Capital requirements for banks weighted for environmental and job creation concerns, would at least serve a purpose.

Sir, Martin Wolf writes: “The best way of responding to the challenge of climate change is through changed incentives and accelerated innovation aimed at making carbon-free technologies competitive with fossil fuels. Both demand more active public policies.”, “A moonshot to save a warming planet”, June 24. He is correct but one of the active public policies that need to be reviewed is that of bank regulations.

Currently the Basel Committee’s risk weighted capital requirements for banks clears for the only risk that has been previously cleared for by banks, namely credit risk. That is as loony as can be, since it distorts the allocation of bank credit for absolutely no purpose at all. These should be based on the risk that bankers are not capable to manage perceived credit risks… which c'est pas la même chose. In fact it can be shown that it is when the perceived risks are really low, that bankers have encountered the biggest problems.

If bureaucrats absolutely must distort, because that is their modus vivendi, if their capital requirements were based on environmental and job creation concerns, then these would at least align much better with an identifiable worthy social purpose... think of earth sustainability and job creation ratings!

Of course more publicly funded research and development on renewable could help… but let us not ignore the importance of allowing banks to take more risk; to leverage their equity and the support we lend them as taxpayers more; and therefore to earn higher expected risk adjusted returns on equity, when their risk-taking makes much more sense to us.

@PerKurowski

Britain, get the busybody besserwissers out of your Bank of England… fast!

Sir, I am shocked, and utterly concerned about my very dear Britain’s future. How on earth have you allowed yourself to be trapped by such besserwisser-busybodies hands, as is reflected in Pilita Clark’s by the “Bank of England seeks answers from insurers over climate change” October 28.

Truly mindboggling. If BoE is so concerned about climate change, then why does it not suggest that capital requirements for banks should be based on our planet-earth’s-sustainability ratings, instead of silly, purposeless, credit-risk ratings, those which are already being cleared for by banks with risk premiums and size of exposures?

We need capital requirements for banks based on saving our planet and creating jobs ratings

Sir, Jeffrey Sachs writes “the system of financial intermediation is broken” and therefore the financial needs for the many infrastructure investments required to face climate change challenges, cannot be satisfied. “We risk more Haiyans if we ignore climate change” November 17.

I agree. For more than a decade I have argued that capital requirements based on perceived risks, only distorts the allocation of bank credit in the real economy, favoring “The Infallible” and odiously discriminating against the risky. And to top it up, for no purpose, since never has a major bank crisis resulted from excessive exposures to what was perceived as “risky”, they have all originated in excessive exposures to what was perceived as absolutely safe.

And in this line I have proposed that if bank regulators must distort (to earn their keep or satisfy their egos) they should at least try to do so in favor of what society needs, like safeguarding our planet earth (and creating jobs).

And that the regulators could to that by allowing banks to have less capital when financing based on an assets project’s sustainability (or potential-of–job-creation) ratings.

Because that, would allow the banks to earn their highest-risk adjusted returns on equity, where they can be the most helpful to the society.

I have sent out my proposal to the UN’s Sustainable Development Solutions Network, and I hope it gets there… and is understood there

http://ourpiedaterre.blogspot.com/2013/10/if-regulators-absolutely-must-distort.html

If climate change believers do not abandon their holier than thou attitude, climate skeptics will always win.

Martin Wolf writes about China that “Its leaders feel rightly, that there is no moral reason to accept a ceiling on the emissions allowed for each Chinese individual far lower that the level Americans insist upon for themselves”, “Climate skeptics have already won” May 22.

And of course, if the climate change challenge, instead of being placed in terms of a shared human responsibility, where even the poorest of the poor, as a human, has the right to feel the same responsibility as the rich, and this is instead phrased as an issue of quotas and fairness, which only divides, the climate skeptics will win… almost by walk-over.

Also, at least in the US, it is clear that the climate change challenge has been politically captured. It is almost as “if you are not a progressive-democrat, you have no right to be concerned with climate change” or “if you are concerned with the environment you have no right to be a conservative-republican”. Before climate change is freed from that sequestration, there is no chance of a united front, and again the climate skeptics win.

Wolf mentions eight possibilities to curb emissions and buy some time and I fully agree with all of them, most especially with the “go nuclear” one, our only bridge between now and when something better for the environment is found. That said I would like to make the following comments:

First, with respect carbon taxes it is important to be consistent and transparent. That little dirty trick used by some European countries of taxing gas-petrol to assist the environment, while at the same time giving out subsidies to coal, cannot be allowed.

Second, in finding the best way of financing for creating and saving energy I have often mentioned that if we can use credit ratings to determine the capital requirements for banks, something which for no purpose at all distorts , why do we not distort somewhat with a purpose and do the same based on sustainability ratings?

But, first and foremost, in terms of advancing on climate change issues, we really need to get rid of all those holier than thou attitudes, which instead of making us plant a tree, so often makes us feel like going out and chopping one down.

Again, we would do better with capital requirements for banks based on sustainability of earth and job creation ratings

Sir, I often wonder about how strange it is that those who most present themselves as being very concerned with the health of our planet, and should therefore one would presume be the ones most concerned with making sure that scarce financial resources are used as effectively as possible to save the earth, then end up being the most willing to just throw money at the problem.

I say this because Martin Wolf in “Why the world faces climate chaos”, May 15, argues that “If we are to take a prudential view of public finances we should surely take a prudential view [on saving for humanity] the only home it is likely to have”. As I see it those two prudential views go hand in hand, as we do need a prudential view on public finances in order to assure having some resources for all the prevention, adaptation and mitigation which will be required.

Two fundamental problems the world faces everywhere now, is the deteriorating environment of the earth and the lack of jobs for our youth. And in this respect for almost a decade now I have been arguing the following:

If we have capital requirements for banks which clear for the information provided by credit ratings, even though that information has already been cleared for elsewhere, and thereby only produces dangerous distortions, why then do we not have instead capital requirements for banks that are based on sustainability of earth and job creation ratings?

The above would allow banks to play a significant role in solving both problems, without us having to leave the financing of environmental or job creation projects in the hands of government bureaucrats or short terms political interests. Unfortunately there are some who prefers the government to solve it all… seemingly that is on their agenda.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, as he has told me not to send him anything more about these “capital requirements”… he already knows it all, at least so he thinks.