24 February 2023

Finance Watch's Symon: Banks do best for society when they have more capital, not less

The European Parliament’s economics committee has decided not to require banks to hold one euro in capital reserves for every euro of fossil fuel financing. This is a missed opportunity.

On 24 January, EU policymakers demonstrated that when it comes to financial stability, memory is short. Members of the European Parliament Committee on Economic and Monetary Affairs assembled in Brussels to vote on amendments to the Capital Requirements Regulation and Capital Requirements Directive. It was an opportunity to update EU rules put in place after the global financial crisis to properly address the risks facing banks.

Sadly, it was an opportunity wasted. First, the agreed rules deviate significantly from Basel III, the internationally agreed regulatory framework for banks. They disregard calls of banking supervisors, including the ECB, for the faithful implementation of the Basel reforms. Second, the approved rules do not go far enough to address climate-related financial risks.

Climate science is very clear on the fact that exploring new fossil fuel reserves is incompatible with global climate commitments. The sustainable transition will mean enormous loss of value in the fossil fuel industry and losses for banks that finance fossil fuels. If “business as usual” continues, climate change will wipe out tens of trillions of dollars from our economy via more frequent and extreme climate events, and banks are intricately exposed. Thus, the continued financing of the fossil fuel industry will inevitably result in massive losses for the giants of finance, which have the potential to trigger a financial and economic crisis...

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