Patrick Artus, Natixis chief economist and member of a French prime ministerial advisory body, has called for the range of assets that can be financed through covered bonds to be expanded to boost long term bank funding, echoing proposals in the French parliament last year for corporate loans to be financed through “obligations sécurisées PME”.

Artus’s call came after International Monetary Fund head Christine Lagarde, the former French finance minister, made a proposal at Jackson Hole to increase banks’ capital to ward off the risk of a renewed banking crisis. Artus, who advises the prime minister as a member of the Conseil d’Analyse Economique, said on Thursday that increasing European banks’ capital is not the correct response.

“Even if a bank’s capital is increased by 1, 2 or 3 percentage points of its total assets,” he said, “this additional capital cannot in any way make up for the impossibility of rolling over its short term or bond debt, given the size of these debts.”

Regarding short term funding, Artus pointed to the European Central Bank’s ability to support this by intervening when interbank markets are not functioning.

Broadening covered bonds’ scope was one of two proposals he made regarding supporting long term funding, which he said was increasingly necessary in light of the introduction of the Net Stable Funding Ratio.

“We can imagine extending the scope of covered bonds, which can currently refinance only mortgage loans and loans to local authorities, and which proved to be quite resilient to the crisis, since the issuance continues,” he said. “We could imagine that covered bonds could also refinance medium term corporate loans.”

The proposal came alongside another requiring banks to have contingent liquidity reserves, for example guaranteed long term credit lines from investors that could be drawn on if required.

Proposals for covered bonds backed by loans to small and medium sized enterprises (SMEs, or petites et moyennes entreprises/PMEs) were debated by the French parliament in 2010. The discussions related to a finance law that, among other measures, updated France’s obligations foncières framework and brought previously structured home loan backed covered bonds under a new obligations de financement de l’habitat law.

An amendment was proposed that would have led to the creation of obligations sécurisées PME, but politicians instead commissioned a report into the idea. The law specified that this should happen within six months of it coming into force.