SocGen CEO Says European Banks Need Leverage Reflecting Lending

Societe Generale SA CEO Frederic Oudea
Frederic Oudea, chief executive officer of Societe Generale SA. Photographer: Balint Porneczi/Bloomberg

European banks shouldn’t be subjected to the same leverage measures as U.S. competitors, which rely less on lending to finance clients, Societe Generale SA Chief Executive Officer Frederic Oudea said.

“In Europe, where banks are providing the bulk of the lending, you cannot apply the same regulation as in the U.S., where you have predominantly capital markets which finance the economy,” Oudea said in an interview with Bloomberg Television in Paris yesterday. “The leverage ratio in itself is not the right way of looking at banks.”

International regulators are increasingly looking at leverage, in addition to capital measures based on risk weightings assigned to different assets, to gauge banks’ financial strength. Their focus intensified as some banks improved capital ratios following the financial crisis by altering internal models or cutting risk-weighted assets without correspondingly shrinking their balance sheets.

The Basel Committee on Banking Supervision proposed revamping standards for a binding limit, or leverage ratio, on bank debt to ensure that the rule would be applied consistently by lenders across the world, Stefan Ingves, the group’s chairman, said in an e-mailed statement yesterday.

“There are discussions about the definition and the right level,” said Oudea. “Fundamentally, yes, we will be able to adapt.”

Oudea also said that market swings stemming from concern the Federal Reserve will slow its bond-buying program are “not a big deal” for Societe Generale. The CEO declined to comment on this quarter’s earnings at the lender, France’s second largest by market capitalization.

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