If you really want banks to make green investments, allow bank to hold less capital against these than for instance against residential mortgages.

Sir, Suleika Reiners, Senior Policy Officer for Financial Reform, Institute for Financial Services, Germany writes: “banks need more equity, not less, in order to fulfil their key responsibility — namely to cushion risk, including for green investment. Lending for long-term endeavours such as large-scale renewable energy projects particularly deserves high-risk weightings” “Banks need more equity to boost green investment”, January 4.

Boy, has she got it all upside down. I have nothing against higher capital requirements for banks, unless these are imposed so irresponsibly so that the while bank credit machinery freezes. But, in order for banks to really boost green investment, they should be allowed to hold less capital against these investments than against other assets, so that they can earn a higher risk adjusted return on it.

Just look at how much they are financing residential housing, only because that’s perceived safe by regulator safe, and who therefore allow banks to hold little capital against the mortgages.

Reitners refers to “a study by the University of Cambridge in association with the United Nations Environment Programme Finance Initiative [that] has proved that stricter equity requirements are an insignificant factor in influencing the bank’s pricing of the loan or its willingness to lend.”

I have not read that study but, if those are the results, I am sure it contains major design flaws.

Sir, you refusal to discuss the distortions produced by risk weighted capital requirements, perhaps so as not to disfavour your bank friends, is partly to blame for the continuation of misconceptions as those expressed here by Suleika Reiners.

I don’t like the idea of distorting the allocation of bank credit to the real economy but, if we have to do it, let that at least be in pursuit of higher objectives than a simple risk avoidance, which will anyhow not isolate us from bank crises.

God make us daring!

@PerKurowski

The costs of political statements and of regulatory decisions, should as much as is possible be transparently measured

Sir, your “The hard questions of fossil fuel divestment” of October 9, daringly raises some very timely questions that might not be so political correct, at least not for the high-priests of environmental protection. Hear, Hear!

If there is one detail I miss, that is perhaps about the need to set up a small procedure by which anyone could at least measure the on-going financial opportunity cost of that fossil fuel divestment. That could be quite easily done by keeping track on what those fossil fuel investments would have produced, and then compare these to the returns on the current portfolio.

Of course, as you end up writing, “It is a political statement”, but the costs of these should also be measured, as transparently as possible, which goes for regulatory decisions too.

The Basel Committee for Banking Supervision decided initially on a basic capital requirement of 8 percent. What has been the cost of then adjusting that capital requirement based on what is ex ante perceived or decreed as safe? Will we ever know? Will ever someone try to find out? Or will the cover-it-up forces prove to be overwhelming?

@PerKurowski

To sell the Paris Climate Agreement as a real solution to our pied-a-terre’s environment problems, that’s a disgrace

Sir, Pilita Clark writes: “Mr Trump has exposed the fragile nature of the Paris accord. Countries face no legal obligation to meet any emissions-reduction target in their national climate blueprints, including the US. Nor is there anything legally to prevent them from submitting weaker plans” “US dithering exposes fragility of Paris accord” June 1.

If so then all those who sell us the illusion of the Paris Climate Agreement being a real solution, are more in fault hanging on to it, than Trump reneging it.

I have of course not read the Agreement. Who has read it all? To me this type of global agreements too often just feeds crony statism. To me this type of global agreements becomes too often just another photo-op for politicians.

To have a chance to really dent the environmental problems of the world, we need to come up with incentive structures that are green-profiteers proofed. Otherwise we will most probably not be able to afford it.

My preferred solution is to send the right market signals by means of for instance carbon taxes, and distribute all those revenues to all citizens in order to compensate for the increased costs. That would help many citizens to contaminate less, while affording to do more of something else they could want.

Another example: The Economist writes: “Climate policy, a jerry-rigged system of subsidies and compromises, in America and everywhere, needs an overhaul. A growing number of Republicans want a revenue-neutral carbon tax. [Like the one I suggest] As this newspaper has long argued, that would not only be a better way of curbing pollution but also boost growth. A truly businesslike president would have explored such solutions. Mr Trump has instead chosen to abuse the health of the planet, the patience of America’s allies and the intelligence of his supporters.” “The flaws in Donald Trump’s decision to pull out of the Paris accord”, June 1.

