This vehicle is strictly supervised by the French  2  BIS Review 9/2009  Government and the Banque de France. The guarantee is granted for a fee, so that the beneficiaries pay costs corresponding to normal market conditions and also with a view to protect taxpayers’ interests. Second, the law also creates a state-owned company empowered with EUR 21 billion and entitled to subscribe to banks’ subordinated debt issues or preferred shares. As you know, six banks have issued subordinated debt and the Government subscribed to these issues for EUR 10.5 billion. Such support boosted their capital position and as a result ensure these banks to keep up their lending to the economy. Did the French banks really need such a boost to their solvency and capital? Setting aside the Belgo-French bank DEXIA, the answer is “not really”. DEXIA was very specific: because of its large exposure to US monoline risks, public recapitalisation was absolutely necessary. By contrast, all the other French banks have sufficient own funds, be it in terms of prudential requirements or in comparison with their peers from other developed countries. Public recapitalisation is not aimed at making up for faults or weaknesses. Rather, it is to anticipate potential problems. Circumstances are indeed exceptional; even the soundest and most profitable banks cannot take it for granted that they will be able to tap markets to meet their funding and capital needs.
Enhanced international coordination between monetary authorities is ensuring that their actions are part of a consistent overall strategy. These measures are highly exceptional with indeed unprecedented monetary easing leading key policy rates to historically low levels and the adoption, in certain cases, of unorthodox monetary policy actions. As such, they should greatly contribute to restoring confidence and a smooth functioning of money markets. Governments have moved aggressively to support banks' solvency and resilience. Since the Paris Declaration by euro area member-countries, Europe, under the leadership of France until year end, has been acting according to what I consider a sound and consistent action plan. I won’t enter into the details. Just bear in mind the three following elements. First, authorities are extending guarantees to banks’ refinancing so that they can, in turn, properly finance the economy. Second, significant reforms of accounting rules are now being implemented. Basically, these reforms allow banks to transfer instruments previously marked to market to portfolios where that will no longer be the case. They also provide for greater flexibility in methods used to value assets whose market has shut down. Third, and lastly, governments have confirmed their willingness, when warranted, to step in and support banks’ capital. What about France’s actions? Government and Parliament very quickly put meat on the bones of the European principles. A new bill has been passed, which provides for two things. First, it sets up a EUR 320 billion funding vehicle to guarantee banks’ medium-term refinancing (i.e. up to five years).