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A crazy idea regarding bank regulation has gained traction in Europe and adherents in Canada:

An additional measure could be for the Bank of Canada to follow Europe and evaluate the impact of introducing a “Green Supporting Factor” and a “Brown Penalty.” The idea is simple: due to capital reserve requirements, banks will be able to make more money when they lend to firms in green industries.

Fortunately, there is widespread opposition to the idea:

European banking regulators are sounding the alarm over a proposal from the European Commission and the European Parliament to stimulate more eco-investments by cutting capital requirements for banks that make green loans. The concept is known as the “green supporting factor,” and the politicians touting it want banks to finance more initiatives such as renewable energy projects and eco-friendly homes.
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“We’re not going to get to a green economy if, in the process, we end up encouraging banks to be insolvent and get into another financial crisis,” José Manuel Campa, the chairperson of the European Banking Authority (EBA), told EURACTIV, a pan-European media network, in an interview.

That’s why the EBA wants to analyze “the evidence” before deciding whether green exposures on bank balance sheets should be given preferential capital treatment. The regulator is also developing a climate change stress test, among other initiatives, as part of its action plan on sustainable finance. Final recommendations are expected in 2025.
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Trouble is, our federal politicians have already shown they’re not above meddling with the OSFI’s banking regulations for political gain. Earlier this year, the Trudeau government did just that when it announced plans to relax stress tests for mortgages. It was an obvious ploy to curry favour with millennial voters by making it easier to qualify for bigger loans. But when the pandemic hit, Ottawa was forced to suspend those ill-conceived changes.

Let’s face it, Canada tends to adopt ideas from other countries. Given this government’s infatuation with environmental policy, it’s easy for legislators to be seduced by foreign narratives about green discounts.

Fiddling with capital requirements to encourage morally pure enterprises has to be one of the most stupid ideas heard in the past twenty years, but is also one of the most understandable. ‘Hey!’ say the politicians, trying not to drool while on camera ‘We can Do Good and accomplish Great Things … and it won’t cost anybody anything!’

The only way to make a significant dent in carbon emissions is to jack-up the carbon tax to the point where it makes a difference in people’s day-to-day lives. Yes, I want everybody who drives a car to pay for their share. I want everybody who heats a home to pay their share. I want everybody who buys goods made on the other side of the world to pay their share. Because that is the only way to change lifestyles.

In other news, Canada lost rankings in the Global Financial Centres Index:

The latest edition of the Global Financial Centres Index (GFCI) from London-based think-tank Z/Yen Group has Vancouver ranked highest among Canadian cities, but down two spots from its previous ranking to 24th overall.

Montreal held on to the 26th position, while Toronto dropped eight places to 31st and Calgary fell to 51st after being 40th in the previous ranking.

While three of the cities dropped in the rankings, all four of them saw their competitiveness score fall.

But who cares? The banks’ hegemony over the Canadian financial system (vigorously encouraged by the regulators) doesn’t need to be globally competitive – they’ve got lots of clients to screw right in this country.

This entry was posted on Monday, September 28th, 2020 at 9:56 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.