Thursday

2nd Feb 2023

New EU banking rules ignore 'stranded assets', critics warn

  • The EU on Wednesday gave banks until 2025 to further boost capital to prevent a 2007-type solvency crisis from recurring. (Photo: Skaja Lee)
Listen to article

The final batch of new banking rules is set to be implemented in 2025, Valdis Dombrovskis told press on Wednesday (27 October) - two years later than agreed internationally, and following intense lobbying for postponement by French and German banks.

The Basel III reforms were initiated by the EU and the G20 countries following the financial market crisis of 2008-2009 to reduce the risk of another financial meltdown.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

These rules - now transposed into EU law - will force EU banks to set aside more cash reserves to cushion potential losses.

The European Banking Authority estimated that 10 major banks will need to raise €27bn to meet the new requirements - 89 banks already meet the conditions.

The directive also gives banking authorities, like the European Central Bank (ECB), more legal backing to push financial institutions to disclose and tackle climate change risk in their portfolios.

But critics say rules for voluntary risk disclosure as set out by Basel III rules are not enough to meet the hazard fossil fuel assets pose to the stability of the financial system.

"So long as fossil-fuel reserves underpin the stability of the banking sector it threatens both financial stability and encourages the use of technologies that cause climate change. The EU should use the tools available in the capital requirements regulation to give greater emphasis to the risks of banks exposure to fossil fuels," vice president of the economic and monetary affairs committee MEP Ernest Urtasun (Greens/EFA), said in a statement.

Existing risk models that are used by banks often underestimate climate risk.

As a result, banks do not set aside enough cash reserves in case an oil or gas project ends up as a 'stranded asset'. A stranded asset is a resource, or a piece of equipment, that has value now but will become worthless if countries move towards clean energy.

Last year banks invested nearly €900bn in the fossil-fuel industry, according to activist group Rainforest Action Network.

Since 2016 the 16 biggest European banks have collectively provided over €475bn to the fossil fuel industry.

Academics Adam Tooze, Ann Pettifor and Stephany Griffith-Jones published an open letter on Wednesday warning leaders that current banking rules do not take into account the danger climate change poses to the stability of the financial system.

According to these authors, all fossil-fuel investments should be backed-up 100 percent.

Under Basel III, the minimum capital requirement banks must maintain is eight percent.

"For each euro that finances new fossil-fuel projects, banks and insurers should hold a euro to guard against future risks," they write.

"Our message to banks and insurance firms is this: If you want to finance new fossil-fuel projects, do it at your own risk," Benoît Lallemand, secretary-general of the European NGO Finance watch, one of the signatories of the letter, said.

The open letter follows similar interventions from Chris Hohn, founder of The Children's Investment Fund, a €25bn hedge fund, and from former US vice-president Al Gore, both calling on leaders and banking authorities to raise capital requirements for fossil-fuel projects.

European banks book €20bn a year in tax havens

The research estimates that a 25-percent minimum tax rate (the lowest current rate within the seven largest world economies) would net member states an extra €10-13bn a year in tax revenue.

Banks fuelling expansion of oil-and-gas Arctic extraction

A new report revealed that oil and gas firms are planning to ramp up their fossil fuel extraction in the Arctic by more than 20 per cent over the next five years, partly thanks to the financial support from banks.

EU banks play 'major role' in deforestation, report finds

Banks based in the EU have earned a reported €401m from deforestation, out of more than €30bn worth of deals with companies linked to logging. Deal-making was dominated by big banks from the Netherlands, France, Spain, Germany, and Italy.

Analysis

French central bank says: It's the ecology, stupid!

Biodiversity is fundamental to Earth's life-support systems humans depend on. But governments, financial institutions and policymakers have failed to act accordingly for decades.

Greta Thunberg leads pan-Europe COP26 climate protests

In total 50 financial centres around the world were targeted on Friday to usher in the United Nations Climate Change Conference in Glasgow, also known as COP26, with Greta Thunberg in the City of London.

Opinion

More money, more problems in EU answer to US green subsidies

Industrial energy-intense sectors, outside Germany and France, will not move to the US. They will go bust, as they cannot compete in a fragmented single market. So to save industry in two member states, we will kill the rest?

Latest News

  1. MEPs launch anonymous drop-box for shady lobbying secrets
  2. Hawkish ECB rate-rise 'puts energy transition at risk'
  3. MEPs push for greater powers for workers' councils
  4. How Pavel won big as new Czech president — and why it matters
  5. French official to take on Islamophobia in EU
  6. EU green industry plan could spark 'dangerous subsidy race'
  7. Wolves should be defended, EU ministers urge
  8. EU Commission wants drones for Bulgaria on Turkey border

Stakeholders' Highlights

  1. Party of the European LeftJOB ALERT - Seeking a Communications Manager (FT) for our Brussels office!
  2. European Parliamentary Forum for Sexual & Reproductive Rights (EPF)Launch of the EPF Contraception Policy Atlas Europe 2023. 8th February. Register now.
  3. Europan Patent OfficeHydrogen patents for a clean energy future: A global trend analysis of innovation along hydrogen value chains
  4. Forum EuropeConnecting the World from the Skies calls for global cooperation in NTN rollout
  5. EFBWWCouncil issues disappointing position ignoring the threats posed by asbestos
  6. Nordic Council of MinistersLarge Nordic youth delegation at COP15 biodiversity summit in Montreal

Stakeholders' Highlights

  1. Nordic Council of MinistersCOP27: Food systems transformation for climate action
  2. Nordic Council of MinistersThe Nordic Region and the African Union urge the COP27 to talk about gender equality
  3. Friedrich Naumann Foundation European DialogueGender x Geopolitics: Shaping an Inclusive Foreign Security Policy for Europe
  4. Obama FoundationThe Obama Foundation Opens Applications for its Leaders Program in Europe
  5. EFBWW – EFBH – FETBBA lot more needs to be done to better protect construction workers from asbestos
  6. European Committee of the RegionsRe-Watch EURegions Week 2022

Join EUobserver

Support quality EU news

Join us