* Noyer writes to banks on stability concerns
* ECB eased funding concerns, but deposits crucial long-term
* French savers targeted by Hollande
* Deposit war rages in Italy even after ECB funding
By Christian Plumb and Jean-Baptiste Vey
PARIS, March 20 (Reuters) - French banks have been warned: avoid following your Spanish and Italian cohorts into a full-blown war to attract savers' deposits by offering higher interest rates, or else.
In a first salvo, France's chief bank regulator Christian Noyer said in January that banks which offered rates on deposits that were "disconnected from market rates" could "weigh on the stability of the entire banking system."
On their own those remarks, in a speech following a gut-wrenching crisis that prompted emergency long-term funding from the European Central Bank, could soon have been forgotten.
But Reuters has learned that Noyer, also a member of the ECB's governing board, has since written to the major French banks reiterating those concerns, a sign both of his determination to avoid a deposit war and his worry that the industry is already flirting with one.
A Bank of France spokeswoman declined to comment.
Noyer's warnings follow a fourth quarter in which Credit Agricole on its own added more than 13 billion euros ($17.2 billion) in deposits, according to Morgan Stanley. Those funds came partly from shifting existing clients' funds out of life insurance and mutual funds, but "explains why BNP Paribas and Societe Generale lost deposits in the quarter," Morgan Stanley said in a research note.
The scramble for deposits may have become less urgent after the ECB came to the industry's rescue with hundreds of billions of euros of liquidity earlier this year. But deposits will remain crucial as banks seek to fund themselves without the ECB's help.
"I think you're going to see the French banks desperate to get a hold of deposits in the next two or three years," said a London-based analyst.
Banks are not the only ones chasing French household savings, which are at a near 30-year high. Socialist presidential candidate Francois Hollande has promised to double the ceiling for the popular regulated "Livret A" savings account, much of which goes to fund low-income housing.
He would also double the ceiling of a second regulated account to help fund the development of French small and medium-sized businesses.
Also gunning for French savings are a motley array of other institutions from Russian bank VTB - peddling one-year accounts yielding 3.45 percent to automaker Renault's financing arm whose "Zesto" account offers a 5.5 percent teaser rate, even if that quickly falls to 2.8 percent.
Credit Agricole's LCL unit, which was the bank's champion deposit gatherer in the fourth quarter, shows no signs of slowing down either. Earlier this month it announced an account that rewards loyal savers with annual rates of up to 3.8 percent - if they keep their funds locked up for long enough.
By comparison, the ECB kept euro zone interest rates at a record low 1 percent earlier this month.
The French deposit skirmishes remain fairly tame compared with southern European markets such as Italy and Spain where banks have waged a deposit war that has shown few signs of easing despite the cheap loans from the ECB. Savers can get as much as 4 percent on new deposits in Italy.
"After the ECB auction (in December), we did not see any material easing of the deposit war," Alberto Nagel, CEO of Italian bank Mediobanca, told analysts at a conference call last month. "Nobody really reduced the conditions to customers."
Mediobanca, best-known for its investment banking activities, is aggressively building retail network Che Banca!, a move that has helped it ease funding strains.
French banks have climbed back from a liquidity scare late last summer as their U.S. dollar funding virtually evaporated on anxiety about their exposure to Greece. Since then their investment banking arms have been cutting jobs and selling assets, making their retail units all the more important.
Deposits are crucial to meeting regulatory targets for being able to withstand a 30-day run on funding. All three major French banks are substantially below Basel III targets for liquidity coverage ratio (LCR), analysts estimate.
"There's definitely pressure on deposit rates, but I don't really expect a proper deposit war in France," said JP Morgan analyst Delphine Lee. "It's a general trend because of regulation and the market conditions."
Short-term savings account rates have steadily risen over recent months to a high of 2.05 percent, but deposit accounts with maturities of two years or more dipped to 3.09 percent from a November high of 3.17 percent, according to Bank of France data for January, the most recent month for which figures are available.
Graphic on French savings: link.reuters.com/wuq27s
Graphic on French deposits: link.reuters.com/puq27s
For Credit Agricole the sharp increase in deposits came at the expense of rivals, but also of its own profit margins.
France's third-largest bank has been luring its own clients' funds out of higher-fee savings products like life insurance and money market funds and into savings accounts.
Overall operating income at Credit Agricole, which was also reeling from writedowns on its Greek and other operations, was also weak, partially reflecting the deposit shift.
Perhaps mindful of Noyer's concerns, Credit Agricole has played down concerns about a deposit war hitting profit.
"We want to get deposits, but we're not willing to pay any price," Credit Agricole's Chief Executive Jean-Paul Chifflet said in a recent conference call.
Rivals BNP Paribas and Societe Generale have been doing the same thing on a smaller scale already.
"It's something that has to be done, not only by (Credit Agricole) but by the entire French banking system," said another London-based analyst. "They are probably a bit earlier than their peers in that battle." ($1 = 0.7552 euros) (Additional reporting by Lisa Jucca, Leigh Thomas, Lionel Laurent and Julien Ponthus; Editing by Geert De Clercq and Erica Billingham)