French Seek Strict Bank Rules

PARIS -- France's finance minister on Monday proposed tighter risk controls on banks after a rogue-trading scandal cost Societe Generale 4.9 billion euros ($7.3 billion), saying the bank was warned last year its security systems were not up to scratch.

"There is a risk which is operational risk, as opposed to market risk, which must be taken more seriously into consideration," Finance Minister Christine Lagarde told reporters after handing a report to Prime Minister Francois Fillon.

The ministry report also called for a clearer division of roles between regulators and the government in situations in which the stability of the financial system could be at risk.

The government has clashed with the Bank of France over when it was informed of the scandal, which became public on Jan. 24 when SocGen disclosed the losses, sparking the biggest rogue trading scandal in banking history.

France is also recommending more stringent penalties for fraud and will call for talks soon with its trading partners on the fall-out from the scandal, according to a Finance Ministry statement summarizing the report.

The bank blamed the losses on rogue trades carried out by a single junior trader, 31-year-old Jerome Kerviel, who is now under formal investigation on suspicion of falsification, computer abuse and breach of trust, though fraud accusations have been disallowed.

In what appeared to be its most damning conclusion, the report said banking commission inspectors from the Bank of France had found SocGen's security procedures wanting.

"Inspections by the banking commission carried out in 2006-7 had led to recommendations seeking to strengthen the security of operations," the statement said.

The call for more stringent standards for regulating operational risk refers to the vulnerability of banks to the failure of their internal systems, rogue behavior by staff and unforeseen events.

The Finance Ministry report is the first of three key reports commissioned after the scandal.