By Lionel Laurent
(Reuters) - On a sunny morning in mid-June, France's chief bank regulator Christian Noyer seemed upbeat as he told reporters gathered at the Bank of France there were no risks facing its banks.
Profits were on the up and affordable funding was more or less the norm. Although some analysts had said banks like Societe Generale and Credit Agricole might eventually need to raise capital to meet tougher rules under the post-crisis Basel III regime, Noyer backed the view of bankers that setting aside a stream of steady future profits would be enough.
Three months on, the picture has changed dramatically.
Shares in SocGen, Credit Agricole and larger rival BNP Paribas are trading at crippled valuations after a summertime sell-off halved their share prices to levels not seen since 2009, wiping nearly 60 billion euros ($82 billion) off their market value.
With the biggest overall exposure to Greece's debt-wracked economy, according to the Bank for International Settlements, French banks are viewed as particularly vulnerable to any deterioration of the euro zone crisis.
It is not just their shares that are suffering. Ratings agency Moody's has downgraded French banks' credit rating and signaled there may be more to come.
Some analysts who have picked apart the business model of the French banks say they are viewed as more risky because of their dependence on short-term wholesale funding, their big balance sheets and their leverage.
These are all things the regulator could have -- and should have -- detected, they say.
"The French regulator has taken its eye off the ball in terms of making the banks robust enough," said Andrew Lim, an analyst at Portuguese bank Espirito Santo. "They haven't forced their banks to raise capital the same way some other countries have.
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