Weekly roundup: Climate rules for Brazil’s banks and speculation on Powell’s future

August 6, 2021|Written by GCB News|Central Bank of Ireland, Banco Central do Brasil, European Central Bank, Federal Reserve

New climate requirements for Brazil’s banks

The Banco Central do Brasil (BCB) will require banks to account for potential losses from droughts, floods, forest fires and other climate-related risks, Reuters reported on Monday. Following a public consultation, new regulations to be launched later this year will also require banks to account for transition risks and may incorporate climate change-related risks into bank stress tests. Although the regulations do not impose specific capital requirements for banks to cover environmental risks, the central bank could impose extra buffers in the future if it believes lenders are running higher risks, BCB Deputy Head of Regulation Kathleen Krause said. Implementation of the new rules is expected to begin in 2022, although banks are asking for more time.


Quantitative easing is contributing to nature loss

Also on Monday an article from University College London Fellows Katie Kedward and Josh Ryan-Collins summarised the findings of their recent pioneering report showing that 70% of the European Central Bank’s (ECB’s) CSPP corporate portfolio is potentially associated with drivers of biodiversity loss. “The financial risks associated with climate change, nature degradation, and biodiversity loss do not exist in distinct siloes,” they warn. “Rather, these threats are interconnected and often mutually reinforcing.”

Kedward and Ryan-Collins also highlight the importance of taking a ‘double materiality’ approach to fully understand nature-related risks and call for the ECB to promote the accelerated uptake of nature-related financial disclosures amongst counterparties involved in monetary policy operations. They also ask the ECB to “implement commitments to ensure the CSPP portfolio is not directly or indirectly exposed to activities which scientific consensus or EU policy consider to be harmful to biodiversity and nature.”


Bank of Ireland Governor calls for coordination on climate

EU governments must radically rethink their economic policies to move toward carbon neutrality, says Bank of Ireland Governor Gabriel Makhlouf. Current fiscal rules put too much emphasis on simple metrics or ratios and are too narrow for policymakers to fully assess economic health, he told Politico in an interview published Tuesday. “The composition of investment is as important as its absolute level as a proportion of GDP, especially when so much of economic activity is going to have to be done a different way over the next 30 years to achieve net zero,” Makhlouf said. “We don’t spend enough time, as policymakers, thinking long-term macro side.”

Makhlouf, a former Private Secretary to UK Chancellor of the Exchequer Gordon Brown, has previously questioned conventional macroeconomic perspectives. “Many of our most important macroeconomic policy frameworks were developed 30 years ago,” he said in a May blog post. “As we contemplate the future – not least the challenges posed by the net zero target – the issue we need to debate is whether those frameworks are what we need for the next 30 years,” he said.


San Francisco Fed refuses GOP Senator’s climate request

The Federal Reserve Bank of San Francisco has declined to comply with a document request from GOP Senator and climate denier Patrick Toomey. Toomey had sought all records, emails and memos concerning the bank’s focus on climate change and racial justice, but was offered only a conversation with President Mary Daly, according to unnamed GOP sources, reported by Bloomberg on Wednesday. He has also been rebuffed by the Minneapolis, Boston and Atlanta Feds, who have yet to provide him with the requested documents.

Toomey, who does not accept anthropogenic climate change and believes that “coal is an essential part of America’s energy future,” is the ranking Republican member of the Senate Banking Committee. He has said that he will not be running for re-election when his current term expires at the end of 2022.


Urgent need for post-growth climate mitigation scenarios

New climate models are needed to highlight the necessity of post economic growth strategies to tackle climate change, say eight climate academics in a Nature Energy paper published Wednesday. Existing models based on continued economic growth gamble on “dramatic and potentially unfeasible technological change” to meet the Paris Agreement goals, they argue, calling on scientists who develop climate models to explore post-growth approaches designed to keep economies stable without growth, while improving people’s lives.


Will he stay or will he go?

The week ended with more speculation about the fate of US Fed Chair Jerome Powell, whose term ends next February. Wall Street is pushing President Joe Biden to reappoint Powell, reports CNBC, while progressive Democrats prefer Governor Lael Brainard for her greater emphasis on bank regulation, income inequality and climate change. Brainard has been the Fed Governor most outspoken on climate issues.

US Treasury Secretary and former Fed Chair Janet Yellen is likely to have a strong influence on Biden’s decision, expected later this year. A hint may come when the term of Fed Vice Chair and supervision lead Randal Quarles expires in October. If Brainard were appointed to that position it would rule her out for the top job.

This page was last updated September 21, 2021

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