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Tom Kirkman

Beware of green central bankers out to punish Canadian banks that support oil and gas

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Devious little devils continue seeking to destroy the oil & gas industry.  It's like a neverending episode of Pinky and The Brain.



Beware of green central bankers out to punish Canadian banks that support oil and gas

There is a bit of banking mischief emerging in international regulatory circles that Canadians should pay heed to. The mischief is a misguided attempt by 54 central banks to politicize banking using a group they call the “Network for Greening the Financial System.” The central bank of France is leading the charge.

This loose network of central bankers, which includes the Bank of Canada — and notably does not include the Federal Reserve — is responding to demands for action on climate change. It seeks a global framework to manage climate risk in the financial sector. Many in this group are members of the Basel Committee on Banking Supervision (BCBS), which is currently led by Canada’s Carolyn Rogers, who came to her current role from our Office of the Superintendent of Financial Institutions, Canada’s prudential bank regulator.  ...


... In short, under the guise of risk management, some central bankers are trying to do what is normally the job of elected politicians. The kind of regulations they are contemplating would punish Canadian banks that support our oil and gas sectors, banks such as RBC, which had outstanding loans amounting to $8.15 billion to oil and gas companies at the end of October 2019.

In a recent Bloomberg report, Madelyn Antoncic, former treasurer of the World Bank, is quoted as saying “The Basel committee could conceivably impose higher risk weightings for loans to companies that harm the environment or give capital relief to banks for green lending.” This means banks would face a sin tax of sorts for lending to perfectly legal businesses that are deemed offside by green central bankers stepping out of their bureaucratic lane.  ...


... Consider this scenario. A large Canadian bank that deals in the securities of a Canadian oil and gas supplier and provides financing to that business based on sound financials — strong cash flow, manageable debt, growing demand for natural gas to heat homes and offices — will have to pay a sin tax via higher capital charges for supporting this business and all the jobs it supports in Canada.

Alternatively, the same bank could actually enjoy lower capital charges if it lends to and deals in the securities of a wind power company with weaker cash flow, a lower credit rating, uncertain demand given the high cost of production, challenges with transmission over long distances and excess capacity across the power network, all of which pose a greater financial risk to the bank compared to the oil and gas firm.

The implications of such scenarios are troubling for anyone concerned about successfully transitioning to a green economy. The world needs fossil fuels — at the very least to support the transition to a green economy. If banks shun companies that produce them, oil prices will soar and economies tank.  ...


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