Book capital is now equivalent to 5.2 per cent of total assets, compared with 4.2 per cent in the mid-1990s. The Commission Bancaire is at pains to ensure that all French banks - small and large - build up their capital gradually but steadily until it well exceeds the regulatory minimum. Furthermore, provision cover for doubtful loans now stands at 60.4 per cent. The industry must pursue this prudential policy. In particular, as we have been urging for several years, it must capitalise on the progress made in future risk analysis, based on statistical databases and stress testing, to adopt a more forward-looking provisioning policy. This has already been accomplished in several areas of sectoral or geographical risk. That being said, we firmly believe that international accounting standards should move in this direction, fostering the widespread use of forward-looking provisions and thereby contributing immensely to financial stability. In a context of economic crisis, the constant strengthening of French credit institutions’ financial structure gives them an appreciable safety margin, which could also allow them to play a part in the consolidation of Europe’s financial industry. 2.2  Priority has rightly been placed on controlling risks and ordinary profitability  The other fundamental elements that contribute to the resilience of French banks’ earnings are risk management and control over operating conditions. As you know, the Commission Bancaire places a premium on ensuring that French banks, and credit institutions in general, generate satisfactory profits at operating level.
This naturally impacted the financial health of the corporate sector, and business failure rates rose to levels comparable to those of the early 1990s. These economic trends, combined with the discovery of egregious shortcomings in corporate governance, fuelled misgivings about stockmarkets. And amid a global bear market, equity volatility soared. Consequently, as in 2001, capital market business in the broad sense of the term - securities, mergers and acquisitions, and the fees and commissions charged for these activities - were adversely affected. 1.2  Despite an unfavourable climate in 2002, French credit institutions reported net income on a par with 2001. French credit institutions reported net income of 17.7 billion euro in 2002, the same as in 2001. This works out to a return on equity of 9.4 per cent for the industry as a whole. As in previous years, these results were largely attributable to retail banking business in France. Consumer credit and home loans continued to grow, along with specialised financial services. In addition, falling interest rates had a positive effect on interbank business - which in France has always been significant - and drove down the net expense on these transactions. By contrast, capital market activities and asset management were hit by financial market turbulence, giving rise to substantial provisions in some cases. Furthermore, for the second year running, fees and commissions contracted as a percentage of net banking income, falling to 26 per cent compared with nearly 30 per cent in 2000.