Paris, 6th August 2014


Jacques de Larosière President Eurofi launches an alarm on SME financing

Interviewed by Didier Testot on Web Tv at the Rencontres Paris Europlace 2014, former President of the IMF described a financial system that can no longer finance SMEs and contraction of credit who conducts to weak demand in Europe.
One of the solutions he proposes is a new "securitization", with some regulatory changes, which could impact for France only, nearly 100 billion euros. Enough to say that a timely action is crucial.

Find the video (in French) of this interview on the following link:,1749.html

Main extracts from the interview  :

About SMEs financing : “Normally, this type of funding should take place seamlessly through the banking system because banks deal directly with small and medium-sized enterprises. These do not directly access financial markets like big corporations. Yet, for more than two years now, we have been witnessing a drop in credit to businesses at the European level, I mean the euro area. It is dwindling in a most conspicuous way : the overall numbers for the stock of credit to businesses are currently in the range of -2.5 to -3% per year. Obviously this significant credit contraction is nurturing the weak demand in Europe and the weak economic growth”(…)
“Thus we now have a system that is much less efficient from the perspective of credit granting and which tends to turn banks into holders of financial assets rather than holders of debt on the real economy. This clearly shows in the statistics of monetary policy. Generally, economic bodies such as Europe, whose public budgets are restricted to some extent, arguably not enough, but which are still to some extent holding back on deficits and public demand, you need to have a more active monetary policy as a counterpart, this is what is known as the Policy Mix. But in fact monetary policy is accommodative, interest rates are near zero, plenty of liquidity is provided to banks and the latest ECB interventions are quite remarkable in that sense. But this liberal policy on liquidity provision does not find its way into the real economy” (…)
But it must be remembered that the true creator of money, is not the Central Bank, but the banks. It is the banks that create money, as we were taught years ago in economics courses, "loans make deposits" as they said. When you obtain a loan from a bank, the first thing you do is you put the loan in an account of the bank and thereby you create money. But today this process creating money through credit has been crossed out. On the long run this represents up to 90% of monetary creation. Thus, 90% of what would be the desired monetary expansion has been brought to a standstill

About Securitization activity : It must be rehabilitated. It has a negative image, and rightly so because in the years 2005-2006-2007, securitization was used and abused through loans which were of very poor quality and labeled Triple A during that absolute scandal called the subprime crisis in the United States. But there is no question of restoring this kind of errors. Instead, as you rightly said, it is all about rehabilitating this age-old practice which benefits not only the banks but the whole economy by separating the best of these credits from the worst, and properly grading and analyzing them, which central banks have the know-how thereto, the Banque de France for instance has a very old tradition of rating French companies(…)
Now almost 60,000 companies in France meet these criteria of excellence and the underlying, that is to say the credits they have and that could be securitized, represents something like a hundred billion euros
. (…)
And unsurprisingly, the securitization market has died in recent years in countries such as France and can only be restored if you waiver this regulatory lock that does not make sense anymore because today what you can tell the regulators today is : "What you are doing is merely applying capital surcharges in spite of equal risk. And if you have two equal risk levels, why do you apply eight times more capital in one case while they are both of the same quality ?(…)
If SMEs, which are major job creators, more than 50%, 60% of jobs are created by them, and if they are in a straightjacket that prevents them from borrowing from banks and also prevents them from securitizing the credits they have been granted, they will have no growth and they will continue to decline. So this is really an alarm I am raising”.

About Web Tv : First Web Tv 100% News, about markets, economy, and companies with CEO. With more than 1.600 videos, this is the first database for listed companies in videos for the Paris Stock Market. Economy in video with added value.

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Jacques de Larosière President Eurofi launches an alarm on SME financing