result is either that the bank is pushed towards bankruptcy if the state allows it, or has to be supported using taxpayers ’ money and possibly having them bearing the losses, which as i said before is not right. so the concept of bail - in after all the equity holders and the subordinated debt holders have been wiped out, could involve the transformation of senior debt into equity or semi - equity in a going concern bank. in such a case, it is a very good and important concept. to my mind, bail - in should be part of the extra powers given to the supervisor. that is the only way we can reassure investors that it will be used only when it is absolutely needed to avoid a bankruptcy. that means that ultimately it is in the interests of senior bondholders to know that they won ’ t be penalised just because it ’ s beneficial for other stakeholders, but because it can ’ t be avoided. this is why it is essential that this power should be in the hands of the supervisor. but bail - in needs to apply to the whole of the senior debt. i ’ m not completely convinced that there is merit in having specific bail - inable instruments like cocos. this is because either it makes the basis of the bail - in very restricted and may not be sufficient in many instances so that in the end you may need recourse to a second layer. or, if it is a big amount, it can be extremely costly because of the specific risk, and therefore it may be better in that event to move directly to equity. in any case, the fact that bail - in is now on the table and can be used by the supervisor will probably be one of the reasons why the banks will be tempted to increase their capital base regularly over time, to demonstrate to the buyers of senior debt that they are sufficiently protected. it will also be a strong incentive for banks to limit and control their risks and clearly communicate to the market how they do so. euroweek : has all this done enough to break the pernicious and highly damaging loop between sovereign and bank risk that was so central to the crisis? or is that loop one that is simply impossible to break? noyer : i think we have reduced that risk. the work is not totally finished. we need to continue in the direction we have taken. but to my mind there were three decisive moves that have addressed the problem of this feedback loop. one was the action that was taken on the consolidation of public

overall balance sheet situation has been substantially improved and they are now in the process of meeting in full the requirements of basel iii with core tier one ratios of 9 % before the end of 2013. this is several years ahead of the schedule that was originally stipulated. by the way, i always felt that the time frame determined by the supervisors in basel for compliance by the beginning of 2019 was always a little bit theoretical, because markets were likely to ask for more rapid implementation, which is what the french banks have done. so when i compare the french banking system with other major banking systems, be it in north america or in europe, i have the clear conviction that the french banks are on track and are among the best performers in terms of their capital ratios. euroweek : has this deleveraging process been at all damaging to the economy, as some people say it has been in the uk and in southern europe, by reducing their lending to the corporate sector? or is the universal banking system such that this is much less of a threat in france than elsewhere? bis central bankers ’ speeches noyer : the deleveraging of the french banks has been partly done through the reduction of their exposure to sovereign debt markets globally. the remainder has been in areas such as project and trade finance. the french banks haven ’ t exited from these businesses altogether, because they have very strong franchises in these areas which are a good source of revenue. but they have managed to liquidate a number of operations that were weighing down their balance sheets. that has helped them to reduce their financing needs. they did not reduce their leverage through imposing some kind of credit crunch – absolutely not. actually, the change in the volume of bank lending in france has been less rapid than in almost all other eurozone countries – or almost all other european countries, including the uk. i don ’ t believe there has been any constraint on the supply of credit to the economy. if there has been a decline in lending volumes this has been a reflection of reduced demand, rather than any decline in supply. possibly in the future there may be a relative decline in the importance of bank lending, because we have worked a lot on developing simple and transparent alternative financing instruments such as securitisation. these may attract more attention from institutional investors and would therefore be a way of providing more credit to the economy without putting as much pressure as there may have been in the past on the balance sheets of the banks. this will be positive as long as we can