The question is then: Why does The Economist not denounce the Paris Climate an Agreement for what it is, a political convenient illusion of a solution? Just because being against Trump trumps all other considerations?

http://ourpiedaterre.blogspot.ca/2017/04/solutions-that-share-out-all-benefits.html

@PerKurowski

The worst we could do, is to treat a structural unemployment as a temporal one.

Sir, Gillian Tett writes: “If there is one thing on which almost all economists agree, it is that digital technologies are performing many jobs once done by humans… [and so there’s an] urgent need for a bigger policy debate about how to prepare workers for this new world”, “How robots make humans indispensable”, December 23.

Absolutely, but in this respect, if we face structural and not temporal unemployment then, as I wrote in an Op-Ed in 2012, “We need worthy and decent unemployments”.

For that we must rid ourselves of the negative bias that current unemployment benefits carry. The best alternative in town seems to be a Universal Basic Income, namely the unconditional payout of a fixed amount per month to all citizens, whether unemployed or not. That would help the economy by keeping up consumer demand, and signify a good stepladder for everyone who wants to reach up to a temporary job, a.k.a. a gig job.

How to fund it? There are many alternatives but, in the context of this article, a payroll tax on robots, driverless cars and similar substitutes for humans, seems the way to go, since that would also create a more level playing field when competing for jobs.

Who will be against it? Naturally the redistribution profiteers as that decreases the value of their franchise.

PS. In my homeland I have for decades wanted my nation's net oil revenues to fund such UBI, in this case a variable one, so as to help free us citizens from living under that servitude that 97% of all the nation’s exports going to central government signifies.

PS. In other places UBI and carbon taxes could be a great way to harmonize the incentives for the fight against environmental problems and the fight against inequality.

PS. Ask Trump, what’s worse losing your job opportunity to outsourcing, migrants or robots? If robots, where does he suggest we build the wall and who’s going to pay for it?

@PerKurowski

World/Germany: Don’t fine Volkswagen for the benefit of those who should have controlled emissions better. Be smarter.

Sir, I refer to Chris Bryant’s “New VW chief signals cost cuts to pay for emissions bill” October 7.

If I were Volkswagen’s new chief executive, I would not accept, laying down, to “slash costs to help to foot the bill for the diesel emission scandal” No way! I would strengthen Volkswagen by making a counteroffer the world could not resists… because of its implications.

I would offer the authorities, in lieu of any fines related to The Scandal, to give to each of VW’s 600.000 employees, and to each of 11.000.000 of VW’s diesel car buyers, for example €1.000 in Volkswagen preferred "green" shares, convertible into ordinary VW shares.

And, if the offer was accepted, I would not waste one € correcting wrongdoings on the past, but instead duplicate the € 11,5bn research budget of last year.  But, that’s just me.

I dare you to find one environmentally concerned, who is not a statist, who would not agree with me.

PS. Volkswagen, don't delay your answer... the faster the better.

@PerKurowski ©  J

When paid by Volkswagen, the fines should go to patent free research of better diesel engines… and emission controls

Sir, Brooke Masters write “Drivers who bought VW’s “clean diesel” engines are now faced with technical fixes that could well reduce both fuel efficiency and power. Their communities have much dirtier than anticipated air” “Lawsuit on behalf of 1m $1 investors is something to fear. Somebody ought to sue” October 3.

Indeed but when suing make sure that if you win it can make a difference, not just make up for something secondary.

Many Volkswagen’s diesel engine buyers, who said they bought it out of environmental concern, many of them just green show-offs, now have a legitimate grievance being left out hanging like fools. But, if they are going to sue, they should at least request that, if successful, all fines paid by VW should go to finance the development of patent free better diesel motors.

