Climate risk regulation in Israel, illegal gold mining in Malawi, a new Bank of Japan climate lending facility and more from this week in green central banking…
Israel to tighten banking regulation on environmental risk
On Monday, the Bank of Israel announced an intended update of banking regulations on environmental risk management. The announcement by Supervisor of Banks Yair Avidan was made in the Bank’s annual review and follows a letter to banks informing them of the beginning of the process. Israeli banks have been required to identify and assess environmental risks since 2009.
Schnabel calls for market efficiency over market neutrality
Also on Monday came a speech from European Central Bank (ECB) Executive Board member Isabel Schnabel arguing for a move from ‘market neutrality’ to ‘market efficiency’. A market efficiency principle would explicitly recognise that a supposedly “neutral” market allocation may be suboptimal in the presence of externalities, says Schnabel. “It would allow us to acknowledge that market failures may drive a wedge between market prices on the one hand and efficient asset values that internalise externalities on the other.”
Basel chair on climate action
Tuesday saw another member of the ECB Governing Council speak out for green principles in monetary policy. Pablo Hernández de Cos, Governor of the Bank of Spain and Chair of the Basel Committee on Banking Supervision, said that regulatory and supervisory authorities are obligated to ensure that the materialisation of climate risks does not endanger financial stability. “Any action in this area should be based on our price stability objective, which is the single primary mandate bestowed on the ECB by the Union’s treaties,” Cos said, “but do not be mistaken by this relatively narrow scope, there is plenty of room for climate action within this remit.”
Reserve Bank of Malawi accused of supporting illegal mining
On Wednesday, the Malawian Parliamentary Committee on Natural Resources and Climate Change accused the Reserve Bank of Malawi (RBM) of supporting illegal mining by buying gold from illegal miners. Despite a 2019 act licensing gold miners no licenses have yet been issued, yet the Reserve Bank of Malawi commenced buying gold on 1st May 2021. Committee chair Werani Chilenga said that this shows that all of the gold that the RBM is buying is coming from illegal miners.
All major Eurozone banks fail ECB climate risk expectations
The European Central Bank (ECB) will “see to it” that banks meet climate risk expectations, ECB Executive Board member and NGFS Chair Frank Elderson said on Wednesday as he revealed that no major bank in the euro zone meets all of the ECB’s expectations in assessing climate-related risk. Banks should expect increased pressure to adjust to a lower carbon world, Elderson told a joint ECB-European Bank for Reconstruction and Development (EBRD) conference. “The inertia a number of banks have shown so far on climate issues serves as a clear warning to us, the supervisory authorities,” he said. “There are risks to acting on the basis of partial data, but in the case of climate change, the risks of inaction are far greater.”
Bank of England “stalling” on climate action
The Bank of England is delaying the inevitable on climate capital rules, said UK research and campaigning group Positive Money in an article published Thursday. “Climate change is the new systemic risk. Carbon is the new bubble. And fossil fuels are the new subprimes,” writes Senior Economist David Barmes. Under the Financial Services Act 2021, the Bank of England’s Prudential Regulation Authority is explicitly required to have regard to the net-zero target when making capital rules, he says, but the Bank is stalling. “Penalising and even limiting dirty lending is a necessary and inevitable next step for prudential regulation,” he concludes.
BOJ announces new climate lending facility
In a surprise move on Friday, the Bank of Japan (BOJ) said that it would launch a special lending facility designed to help banks take action against climate change. A statement released after a meeting of the Bank’s monetary policy committee said that it would “provide funds to financial institutions for investment or loans that they make to address climate change issues based on their own decisions. The preliminary outline of the measure will be decided next month and the new lending facility is expected to be operating by the end of the year.
ECB governing council retreats to talk climate
The week ended with the ECB’s 25-member Governing Council beginning a three-day retreat to discuss key issues relating to the bank’s ongoing strategy review. The Governing Council is the ECB’s ultimate decision-making body and consists of the six members of the Bank’s Executive Board along with the heads of each of the Eurozone’s national central banks. This is the first physical meeting of the Governing Council since the pandemic began, and the ECB’s response to climate change is firmly on the agenda.
This page was last updated June 22, 2021
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