Document Type

Case Study

Case Series

Broad-based Capital Injections

JEL Codes

G01, G28


As the Global Financial Crisis deepened, the bankruptcy of Lehman Brothers on September 15, 2008, and ensuing contagion began affecting the French economy and financial system. France experienced declines in major economic indicators such as GDP, household consumption, and investment. In addition, the ensuing credit crunch in financial markets resulted in the seizing up of various lending markets. Due to conservative business practices, a consolidated market structure, and a sound regulatory framework, the French banks were relatively better situated than their European counterparts to weather the crisis. However, the French authorities instituted a precautionary recapitalization scheme in order to “restore market confidence” in these institutions. The French government created the Société de prise de participations de l’État (SPPE), a limited liability company that it wholly owned, in October 2008. It initially participated in the global bailout of Dexia, a struggling Belgian-based European bank, and then began performing precautionary recapitalizations to the broader French banking system. In order to finance itself, the SPPE issued government-guaranteed debt to inject capital into financially sound banks. Banks applied to receive funds from the SPPE during two separate rounds in exchange for behavioral commitments, such as lending growth and limits on executive compensation. From December 11, 2008, through the first half of 2009, the government injected more than €20 billion (US$29 billion) into six major French banking groups in the form of preference shares and subordinated debt. The recipients of capital injections, with the exception of Dexia, paid back all capital and interest owed to the SPPE by May 19, 2011, resulting in a net profit of €0.8 billion.

Date Revised