Brooke Master’s also writes: “There are many frivolous [and not non frivolous] law suites were the attorneys on both sides walked away with millions of dollars in fees”. And with that she reminds me of that, at least in the case of banks being sued, all lawyers should be paid their fees in bank shares… I mean so that we do not hurt the lending capacity of banks and with that of ten thousands of innocent bystanders borrowers… the sort of civilian casualties.

Perhaps if we start looking into the issue of where compensation payments and fees go to, and how it is paid, then perhaps we will start looking at tort reform from a much more productive angle.

@PerKurowski

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

Is the Catholic Church now telling the Lutheran Church: “Thou shall not sell carbon indulgences”?

Sir I refer to James Politi’ and Giulia Segreti’s “Pope says multinationals and greed threaten environment” June 19.

Pope Francis’ encyclical Laudato Si states: “171. The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.”

I have for years I argued that the “carbon credits” so much promoted by Germany among others, are like the indulgences sold by the Catholic Church for the forgiveness of sins, and which Martin Luther protested. And so now, in a strange twist of history, it seems it is the Catholic Church that is telling the Lutheran Church “Thou shall not sell indulgencies”

@PerKurowski

In Paris Conference we will hear many echoing Neville Chamberlain: There will be splendid planet earth for our time

Pilita Clark and Stefan Wagstyl report on “G7 in historic accord to phase out fossil fuel emissions this century”, June 9. Hurrah!

But when Stephen Harper, the Canadian premier, brings it down to reality mentioning that: “doing so would require “serious technological transformation…I don’t think we should fool ourselves, nobody’s going to start to shut down their industries or turn off the lights” it makes it all look much more that a historic hullaballoo… in preparation for all to come out of the Paris conference in December declaring, like any Neville Chamberlain: There will be splendid planet earth for our time.

As I have held for many years, any planet earth environmental agreement, if disconnected from the people will not work… and in that respect Governments, NGOs and Greens are not the people.

Also for me, to read about phasing out fossil fuel without phasing in nuclear power, which for the time being is the only available bridge between now and that “serious technological transformation”, shows this is not a real serious effort.

What do little me currently propose we do for our pied-a-terre?

For a starter… instead of allowing banks to earn especially high risk adjusted returns on equity on anything perceived as safe from a credit risk point of view, something which has no purpose and is dumb, we should give banks the incentives to earn those extra high returns on everything that seems to help sustainability (and job creation).

Put one and the same capital (equity) requirements for banks on all assets, for instance 8 percent, and then reduce these with up to 50 percent depending on planet earth sustainability ratings (or job creation ratings).

And please, please, please… stop talking about differences between rich and poor with respect to their responsibility to planet earth… we are all indigenous to our planet, and we all have the same human right to feel responsible for it. The “I am rich so I can take care of it better” has to stop.

PS. And forget about selling carbon emission indulgences for some fairly undefined sins in order to use the proceeds for some even less defined good deeds.

@PerKurowski

The environmental problems of our planet are too serious to be allowed being sequestered by unethical vulgar politics

Sir, Martin Wolf’s “An unethical bet in the climate casino” of November 12, exemplifies exactly the main obstacle for the world to start tackling in real problems related to climate change, or, if you wish, problems related with just bad handling of our environment. And that is that the to do or not to do so, is always politicized.

Just read: “The Republican victory in the midterm elections was a triumph for its strategy of sustained vilification of the president and obstruction of his policies. The most important consequence of this election may therefore be to bury what little hope remained of getting to grips with the risk of dangerous climate change.”

I know that when my grandchildren would ask me “Grandfather why did you not do anything” this article of Wolf will, with much sorrow, come in handy.

“Many Republicans seem to have concluded man-made climate change is a hoax.” Does Wolf really think they have concluded that… and not just concluded something political?

“Yet, fascinatingly, the very same people who consider the costs of mitigation excessive wish to lighten financial regulation and so increase the risk of a repetition of the recent calamity… It is no accident that believers in laisser faire are the fiercest climate sceptics. The wish is father to the denial.”

