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IPE Conference: Lower capital requirements for green investments are ‘dangerous’, says Rohde

The European Union plan to cut banks’ capital charges for climate-friendly lending was dealt a blow from one of the bloc’s central banks yesterday, when its governor branded the idea “dangerous”.

Lars Rohde, governor of the Danmarks Nationalbank told the IPE Conference in Copenhagen his bank’s message was that central banks should stress all the possibilities but also the challenges society was confronted with in the transition to a green economy.

“But what is it to support this?” he asked, responding to an audience question on whether central banks could or should support green growth.

“If support means that you should for example have lower risk weights for green investments I think that is quite a dangerous route to follow because risks are risks basically,” Rohde said.

Last week, one of the European Commission’s vice presidents Valdis Dombrovskis, was quoted in the Financial Times (FT) as saying a “green supporting factor” for bank lending was “something we need to explore”.

In its action plan set out in March 2018, the Commission’s high-level expert group on sustainable finance included the introduction of a green supporting factor in the EU prudential rules for banks and insurance companies.

Officials at the European Central Bank, according to the FT, have since warned against tampering with rules designed to make bank lending less risky.

Rohde appeared to back the idea of altering capital requirements on other assets linked to the climate problem, however.

“Maybe we should consider that some of the so-called black or stranded assets should have much higher risk weights than today because their value in the future is put into question,” he said, adding that this was what he thought regulators should concentrate on.

“But to be very supportive about green investments I think is a little bit dangerous.

“I think it’s a third best – or fourth best – solution, and I would prefer much more plain instruments like carbon taxes or pure public sector regulation,” Rohde said.

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