Marc Vienot, head of France's most successful commercial bank, Societe Generale and Jean Peyrelevade, chairman of its most disastrous, Credit Lyonnais, have often clashed. Last year, for example, Vienot opposed the $9 billion bailout that Peyrelevade wheedled out of the government on behalf of state-owned Credit Lyonnais. But on the future of the crisis-ridden French banking system, the two antagonists are in rare harmony. Vienot wrote in Le Monde that without fundamental reforms, "there will no longer be international banks based in Paris playing a major role in the world economy." And Peyrelevade told TIME, in a warning that grates on Gallic ears, "All the French international banks could be bought by foreign institutions. The country might be owned, financially, by Anglo-Saxon pension funds and European bankers."

Even after allowing for a bit of dramatic exaggeration, the message from these two pillars of the banking establishment is clear: even if the worst is over in France's financial debacle--which over the past four years has spilled gallons of red ink thanks to a collapse in property prices and other calamities--the commercial-banking system is in deep trouble. "It's more than just a real estate problem," says Susan Leadem, an analyst with the Goldman Sachs investment firm in London. "[French banks] need radical change, and there's little prospect they'll get it."

Archaic labor laws, competition from state-protected savings banks and other specialized institutions, a straitjacket of regulation and other structural ills have all contributed to chronically abysmal profits at the main banks--they get only an 8% return on equity--a third to a half as much as American and many rival European banks. Analysts are awaiting a shake-out that would shutter some banks, merge others and slash the work force, but France's 11.9% unemployment rate makes large-scale layoffs politically unthinkable.

Over the past four years banks set aside more than $53 billion to cover potential losses from bad loans. Roughly a third of that was made necessary by the bursting of the late-1980s property bubble, which has seen office rents in Paris plunge 50%. More losses resulted from defaults by small businesses wiped out in the 1992-93 recession, France's worst since World War II. Rating agencies have steadily downgraded the banks' creditworthiness, which increases their cost of raising money. Net banking revenues, after an unbroken rise since 1946, have fallen 8% in the past two years.

The most spectacular flameout was at Credit Lyonnais, which had become the world's largest non-Japanese bank, thanks to an ill-considered orgy of acquisitions before Peyrelevade was brought in three years ago. It lost billions and twice was bailed out by the government, which last year created a special "bad bank" to take over $27 billion worth of Credit Lyonnais's questionable assets. Vienot, among others, loudly criticized the plan as too generous.

Despite signs that the worst is over, bad news continues: Credit Foncier, which dispenses subsidized mortgage loans, disclosed a $2 billion loss in April and may soon need a bailout. Credit Lyonnais, after a token 1995 profit of $2.5 million, suffered a devastating fire last month at its 19th century headquarters building in Paris. Worse, the bailout plan is already in trouble, and Goldman Sachs predicts that the bank will lose $200 million this year if the deal is not restructured.

All is not dark. Now that property prices have stopped falling and other bad debts are accounted for, "this will be the year of the rebound," predicts Michel Freyche, president of the French Banking Association, noting that U.S. banks have bounced back from equally tough times. "It isn't as bad as some say." Indeed, from the customers' viewpoint, paradoxically, France's banking system, largely denationalized since 1987--with the exception of Credit Lyonnais, the CIC group and a handful of midsize banks00is one of Europe's most modern and efficient. But, observes Alain Branchey of the rating agency Standard & Poor's, "we don't expect as quick a rebound as we saw in the States."

The primary source of the commercial banks' woes is competition from specialized institutions like savings banks, mutual-credit associations, even the post office (it holds 12% of French bank deposits), which don't have to earn profits to please shareholders and are granted privileges under French law. Yet they are aggressive rivals to the commercial banks, competing for loans in a shrinking market. Result: the profit margins on lending have been whittled to the vanishing point.

Chronically low profitability keeps the major French banks from joining their British, Dutch, Swiss and German peers in the headlong rush toward globalization. The commercial bankers say they need an end to the unfair competition from their protected domestic rivals. Financial reform to increase bank profits would be politically unpopular, of course. But any government of France, a country that prides itself on its international role, has to consider the impact on public opinion if, as men like Vienot and Peyrelevade predict, the French financial system is reduced to colonial status.

--With reporting by Joseph Schuman/Paris