Energy financial risk

Model-based financial regulations impair the transition to net-zero carbon emissions
Gasparini et al.
Investments via the financial system are essential for fostering the green transition. However, the role of existing financial regulations in influencing investment decisions is understudied. Here we analyse data from the European Banking Authority to show that existing financial accounting frameworks might inadvertently be creating disincentives for investments in low-carbon assets. We find that differences in the provision coverage ratio indicate that banks must account for nearly double the loan loss provisions for lending to low-carbon sectors as compared with high-carbon sectors. This bias is probably the result of basing risk estimates on historical data. We show that the average historical financial risk of the oil and gas sector has been consistently estimated to be lower than that of renewable energy. These results indicate that this bias could be present in other model-based regulations, such as capital requirements, and possibly impact the ability of banks to fund green investments.


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There has been a PR campaign by the financial industry against a new, government imposed, reserve requirement. Why is “big gummit” imposing reserve rules? Because banks have been under reserving, because putting money into reserves hurts short term profits.

To hear the financial industry propaganda, no-one will be able to get a loan for anything, due to the “burden” of the reserve regs.