cautionary lesson from the increase in borrower default risk observed in the sub - prime segment of the us retail market. the risk may be less pronounced in continental europe, but i would point out that margins on mortgage lending are already thin and that there is a trend towards longer loan maturities. i am therefore calling on french banks to make sure that they closely monitor their borrower risk exposure. so far, the earnings slowdown in retail banking has been mitigated by good performances in corporate and investment banking, private banking, and personal asset management, which provided new growth opportunities. through mergers and acquisitions, including leveraged buy - outs ( lbos ), banks were able to increase the proportion of income generated by non intermediation activities. the recent competitive environment has actually fostered the gradual transformation of banking activities, with a greater emphasis on the " originate and distribute " business model. with this model, credit institutions arrange financings but quickly offload a substantial portion of their risks, for example through securitisation, and take payment – much more so than in the past – in the form of fees and commissions. but although activity in new products such as lbos is helping to boost french banks'revenues and earnings, it is also a source of vulnerability. first, in terms of remuneration, fierce competition among credit institutions is not only exerting downward pressure on margins ; it is encouraging " covenant - lite " deals – a worrying trend. these complex transactions are also beginning to generate new risks. on this point, there is a tendency towards longer underwriting periods, during which banks bear the bulk of the risk. banks should also pay attention to the fact that counterparties such as hedge funds are becoming increasingly involved in this type of deals. allow me two brief asides, if you will. first, with regard to lbos, let me refer you to the study appended to the annual report. on the topic of hedge funds, i would remind you that the banque de france devoted a special issue of its financial stability review to this subject and that the commission bancaire pays close attention to banks'involvement with this type of counterparty. let me also say that we now comply fully with the recommendations set out in the financial stability forum report commissioned by the g8 and published on the 19th may 2007. getting back to the banking system, i believe that, in light of these developments, banks should adopt an appropriate scale of charges and, more

christian noyer : france ’ s banking industry in 2006 – key trends speech by mr christian noyer, governor of the bank of france and chairman of the french banking commission, at the presentation of the 2006 annual report of the french banking commission, paris, 29 june 2007. * * * welcome to this press breakfast, organised for the release today of the 2006 annual report of the commission bancaire. i would like to discuss the key trends that characterised france's banking industry in 2006, not just in terms of structure and performance but also the regulatory environment in which it operates. it is clear that the framework for financial activity and banking risk management has changed in recent months, confirming the ever more urgent need for new methods of risk assessment and for appropriate supervision that can react swiftly to these changes. in my view, several factors are important in this respect. first, in a highly international context, banks'performances are increasingly being judged from the outside, especially by shareholders. those judgements are sometimes so harsh that they can have a direct structural impact. consequently, banks can no longer afford simply to post excellent results – as again was the case in 2006 for most major international banks, especially french banks. they must also make sure that the underlying quality of those results is sound. to do this, they must pay special attention to the way they manage risks internally and plan their strategic expansion, and to their capital adequacy policy. second, the economic and financial context in which french banks are operating is also a source of risks. indeed, lessons must be learned from the slowdown in the usa, amply illustrated by the housing downturn, which resulted in higher risk in the sub - prime segments of the retail banking market. it should also be acknowledged that financial markets could become more unsettled. if higher risk aversion were to encourage greater use of risk transfer products, this could drain liquidity from some markets and undermine the efficiency of banks'management. from a supervisory perspective, the problem is all the more acute since the growing reliance on credit risk transfer instruments tends to make it harder to assess the type and degree of risk that banks actually bear when, for example, they arrange complex transactions. third, the regulatory environment for french banks is changing radically as a result of the basel ii accords. banks that have adopted the advanced approaches to risk management must put models in place – usually as early as january 2008 – for the internal rating and assessment of credit risk, market risk