Keep bank regulators like FSB’s Mark Carney out of global warming or we’re all toast

Sir I refer to Pilita Clark’s “Carney urges ‘net zero’ company strategies” December 5.

In Basel II a corporate asset that is rated AAA to AA carries a 20% risk weight, while a similar asset rated below BB- is risk weighted 150%. That means that the capital a bank has to hold against a corporate asset rated AAA to AA is 1.6% (8%x20%), while against an asset rated below BB- it needs to hold 12% in capital… 7.5 times more.

Anyone who believes that assets rated below BB- are more dangerous to the banks than assets rated AAA to AA, even a mind-blowing 7.5 times more dangerous, has not the foggiest idea about risk-management.

The safer an asset is perceived, the larger is its potential to deliver unexpected losses, those losses that bank capital is to help cover.

And that is why Mark Carney, the chair of the Financial Stability Board, instead of appointing “Michael Bloomberg, media billionaire… to head a task force aimed at helping investors judge how companies are managing the risks that global warming poses to business”, should better see that himself and all his colleagues take a Risk Management 101 course.

Sir, as I have said many times before... if climate change/global warming regulations is to be handled by a task force in any way similar to how the Basel Committee and the Financial Stability Board handle banks… then we're all toast.

PS. If bank regulators want to help out then they should scrap the capital requirements based on credit risks that are anyhow cleared for, and make these based on sustainability (and job creation) ratings

@PerKurowski ©