October 21, 2011
Two years ago, a French banker flew to Washington on an emergency mission: Persuade International Monetary Fund chief Dominique Strauss-Kahn that his concerns about the health of the European banking sector were unfounded.
The trip was a success. Mr. Strauss-Kahn agreed to keep his fears under wraps to avoid causing market panic, according to people familiar with the matter.
Today, that appears to have been a missed opportunity—one of many in the years leading up to Europe's current banking woes. This summer, France's three leading banks—BNP Paribas SA, Société Générale SA, and Crédit Agricole SA—became the focal point of a crisis of confidence that is engulfing European lenders and testing the political and economic underpinnings of Europe. On Thursday, a European push to produce a comprehensive plan to resolve the euro-zone debt crisis was in danger of unraveling amid disagreements between France and Germany.Among the factors behind today's crisis, experts say, has been the persistent unwillingness of many European banks and their regulators to acknowledge that they had a problem. Instead of making painful decisions years ago to set aside more money to cover unexpected losses, some of Europe's leading banks and supervisors devoted themselves to fending off tougher international rules and thwarting more-intensive supervision.
Many large banks around the world lobbied aggressively against tough new rules. But the French banks and regulators were at the vanguard, mounting an aggressive campaign of la résistance.
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