What happens to the environment is indeed a risk that finance ministers should talk more about
Sir the finance ministers from the US the UK and Japan speak with one voice when in “Financial bridge from dirty to clean” February 8, they say that without a global investment framework built on market incentives the global deployment of clean energy technologies is going to be very difficult but they also note that not doing so will be very risky for us all.
Well this is exactly the sort of real societal risks that were ignored by financial regulators when they designed the minimum capital requirements for banks based on a very narrow definition of risk namely that of a default. If a default occurs because someone was trying to help the planet it would seem like something more acceptable to the society if there were no default but the bank was financing the purchase of a new car that will produce more carbon.
It is not that I am saying that banks should take stupid risks in environmental protection projects…but neither should finance ministers through their regulations create non-transparent subsidies for what just the credit rating agencies believe are low risk projects while ignoring all other risks faced by humanity.
If a bank lends a AAA corporate client a 100 dollars the bank need 1.6 dollars in capital if it lends to riskier below BB- reacted environmental project the bank needs 12 dollars in capital. Is this what the minister’s mean with market incentives?
Well this is exactly the sort of real societal risks that were ignored by financial regulators when they designed the minimum capital requirements for banks based on a very narrow definition of risk namely that of a default. If a default occurs because someone was trying to help the planet it would seem like something more acceptable to the society if there were no default but the bank was financing the purchase of a new car that will produce more carbon.
It is not that I am saying that banks should take stupid risks in environmental protection projects…but neither should finance ministers through their regulations create non-transparent subsidies for what just the credit rating agencies believe are low risk projects while ignoring all other risks faced by humanity.
If a bank lends a AAA corporate client a 100 dollars the bank need 1.6 dollars in capital if it lends to riskier below BB- reacted environmental project the bank needs 12 dollars in capital. Is this what the minister’s mean with market incentives?
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