 15,3 % 15,3 %

Denmark (1)

– 3,3 % – 0,1 % – 21 % 10,6 %

0,1 % 18,5 % 16,1 % 15,1 %

Finland

France

Germany

Greece (2)

Ireland

Italy

5,6 % – 11 % – 49 % – 29 % – 25 % – 7,9 %

8 % 15,2 %

10,1 % 10,4 %

6,9 %

2,9 %

0,5 %

3,6 %

4,8 %

7,7 %

11,9 % 14,4 % 13,2 % 13,6 % 11,8 % 12,6 % 12,3 %

20,8 % 31,5 % 23,1 % 21,6 % 25,9 % 24,4 % 16,7 %

12,2 %

9,9 %

7,5 %

8,8 %

3,0 %

3,7 %

5,1 %

3,4 %

20,2 % 20,1 % 18,4 %

Luxembourg (2)

6,7 %

7,6 %

8,8 % 19,9 % 20,9 % 19,9 % 22,3 % 23,0 %

Netherlands

Portugal (2)

Spain

Sweden (3)

12,3 % 12,7 % 13,9 % 15,9 % 16,2 % 17,0 % 17,6 %

12,5 % 12,4 %

8,8 %

9,2 %

7,3 %

7,7 % 10,7 % 13,1 %

13,6 % 12,5 % 10,7 %

3,8 %

8,2 %

9,2 %

9,7 % 10,6 %

3,0 % 56,3 % 17,0 %

5,7 % 19,1 % 21,1 % 24,0 % 13,0 %

United Kingdom

14,4 %

8,6 %

7,3 % 19,3 % 27,4 % 28,6 % 25,6 % 26,4 %

Average EU-14

Average EU-15

Average EU-11

10,9 % 11,5 %

8,1 %

9,0 %

8,2 % 10,0 % 11,0 %

10,1 % 11,1 %

12,2 % 12,2 %

Source: European Central Bank, ‘Possible effects of EMU on the EU banking systems on the medium to long term’, February 1999,

based on OECD data.

(1) Commercial banks and savings institutions.
(2) Commercial banks.
(3) Total commercial banks, foreign commercial banks, savings institutions and, until 1991, cooperative banks.

(50)

Furthermore, Crédit Agricole is a viable undertaking which achieved major profits in recent years.
The aid in question (unless it was offset by equivalent additional costs), which was not essential to its
profitability, thus allowed it to increase its profits and accumulate additional equity with the
by Council
non-distributed

In banking,

requirement

introduced

solvency

profits.

the

(10) Ibid., page 4.
(11) European Central Bank, Monthly Bulletin, April 1999;

‘Banking in the euro area: structural features and trends’.

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Directive 89/647/EEC of 18 December 1989 on a solvency ratio for credit institutions (12) (the ‘hard’
core of own funds is fixed at a minimum of 4 % of weighted assets, while own funds in the broad
sense should represent a minimum of 8 % of such assets) introduces an obligation which limits the
growth capacities of credit institutions. In practice, such constraints on capitalisation exist in the
medium and long term for all forms of enterprise, but in the banking sector it is permanent and
immediate, directly quantifiable and cannot, for prudential reasons, be temporarily waived as part of
a credit establishment's growth strategy. A credit institution which only narrowly satisfies the
solvency requirement does not have any margin for growth until it is able to attract new capital or
increase its own equity by achieving significant profit levels. Thus an ineffective institution's growth
is subject to very direct constraints, whereas the growth margin of a bank with significant profits is
in relation to its profitability.

(51)

It is possible on the basis of the solvency constraint to produce a very indicative conventional
estimate of the distortion of competition caused by aid to credit institutions. If the aid has the direct
or indirect effect of increasing equity, the distortion of competition can be assessed in terms of
weighted assets. Operating aid of FRF 1 billion, producing an increase in profits after tax of FRF 0,6
billion (13), would, assuming the profits are not distributed but used to increase the bank's equity,
help to increase the weighted assets on its balance sheet (taking account of the statutory solvency
requirement of 4 to 8 %) and hence its level of activity. This transaction results in a potential
distortion of competition, measured in terms of weighted assets, of between FRF 7,5 billion and
FRF 15 billion (without the aid the bank would have been unable to increase its weighted assets).
The ratio shows the considerable leverage effect of aid in the financial sector. The equity can also
help the assisted institution to acquire minority or majority holdings in other businesses. The
Chairman of Crédit Agricole, interviewed by a financial newspaper (14), stated in February 1999 that
of the FRF 140 billion available to Crédit Agricole, one third was earmarked for new operations.