Hold it there! I just know that if the tackling of climate change was to fall into the hands of something like the Basel Committee for Banking Supervision, and the Financial Stability Board, which with their portfolio invariant credit risk weighted capital/equity requirements for banks caused the current crisis… then our planet would be definitely toast L

An unethical tinkering with the casino

My Voice and Noise on the environment

If the ordinary citizen, not just “civil society”, is not part of the climate change challenge, we are all toast.

Sir, my first reaction when I read Nicholas Stern’s “World leaders must act faster on climate change” September 30, was “How could they? There are none.

When about a decade ago I was an Executive Director at the World Bank, I often held that since at our board no one spoke for the world at large, and really only parochial interests were represented, we should perhaps in the name of transparency, rename us the World Pieces Bank, or perhaps the World Puzzle Bank.

And I also held and hold that if we allow acting on climate change to become just another rent seeking opportunity, or a political agenda pushing opportunity, we are all toast!

Having had the opportunity of flying over many environmentally affected areas, I really do not need a lot of scientifically studies to know that something is very wrong with how we maintain our planet, or our pied à terre as I like to call it. But what can we do about it?

I have no definitive answers of course, but I do firmly believe that impeding “climate change” to become an issue which belongs solely to an elite, and engaging the full attention of the ordinary citizen, is an absolute must.

For example when reading about the Copenhagen Climate Change Conference of 2009, I got upset about how often it was implied that the solution was the exclusive responsibility of the rich countries, as if the poorest human being, in the poorest of the countries has not exactly the same right, and duty, as an indigenous of the world, to participate in the challenge.

And to stimulate such citizen participation, and by which I mean immensely more than “civil society”, creating a visual aide, such as an environmental Google-map that tracks the climatic and environmental changes, and make it accessible in all schoolrooms around the world, could help.

If the threat to our earth is truly serious, something that I have no real evidence to doubt, it is clear that we cannot leave its solution to politicians, and green rent seekers. If we do so we are toast.

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.

Please, if we are to stand a chance, we must not allow the fight for less environmental damages to be politicized

Sir, with respect of the threat of climate change, or, ‘the just plain huge environmental damages of which we do not know what consequences these will have though we might presume these will not be overly positive’, I do not agree with Clive Cookson’s conclusion that “a second Obama administration seems certain to do more [reducing carbon dioxide emissions] than a President Mitt Romney”… that is unless he considers taking a baby aspirin is a solid way to fight a tumor, “It shouldn’t have taken Sandy for US to debate science”, November 3. 

In fact given that the environmental challenge needs the cooperation of everyone if we are going to stand a chance, including by the way that of the poorest of the poor, the worst thing we can do is to politicize it, or allow the solutions to become the exclusive domain of some self defined especially conscientious high income earning groups. 

That we need accurate forecasts no one doubts; that governments are the best fitted to provide these services is probably true, but, as citizens it behooves us to always and continuously explore alternatives, like what if all money publicly spent was used for premiums to the 100 most accurate and important weather prognosis provided to the public each year… with a charge to all service providers for the 1o most important weather prognosis mistakes. 

When Cookson writes that “Mismanagement and under-investment threaten the US weather satellite programme”, I am quite sure that neither he nor I, have the faintest idea of how much of the threat corresponds to each of the two factors he lists. 

On a more personal note, for many years now, I have expressed surprise over the fact that those who seem most concerned about the environment, and thereby as I see it should be the most concerned with how scarce resources are used to meet the challenge, seem the most willing to throw resources at it with no contemplation at all given to how do that more efficiently.

We now have to think harder about what we can afford?

Sir Jeremy Rifkin writes that the “Sunset carmakers should look to a new dawn”, December 2 and clearly, if they don’t, they are crazy, especially since different to others trapped in a sunset industry the carmakers do not seem to have a good cash-flow to milk; in fact their current cash flow, they tell us, is the taxpayer.

