Changes in the structure of the financial regulatory and supervisory system in France reflect the evolution of the post-war French financial system. As distinctions among different classes of financial institutions began to fade, the regulatory structure was altered to provide more even-handed treatment for all institutions involved in banking activities. Other post-war developments in the French financial system included two rounds of nationalizations and privatizations of French banks and a liberalization of credit and exchange controls. France has a universal banking system in which banks may conduct deposit, lending, discount, securities, safe custody, insurance and real estate activities either directly or through subsidiaries. Indeed, French banks are the leading players in the French securities industry. While banks may not underwrite insurance directly, they may do so in subsidiaries and may sell insurance products in the bank. All of the major universal banks own insurance subsidiaries that together constituted approximately 50 percent of the life insurance market in 1994. Banks may also invest in nonbanking, commercial companies, but no single equity participation may exceed 15 percent of the bank’s net capital, and total equity participations in commercial enterprises may not exceed 60 percent of the bank’s net capital. As of December 31, 1993, there were 1,674 credit institutions conducting banking operations in France and Monaco holding approximately Fr.fr. 16 trillion ($2.7 trillion) in assets. The number of credit institutions is high relative to many other developed countries, partly because the definition of banking and credit institutions in French banking law is quite broad.Credit institutions in France are divided into six categories: banks, mutual or cooperative banks, savings banks, municipal credit banks, finance companies (including security houses), and specialized financial institutions (see table 1.1). Banks are the largest category of credit institutions in France and may conduct any of the universal banking and financial transactions permitted under banking law. On December 31, 1993, as shown in table 1.1, the banking sector held almost 47 percent of the total deposits of French credit institutions, slightly over 50 percent of total loans, and almost 60 percent of credit institution assets—Fr.fr. 9.6 trillion. The number of banks in France has remained relatively stable in the last half century—around 400 since 1950—with a few large banks accounting for the majority of loans and deposits. As of December 31, 1993, there were 409 authorized banks in France and 16 banks with their head offices in Monaco. The five largest banks held over 63 percent of total bank-only deposits and close to 60 percent of total bank-only loans. Ninety-nine of the 425 banks were foreign-owned subsidiaries—of which 3 were in Monaco—and 90 were foreign-owned branches—of which 6 were in Monaco. Eighty-three of the foreign banks in France—45 subsidiaries and 38 branches—were headquartered in other European Union (EU) member countries. Mutual and cooperative banks are distinguished from banks primarily by their ownership; they are owned by their members (depositors). They were established to provide credit to their members who belonged to certain categories of businesses or individuals—farmers, for example. Mutual and cooperative banks may now conduct all the operations and transactions that banks may, and the largest among them—Crédit Agricole, which is the largest credit institution in France—are difficult to distinguish from banks. As of December 31, 1993, there were 146 mutual or cooperative banks with approximately Fr.fr. 2.6 trillion in assets. Savings banks and municipal credit banks, with few exceptions, are locally owned, nonprofit institutions. Until various reforms were implemented in 1983 and 1984, the powers of savings banks were restricted to offering passbook savings accounts to depositors and investing their funds in the central savings bank—the Centre National des Caisses d’Epargne et de Prévoyance. Today they are able to offer more products and services, including mutual funds and checking accounts; may invest in a wider variety of activities, including cable television, tourism, education, health, and regional planning; and may lend to corporations. The savings banks—which held about Fr.fr. 930 million in assets in 1993—purposefully consolidated their numbers from 468 in 1984 to 35, as of December 31, 1993, in order to allow savings banks to benefit from certain economies of scale. The bulk of the business of municipal credit banks, of which there were 21 with Fr.fr. 15 million in assets as of year-end 1993, consists of loans granted to the general public. Finance companies are restricted to certain types of operations, such as leasing, or specialize in the financing of a specific industry or specific customers and may not receive deposits of less than 2 years in maturity. On December 31, 1993, there were 857 finance companies providing 7.5 percent of the total credit provided by the French banking system and holding Fr.fr. 1.6 trillion in assets. Securities houses, which specialize in the investment and management of transferable securities and negotiable instruments, are included in the finance company category. On December 31, 1993, one-third of the 156 securities houses in