(52)

It must therefore be concluded that, as the aid granted to Crédit Agricole by France constitutes
operating aid and taking account of the economic situation in the banking sector in Europe, the low
level of profitability achieved by French banks and the particular solvency requirements in banking,
the aid clearly distorts competition in the financial sector.

V.2. Effect on trade between Member States

(53)

The Commission noted the arguments of the French authorities and Crédit Agricole rejecting its
conclusion that the scheme affected Community trade. The following points should be taken into
account.

(54)

First, because the Commission is investigating the possible effects of such aid with regard to the
Crédit Agricole group as a whole, the latter's international and especially its European activities
should be examined. According to its 1997 annual report, the bank positioned itself in 1997 as a
leading bank for major and international customers. Customer transactions in Member States
(excluding France) accounted for FRF 37,9 billion in 1997, i.e. a small proportion (about 3 %) of its
total customer transactions but involving a significant sum in view of the size of the group which, at
the end of 1997, was the largest French banking group and one of the leading groups in Europe (15).
The bank pointed out that with the creation in 1997 of a new subsidiary, Indocam, it had provided
itself with an instrument whose target was to become a leading asset management company in
Europe. Crédit Agricole is pursuing an active development policy in Europe, and played an active
part in setting up the second largest Italian bank, Banca Intesa, formed from the merger of Banco
Ambrosiano Veneto and Cariplo, of which Crédit Agricole is the largest shareholder with 30 %. It
also holds 20 % of the Banco Espirito Santo group in Portugal. It has branches in Lisbon, Madrid,
Bilbao, Gibraltar, Barcelona, Luxembourg, London, Hamburg, Frankfurt, Stockholm, Oslo, Helsinki
and Piraeus. The group noted in its 1997 report that it will keep a close watch on any opportunities

(12) OJ L 336, 3.12.1989, p. 14.
(13) Assuming, for the sake of simplicity, a level of tax of 40 %.
(14) Interview published in ‘Les Echos’, 10 February 1999.
(15) According to a list drawn up by the rating agency Moody's (quoted by the ‘Le Monde’ newspaper, 17 and 18
January 1999), Crédit Agricole was the fifth largest European banking group in terms of assets at the end of 1997.

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which may arise in order to strengthen its position on the European market for retail banking. Its
solid basis provides it with the resources to achieve such development. International expansion of
this sort calls for capital movements to allow it, for example, to acquire a stake in such institutions
as Banca Intesa or Banco Espirito Santo and thus affects trade between Member States. Furthermore,
the group's merchant bank, Indosuez, is one of the largest French merchant banks, a significant
proportion of its business being conducted abroad.

(55)

(56)

(57)

Second, even if the assessment of the effect of these measures were to be limited to the group's
regional entities, as Crédit Agricole suggests in its comments, international transactions are carried
out solely by CNCA within the Crédit Agricole group. Contrary to the claim made by the latter in its
comments, its 1997 report states that the international activities of the frontier Caisses regionales
also developed in 1997. The report refers in particular to the development of the Caisse régionale de
Pyrénées Gascogne in the Spanish Basque Country, as a result of which Bankoa, now majority-owned
by Crédit Agricole, became part of the consolidated group in 1997. It also notes that this initiative
forms part of the cross-border development of the Caisses regionales, which are expanding their
retail banking activities,
in adjacent countries. The development thus
concerns not only the market and corporate banking activities of Crédit Agricole but also its retail
banking activities, which include the notaries' deposits.

in agreement with CNCA,

It is thus clear that the additional resources, and the profits they generate, obtained through the
notaries' deposits helped directly to finance the development of Crédit Agricole in other Member
States.

