France’s banks used to be a source of pride for French officials. Though undeniably dented by the subprime crisis that laid low rivals in the UK and US, French banks initially appeared to have ridden out the crisis rather better than others.

Today, however, there is a sense of helpless frustration and barely disguised rage in banking and government circles at the fears over their sovereign debt exposure and rumours on liquidity that have prompted steep falls in banks’ share prices.

French officials are adamant that there is no need for state intervention – not right now, at least. French banks may have weaker than average capital ratios and high exposure to peripheral sovereign debt, but they passed the July stress tests comfortably and have done much to bolster capital in recent years. They are not among the 16 banks in the stress test danger zone that will now have to move quickly to raise capital.

“If Greece crashes, French banks really do have the means to survive a crash like that,” one government official told the Financial Times. “They have sufficient funds to recover from a Greek default.”

Moreover, the European Central Bank has pledged to provide all the dollar and euro liquidity needed by Europe’s banks in case of emergency.

“We deny there is an immediate need for capital today,” says a presidential adviser.

French officials insist that should a Greek default spark a wider collapse of eurozone peripherals then the consequences would echo far beyond the French banking sector. “There is no special reason to recapitalise French banks. It would not bring us much, because in reality what the market fears is a default in the eurozone. That is the question we have to answer,” the official says.

So the first priority for the French government is to see the July 21 agreement between Europe’s leaders to reinforce the eurozone’s €440bn bail-out fund passed by national parliaments as quickly as possible.

“The number one issue is the sovereign risk in the eurozone. Banks are merely collateral victims of these fears,” says a senior finance ministry official.

In the event of widespread contagion, the EFSF could then be used to recapitalise European banks in need, and restore confidence, French officials suggest – though they still insist that French banks are not in need.

But French officials are acutely aware that market febrility could force them to act. No one is willing to rule out categorically the possibility of eventual state intervention.

The government is also pressing banks to do more to bolster capital. Société Générale and BNP Paribas have already announced some measures. Officials say banks will now also have to accelerate implementation of Basel III ratios, and there is a possibility that dividends may come under pressure.

Meanwhile, there is the feeling in France’s financial community that there are more suspicious factors at work behind the attack on French banks that have nothing to do with capital ratios.

“Investors are disoriented and markets are being manipulated – it’s a direct attack against the euro,” says a highly respected French banker, whose views are supported by some senior officials. “There is no question that Italy, Portugal and Spain won’t pay – Europe pays its debts.”

Additional reporting by Alex Barker in Brussels

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