That said and even though the world cannot because of concerns with energy security and the environment afford to play with the combustion engine along traditional ways, neither can it afford to do so in any new green way that comes along, most specially after being hit so hard by the current financial crisis.

In this respect to read about our homes converted into “positive power plants” and us as “participants in the energy market” in a “new era of ‘distributed capitalism’” in pure Jetsons’ style makes one shiver. It is good to be a visionary but it is also good to walk before running. For instance… can we afford to remain so choosy that we do not even mention the nuclear energy?

As disaster producers, do not underestimate the humans

Sir John Kay tells us to “Forget the meltdown worry about goo and asteroids” July 9 and his arguments goes along the line that the damage humans can cause is modest relative with the damages nature can cause. On the surface it would seem that he has a point but given that humans are no cats and have only one life it does not really matter whether a disaster is capable of killing you once or a million times over.

Also he should not forget the havoc humans create while trying to tame the nature. Just look at the financial sector. Our risk-busters appointed the credit rating agencies to eliminate the risks and what did these do? They concentrated their prime-rating rays too much on a part of the market so that it exploded, bubbled, only later to implode, hopefully in a bunge, but that will foreseeable cause many sufferings, and worldwide, you can’t hide this fact, many onetime deaths.

But foremost we need a new direction for our growth

Sir Martin Wolf writes that “Sustaining growth is the 21st century’s big challenge” June 11 but as the article is set in the perspective of the environmental and energy limitations that the world now faces and that Jeffrey Sachs has written a book on a better title would have been “Re-direction growth so as to make it sustainable is the 21st century’s big challenge”.

Now how do you do that? First of all by measuring growth in terms that makes more sense. That a dollar used to buy the family’s third car in a developed country should count as much as the dollar used to pay for the vaccine for a child in Africa does somehow not seem to give us the right compass bearing we need.

We need to establish a worthier purpose for our banks than just avoiding a default

Sir Ken Lewis the Chairman of Bank of America in “Markets alone will not lead to a green future” June 6 says that “the private sector needs a stable and predictable regulatory environment with a bias towards clean energy and the green economy”. By doing so, perhaps unwittingly, he points out the major failure of our current bank regulations, which is that they are biased exclusively towards eliminating the risk of bank defaults, as if that is the only risk with the banks for the society. In fact the risk of the banks not doing their part in the development of the society is much more serious than the risk of having to go through a bank crisis.

In this respect instead of applying minimum bank capital regulations base solely on risks of default, most often as measured by the credit rating agencies, we need to give more purpose to banking, perhaps by starting to think in terms of units of risk of defaults per environmental hazard avoided or per decent job created.

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?

FT Sustainable Banking Awards

The Financial Times and IFC have teamed up to create the following competition.

"The Emerging Markets Sustainable Bank of the Year Award recognizes the emerging markets bank that has shown excellence in creating environmental, social and financial value across its operations."

Sounds great but, if creating environmental, social and financial value across its operation is as I gather the promoters believe a worthwhile goal, then why do they not ask the regulators to send clearer signals about it to the banks in the emerging nations.

From what we can observe the regulators are currently signalling minimum capital requirements based exclusively on the reduction of risks as perceived by those outsourced risk surveyors we know as the credit rating agencies.

But if you want to give incentives so as to obtain the results the promoters seem to wish, then you might be better of sending clearer signals than those of a competition. For instance why do you not set up minimum capital requirements based on the rating of environmental, social and financial value creation? And, if you do, why not throw in something about job creation too, which also seems something quite worthwhile for the banks to do.

That is if course unless all what is meant when referring to sustainable is solely the sustainability of the banks themselves.

The differences between winning a presidency and a Nobel Price

Sir after reading Michael Bloomberg’s “America must resist protectionism” December 12 I am torn between being happy that he is not running as a candidate and is therefore free to spell out the truths and sad because he is not running. Seems you can’t have the cake and eat it too running for president… though you can win a Nobel Prize for being environmental conscientious without even daring to spell out that gasoline/petrol taxes are needed in the US.