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France was planning to inject another EUR 10.5 billion into its banking sector, reports said Thursday. The money was likely to be made available as quasi-shareholders' equity rather than as subordinated debt as done hitherto.
France had earlier set apart EUR360 billion for use by banks, which were in turn obliged to increase lending, under the supervision of a newly appointed ombudsman. This was done to increase solvency ratios without diluting shareholders' control and the European Commission had approved the investment scheme last month. The large capital injection was in line with moves by other European countries, which too had put money into their banking companies to bolster liquidity, to enable further lending to businesses and consumers and to avert the threat of bank failure.
Banks should observe restraint in distributing dividends, keeping in mind that it was taxpayers' money that had saved them and not shareholders' money, the French President Nicholas Sarkozy said. The financial system too needed to be reformed to reflect the needs of the 21st century, he said. Substantial changes to the way the financial system operated would have to be made at the scheduled April meeting of the G-20 countries, the French President said.
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