In addition, the potential impact of the rights granted to Crédit Agricole are not limited just to the
effects on the bank's expansion outside France, in other Member States. As the Commission stated
when it initiated the procedure, although in theory there are no frontiers to the principal activities of
credit institutions, i.e. collecting deposits, obtaining loans on the market and granting loans, they do
encounter obstacles to expansion abroad. These are frequently due to the protective barriers against
competition erected by national banks, which make it less attractive for foreign competitors to access
the market. This is the case with regard to the aid to Crédit Agricole which is liable to make the
French domestic market less open to foreign competition, whether at the national level of CNCA or
at the regional level of the Caisses. They have the effect of strongly compartmentalising certain bank
deposit activities, which runs counter to the opening-up of the market intended by the Treaty at a
time when cross-border transactions are about to expand in the banking sector, as noted by the
European Central Bank. According to the latter, the resulting closer integration of national banking
systems is dependent on the abolition of differences in tax and regulatory systems between the
Member States (16).

(58)

It must therefore be concluded that the measures in question are caught by Article 87(1) of the
Treaty as they constitute State aid which distorts competition to an extent liable to affect intra-
Community trade.

VI

CONCLUSIONS

(59)

The virtually free right to collect (17) and the free right to keep notaries' deposits granted to Crédit
Agricole by the French State are measures containing State aid under Article 87(1) of the Treaty.

(60)

In view of the fact that, on the basis of the fresh information received by the Commission in the
course of this procedure, it would seem that the aid in question existed prior to the entry into force
of the Treaty,

it can be concluded that:

— the aid in question is lawful and need not be recovered,

(16) See footnotes 9 to 11.
(17) Apart from the 1 % commission paid to notaries on the amounts collected.

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— the Commission should, as for all existing State aid, consider whether it is compatible with the
Treaty and, if it concludes that the aid is not compatible with the general' interest, it should
propose to the Member State the appropriate measures provided for in Article 88(1) of the
Treaty for aid considered incompatible with the common market.

(61) However, in a letter dated 28 April 1999, the French authorities formally informed the Commission
of their intention to put an end to the rights granted to Crédit Agricole in respect of notaries'
deposits and to centralise the deposits at the Caisse des dépôts et consignations, which would in
future be responsible for keeping all notaries' deposits. The Treasury would be responsible for
collecting the deposits in rural and urban areas. The authorities stated that the measure would take
effect on 1 January 2000. It would gradually be introduced throughout the country and would be
completed on 1 April 2000. The authorities undertook to take the necessary regulatory steps to
amend the notaries' deposit scheme soon after the adoption of this Decision.

(62)

The Commission has noted the undertaking given by the French authorities. It considers that the
period proposed is reasonable and, as the rights granted to Crédit Agricole to collect and keep
notaries' deposits are to be abolished completely and permanently, it concludes that the new measure
will end the aid to Crédit Agricole in respect of which this procedure was initiated under Article
88(2) of the Treaty. On the basis of the undertaking given, it does not appear necessary to assess the
compatibility of the aid with the Treaty or to initiate proceedings under Article 88(1) of the EC
Treaty. The Commission is therefore able to terminate this procedure,

HAS ADOPTED THIS DECISION:

Article 1

The measures by which France granted Crédit Agricole the right to collect and keep notaries' deposits

1.
in rural municipalities constitute State aid within the meaning of Article 87(1) of the Treaty.

The measures referred to in paragraph 1 constitute aid which existed prior to the entry into force of
2.
the Treaty. As France has undertaken to abolish the aid measures by 1 April 2000 at the latest, this
procedure is hereby terminated.

France shall inform the Commission within two months of the date of notification of this Decision of the
measures it has taken to abolish, by 1 April 2000, the rights granted to Crédit Agricole to collect and keep
notaries' deposits.

Article 2

This Decision is addressed to the French Republic.

Article 3

Done at Brussels, 8 July 1999.

For the Commission

Karel VAN MIERT

Member of the Commission