France were subsidiaries of foreign finance institutions such as U.S. investment banks. The 32 specialized financial institutions in France were set up by the government to perform certain public interest tasks, such as financing low- and moderate-income housing, providing long-term credit for acquiring industrial equipment, or making financing available to local authorities. These institutions hold over Fr.fr. 1.3 trillion in assets and provide over 15 percent of total credit but collect less than 1 percent of total deposits. The current French bank regulatory and supervisory structure was created through legislation in July 1984 and consists of three regulatory committees on which the Ministry of Economic Affairs and the Bank of France (France’s central bank) are the most prominent members. Under this structure, all financial institutions that conduct banking activities are subject to common prudential requirements, regulation, and supervision. In addition to experiencing changes in the bank regulatory structure, French banks also were subject to other major changes including two waves of nationalizations in 1945 and 1982. Before 1984 the regulation of financial institutions was quite fragmented. From 1941 to 1945, banks were regulated and supervised by two committees: the Standing Committee of Banks, consisting of six bankers and a government representative charged with enacting regulation and taking supervisory measures concerning individual institutions, and the Bank Control Commission, which was responsible for enforcing bank regulations. A banking act passed in 1945 replaced the Standing Committee with the Conseil National de Crédit—National Credit Council (CNC)—with the regulatory responsibilities remaining the same. The Minister of Economics, Finance and Budget chaired CNC, but CNC was staffed by the Bank of France. Other categories of financial institutions, such as finance companies, savings banks, or mutual and cooperative banks, were regulated and supervised separately according to special law—in most cases either directly or indirectly by the Treasury Department (Treasury). According to French officials, Treasury is the most influential Department of the Ministry of Economic Affairs, then known as the Ministry of Economics, Finance and Budget. According to Commission Bancaire (CB), the Banking Commission, officials, by 1984 banks were widely considered to be at a competitive disadvantage compared to other financial institutions as a result of the split in regulatory responsibilities. While prudential regulations for banks had evolved with changes in financial markets, laws and regulations governing institutions such as mutual banks or savings banks remained less stringent. At the same time, these other institutions were expanding their activities, thereby becoming direct and strong competitors of the banks. The French Banking Act of 1984 (1984 Act) was intended to settle these regulatory inequities by placing all financial institutions deemed to conduct broadly defined banking activities under the same legal framework. In addition, it aimed to resolve the sometimes overlapping responsibilities of CNC and the Bank Control Commission by separating bank regulation and supervision into three distinct areas—authorization, regulation, and supervision—and giving jurisdiction over each of these areas to three separate committees. Thus three new committees were created: (1) the Comité des Établissements de Crédit, the Credit Institutions Committee (CEC), was given authority over authorization; (2) the Comité de la Réglementation Bancaire, the Bank Regulatory Committee (CRB), received jurisdiction over most regulatory issues; and (3) CB was made responsible for bank supervision, replacing the Bank Control Commission. The CNC was not eliminated but its authority was reduced to a purely advisory one. The act also strengthened some supervisory weaknesses of the old Bank Control Commission by giving CB broader powers and a wider scope of authority. First, CB was given authority for supervision of all credit institutions. Second, its powers were broadened by mandating that it scrutinize credit institutions’ operations and monitor their financial standing as well as supervise their compliance with regulations. Finally, it was given the authority to inspect (1) bank subsidiaries, (2) the legal bodies directly owning or controlling the bank and their subsidiaries, and (3) overseas branches and subsidiaries of French banks. This increased authority allowed CB to find and address perceived problems in credit institutions as a whole. French credit institutions are regulated and supervised almost exclusively to ensure the safety and soundness of individual banks and of the system as a whole. For example, French banking law does not directly address such issues as fair lending practices or community reinvestment requirements. The French banking industry experienced some major changes in the post-war era including two waves of nationalizations in which the ownership of most banks was transferred to the French government. The first period of nationalization occurred shortly after the end of the Second World War in 1945. It was intended to prop up the ailing banking industry and to give the French government the power to direct credit to the industries that needed it in order to revive the post-war economy.