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Bank reform goes only skin deep

France's banks are stifled by bureaucratic management, crippled by the over-expansion they undertook in the 1980s and hampered by regulatory obstacles to restructuring. What better time for an outsider with deep pockets to buy into one of the largest banking markets. By John McGrath.

Big is better, or so French bankers believe.

One of the clearest messages to come out of the French national assembly's inquiry into the Crédit Lyonnais collapse is that the heads of major French banks have spent the past couple of decades obsessed about the size of their operations. The definition of success at a government ministry, say cynics, is having control of the largest budget, and both the civil servants who ran the state-controlled banks and the ex-civil servants who run the newly privatized banks tend to treat their charges in the same way.

Crédit Lyonnais was not alone in pursuing a growth strategy. Rival commercial banks such as Société Générale (SocGen) and Banque Nationale de Paris (BNP) struggled to keep up, as did mutuals such as Crédit Agricole. Evidence of their efforts is still visible. Ranked by revenue, Crédit Lyonnais, SocGen and BNP are among the 12 largest banks in the world.

The appetite for size shows few signs of disappearing. SocGen's acquisition of Crédit du Nord contributes to the rationalization of the French banking sector, but the bank has been slow to persuade analysts that there is more to this acquisition than simply putting more branches, employees and assets under the SocGen flag.

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