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Madame Nouy set to take on Europe's banks

By Eva Taylor

FRANKFURT (Reuters) - The woman set to police Europe's banks has spent much of her 40-year career rising through the ranks of French financial supervision, once a bastion of male domination.

Danièle Nouy will become the most powerful woman in European banking when she takes the helm at the industry's new watchdog, the Single Supervisory Mechanism (SSM), due to come into force next November. She will oversee the euro zone's 6,000-odd lenders and will have the power to order a bank closed, if necessary.

"We need a comprehensive integration of financial supervision, in other words more Europe," Nouy said at a conference in May, long before she was put forward for the job.

On Wednesday, she appears before the European parliament to answer questions about how she would approach the post.

A unified system for policing banks across the currency bloc is a key part of Europe's move towards banking union, the most significant attempt at closer European integration since the launch of the euro more than ten years ago. The aim is to win back the investor confidence needed for a return to prosperity.

Nouy has barely a year to build up the new institution under the roof of the European Central Bank (ECB), doing so virtually from scratch. She will have to hire 1,000 staff, develop a manual defining supervisory procedure, and put the largest banks through an in-depth check on their balance sheets to shine light on their risk exposures and capital strength.

She will work with national supervisors, the European Banking Authority (EBA), which writes the rules Nouy and her team will enforce, the EU Commission and the EU Parliament, building bridges to overcome cultural and political differences.

Nouy, 63, will join a growing number of women at the top of the international financial system. In the United States Janet Yellen is set to succeed Ben Bernanke as chairwoman of the Federal Reserve. In Russia, Elvira Nabiullina became the country's central bank governor in June. Christine Lagarde has been head of the International Monetary Fund since 2011.

How tough will Nouy be? Reuters has spoken to people who have worked and are still working with her to find out what makes her tick and how she will tackle the challenge.

RISE TO THE TOP

When the vice president of Germany's Bundesbank, Sabine Lautenschlaeger, was asked in November which qualifications the ideal candidate for the single supervisory chair should have, she set out a demanding list.

Long experience in bank supervision. Understanding of international financial regulation. Practice in international negotiations, at the Basel Committee or the EBA. A strong network among supervisory authorities in Europe, the United States and Asia. And, said Lautenschlaeger, the candidate needs to have stamina, be a team player and be highly intelligent.

It sounded like Nouy's curriculum vitae. Born in Rennes, Brittany, she began her career by joining the Bank of France in 1974, armed with degrees from two of Paris's elite schools. There were hardly any women working in banking or finance at the time.

She started by supervising foreign banks in France, spent a year at the New York branch and eventually worked directly under the head of the French supervisor and his deputy.

The next step was to become the deputy when a vacancy arose. Instead, the French treasury pushed through its own candidate, Pierre Duquesne, claiming influence following a bailout of debt-ridden lender Crédit Lyonnais in the mid 1990s.

"It was terrible for her. It was the breaking point in her professional life," said a former Bank of France co-worker. "In reality it wasn't really fair that she didn't get chosen for this post. She was a natural candidate."

Disappointed at home, Nouy turned to the international stage, moving to Basel to join the Bank for International Settlements, known as the central bank of central banks.

In 1998, she became the secretary general of the Basel Committee, which develops international standards for banking regulation, including minimum capital benchmarks.

In Basel, Nouy fine-tuned her political and diplomatic talent, sharpened her negotiating skills and perfected her expert knowledge by helping to develop the kind of banking regulation that she will have to apply with the SSM.

What impressed those who worked with her most was how quickly she is able to take well-informed decisions.

"She works very hard," said another former colleague. She would be one of the first to arrive in the office and always stayed well beyond nine o'clock and would never demand things of her staff that she was not prepared to do. "If there was a problem in the morning, she would have sorted it out by the evening."

To some who have dealt with her, Nouy comes across as tough and direct, even callous. The temperature drops by two degrees when she enters the room, one person who has seen her in meetings said. Others say she is assertive without offending people and knows when to switch on her French charm to get her way.

On top of a heavy workload in Basel, she used to travel to Paris at the weekends to see her husband, Jean-Yves, a director general of a French insurance company at the time, and their two daughters, one a teenager and the other in her early twenties then.

After seven years, in 2003, she returned to Paris to become the head of the French banking supervisor. Her former rival, Pierre Duquesne, had left some time before to become a senior advisor to the prime minister on economic and financial affairs.

As well as her job at the Bank of France, between 2006 and 2008 she chaired the Committee of European Banking Supervisors (CEBS), an independent body in charge of advising and coordinating on banking regulation in the EU, which was later replaced by the EBA.

Early on, Nouy recognised the importance of supervising cross-border banks. "These are the areas in which I will expect CEBS to deliver results from now on," she said when she was elected to the CEBS chair in 2006.

But the results left room for improvement.

In 2011, Dexia became the first bank to fall victim to the euro zone debt crisis. At its peak it had been the world's largest municipal lender, spread across France, Belgium and Luxembourg, lending also to municipalities elsewhere in Europe.

TACKLING EUROPE'S BANKING PROBLEMS

To private bankers Nouy is an outsider. Her main rival to run the new banking watchdog was Jan Sijbrand, who spent years working in private banking and commerce - for NIBC, ABN AMRO and Shell - before joining the board of the Dutch central bank in 2011. In contrast, Nouy hasn't spent any time working for private banks - the ones she will now oversee.

In her new role, she will set the agenda for sector-wide examinations to keep systemic risks at bay, chair the supervisory board and represent the new body publicly, for example in front of the EU parliament.

The single supervisory mechanism will police the euro zone's roughly 130 largest banks directly in cooperation with national supervisors. It will also be able to intervene in smaller lenders if necessary.

First, Nouy will have to hire 1,000 bank supervisors and support staff for the new institution and then run checks on the largest lenders.

Some staff have started already, but the main hiring has been held back until Nouy is installed - leaving her with a daunting task to do within a year.

Nouy will have to work out of Frankfurt, home to the ECB, to which she will also be accountable. Her deputy will be recruited from the ECB's Executive Board and so far Peter Praet, Yves Mersch and Vitor Constancio are still in the race.

Her ability to cut through the noise in international negotiations and to work with people from different backgrounds will be vital.

The risk of muddle and delay is clear. Making the bank tests tough, but not too tough for any fallout to create a new crisis, is a major challenge.

"If that assessment is (the tests are) not credible, financial markets will lose trust in the ability of Europe's banking system to solve its problems," said Guntram Wolff, director of Bruegel, a Brussels think-tank.

For the system to work, European leaders need to agree in advance on a safety net to catch those banks that fail the tests. Otherwise governments and taxpayers will again have to foot the bill - a pattern that banking union is meant to break.

European leaders have set themselves a year-end deadline to agree on a scheme to tackle Europe's weakling lenders.

Once the SSM is up and running, Nouy and her team will not only have to monitor banks but also raise the alarm if, for example, asset bubbles begin to form.

And the fact that government bonds are still treated by international banking rules as risk-free is seen by some experts - including Nouy - as a cause for concern and in need for adjustment, because the financial crisis proved the opposite.

William White, who was chief economist at the BIS when Nouy worked in Basel, knows the political pressure Nouy will face. "Huge numbers of people are making huge amounts of money and the last thing they want you to do is to take away the punch bowl."

(Editing by Richard Woods and Giles Elgood)

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