Weekly roundup: Malaysian climate lending facility and Yellen on capital rules

February 4, 2022|Written by David Clarke|Office of the Superintendent of Financial Institutions, Bank Negara Malaysia, Bank of Canada, European Central Bank, Federal Reserve

The Malaysian central bank launches a new climate lending facility, US Treasury Secretary says climate capital rules are premature, and more from this week in green central banking.

Malaysian Bank Negara launches low-carbon finance facility

The Malaysian central bank has launched a new $240mn facility providing finance to small and medium businesses for projects that help address climate change. It says the scheme will provide both capital expenditure and working capital for projects that meet certain green credentials.

The eligible activities include increasing the use of sustainable materials for production, improving energy efficiency of buildings and installing renewable energy infrastructure. Participating firms will be able to obtain up to $2.4mn each, with a maximum tenure of 10 years.

Yellen calls climate-calibrated capital requirements ‘premature’

In an interview [paywall] with Bloomberg News, US Treasury Secretary Yellen said regulators are not ready to raise capital requirements to address climate risks.

“It’s just premature at this point to talk about raising capital requirements,” she said, adding that regulators’ priority is “doing the groundwork that’s necessary for them to evaluate risks to individual firms”.

The view is in line with that of a majority of respondents to a survey carried out by the Network for Greening the Financial System (NGFS) last year. But just as NGFS members have indicated they are open to such a policy once their methodologies for assessing climate risk are more advanced, Yellen also did not appear to rule out adjusting capital rules in the future.

Both the European Central Bank and Bank of England (BoE) are contemplating revising their capital rules on climate grounds, with the BoE saying that the current framework likely does not account for the scale and timing of climate impacts.

Outgoing FDIC chair Jelena McWilliams talks climate regulation

Outgoing chair of the US Federal Deposit Insurance Corporation (FDIC) Jelena McWilliams has spoken about the challenges of assessing the climate risks faced by US banks.

She told a podcast hosted by the American Banking Association (ABA) that she believes banks are doing a good job of incorporating weather and climate-related events into their risk management frameworks, but that there is little understanding of how banks will be affected by changes in the labour market resulting from the low-carbon transition.

McWilliams – who was appointed in 2018 by Donald Trump – is resigning her post at the FDIC after a dispute with some members of the board over the direction of the regulator. The FDIC’s relatively limited work on understanding and accounting for climate risks was said to be a factor in the dispute.

McWilliams chose not to put her name to the Financial Stability Oversight Council report on climate-related financial risks published at the end of 2021. She told the ABA podcast that she thought the paper was based on insufficient evidence. She was the only member of the committee to take such a view.

Debate over climate and inflation continues

This week has seen further commentary on the question of how climate change is affecting inflation, and will do so in the future. Writing in the Atlantic magazine, Robinson Meyer lays out [paywall] how climate-driven inflation is already happening due to both the physical impacts of extreme weather, and on the slow pace of the energy transition.

He reveals how a surprise frost in Brazil helped push coffee prices to their highest level in 10 years. He then explains how the worldwide investment in oil has dropped significantly, but without a corresponding reduction in the appetite for oil, or the necessary investment in zero-carbon energy.

Meyer also describes the impossibility of an effective monetary response to address climate-related supply issues. “Raising rates… doesn’t grow more trees, end a drought, or bring certainty to the energy transition,” he writes, adding that policymakers will need a broader range of tools to tackle such problems.

Writing in OpenDemocracy, David Barmes backs calls for credit guidance to be deployed to align financial flows with the transition to renewable energy, alongside measures to “dampen demand from those who can afford it”, for example via a wealth tax.

Expert says regulators warnings may stem funding for Canadian fossil fuels

Warnings by Canadian financial regulators over the creditworthiness of some fossil fuel producers may stem the flow of finance towards the country’s oil sands sector, according to Robert Ascah, a Research Fellow at the University of Alberta.

A study by the Bank of Canada and the Office of the Superintendent of Financial Institutions recently found that the creditworthiness of oil sands producers will fall dramatically over the next three decades.

“Banks will be less keen to lend to oil and gas companies and oil sands producers or raise money for oil sands expansion,” predicts Ascah in an article in The Conversation.

This page was last updated February 10, 2022

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