Is anyone so naïve as to believe that China or India will impose the same “environmentally sustainable” financial policies as Norway or Switzerland?
As if central banks today did not already have enough to do printing all the paper money needed to finance proliferating government spending. Regardless, they are taking on a new responsibility, the “greening of the financial system.”
According to the Wall Street Journal, they have pledged to join forces with financial regulators, “to limit climate change by steering their financial systems away from funding fossil fuels.” Given central banks’ collective history of causing inflations, recessions and financial crises while managing monetary policy, what could possibly go wrong if they start using the financial system to promote ”environmental sustainability”?
The Central Banks and Supervisors Network for Greening the Financial System (NGFS), an organization chartered in 2017, now includes 90 members and 14 observers, including the Bank of China as a founding member and the Federal Reserve System which joined last December.
This section provides information relating to the NGFS current composition (members and observers) and on the application process.
As of April 30th 2021, the NGFS consists of 90 members and 14 observers.
The members are the following:
Abu Dhabi Financial Services Regulatory Authority
Australian Prudential Regulation Authority (APRA)
Austrian Financial Market Authority
Banco Central de Chile
Banco Central de Costa Rica
Banco Central del Paraguay
Banco Central del Uruguay
Banco de España
Banco de México
Banco de la República (Central Bank of Colombia)
Banco de Portugal
Bank Negara Malaysia (Central Bank of Malaysia)
Bank of Canada
Bank of Albania
Bank of England
Bank of Finland
Bank of Greece
Bank of Israel
Bank of Japan
Bank of Korea
Bank of Slovenia
Bank of Thailand
Banque Centrale de Tunisie
Banque centrale du Luxembourg
Banque de France / Autorité de Contrôle Prudentiel et de Résolution (ACPR)
Bank of Estonia
Bank of Latvia
Bank of Lithuania
Bank of Russia
Bangko Sentral ng Pilipinas
Central Bank of Brazil
Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin)
Bank of Mauritius
Central Bank of Armenia
Central Bank of Cyprus
Central Bank of Hungary
Central Bank of Ireland
Central Bank of Malta
Central Bank of Seychelles
Central Bank of Trinidad and Tobago
Central Bank of West African States
Comision Nacional Bancaria y de Valores (Mexico)
Comisión para el Mercado Financiero de Chile
Commission de contrôle des activités financières (Monaco)
Commission de Surveillance du Secteur Financier (Luxembourg)
Danish Financial Supervisory Authority
De Nederlandsche Bank
Department of Financial Services (DFS) of the State of New York
Dubai Financial Services Authority
European Banking Authority (EBA)
eba.europa.eu GO TO PAGE
European Central Bank (ECB)
European Insurance and Occupational Pensions Authority (EIOPA)
eiopa.europa.eu GO TO PAGE
European Securities and Markets Authority (ESMA)
Financial Regulatory Authority of Egypt
Finansinspektionen (Swedish FSA)
Finanstilsynet (Norwegian FSA)
Guernsey Financial Services Commission
Isle of Man Financial Services Authority
Istituto per la Vigilanza sulle Assicurazioni (IVASS)
Hong Kong Monetary Authority
Komisja Nadzoru Finansowego (KNF)
Malta Financial Services Authority
Monetary Authority of Singapore
Národná banka Slovenska
National Bank of Belgium
National Bank of Cambodia
National Bank of Georgia
National Bank of the Republic of North Macedonia
National Bank of Romania
National Bank of Ukraine
bank.gov.ua GO TO PAGE
Oesterreichische Nationalbank (OeNB)
Otoritas Jasa Keuangan (OJK)
People’s Bank of China
Reserve Bank of Australia
Reserve Bank of India
Reserve Bank of New Zealand
South African Reserve Bank
Superintendencia Financiera De Colombia
Swiss Financial Market Supervisory Authority (FINMA)
Swiss National Bank
US Federal Reserve
The observers are the following:
Asian Development Bank
Bank for International Settlement
Basel Committee on Banking Supervision
European Bank for Reconstruction and Development
European Investment Bank
Financial Stability Board
IDB (Inter-American Development Bank)
International Association of Insurance Supervisors
International Monetary Fund
NIB (Nordic Investment bank)
Organisation for Economic Cooperation and Development
Sustainable Insurance Forum
World Bank and the International Finance Corporation
Information on the application process
Adhering to the NGFS reflects a political commitment from an institution and also implies the will and capacity to actively contribute to the work. For that reason, any supervisory authority or central bank committed to actively contribute to the objectives and work of the NGFS is eligible to be a NGFS member, as provided by article 2 of the NGFS Charter (see “Governance”). The NGFS membership aims to achieve a diverse representation of institutions in terms of geographic areas as well as between developed and emerging countries.
International or regional financial institutions and international or regional standard setting, regulatory, supervisory and central bank bodies which have demonstrated a proven commitment in sustainable finance are eligible to be NGFS observers (art. 5 of the Charter).
Eligible institutions apply for joining the NGFS in compliance with the following procedure under article 3 of the Charter:
- The submission of an official request from the Governor or Head of Supervision for membership application or board-level official for observers to the NGFS Chair, copy the Secretariat. This request describes the motivations for joining the NGFS as well some examples of proven commitments as set out in article 2 of this Charter and the areas of interest in which the institution specifically wants to contribute.
- The Secretariat thereafter submits the application request by written procedure or at a physical meeting to the approval by consensus of the NGFS members’ jurisdictions.
- Once approved, the new member will be asked to appoint its representatives in the relevant NGFS Workstreams.
The NGFS is committed to the belief that climate change and environmental risks endanger the safety and soundness of the financial system in the guise of floods from rising sea level, greater storm intensity, wildfires, and other real or imagined environmental plagues, like “air pollution, water pollution and scarcity of fresh water, land contamination, reduced biodiversity and deforestation.” The NGFS even creates a new catchall category of “transitional risk.” Transitional risk is a euphemism for regulatory risk — the risk that future government decrees might make certain types of current business activities illegal thereby compromising existing customers’ ability to repay outstanding obligations. In other words, financial institutions must plan to protect themselves against potential future misguided government regulatory policies.
The NGFS boasts all of the international regulatory standard-setting bodies in its ranks including, The International Monetary Fund, The World Bank, The Basel Committee on Banking Supervision, The Bank for International Settlements, the Financial Stability Board and The Organization for Economic Cooperation and Development. I am fully confident that these members will spare no amount of jet fuel or poured fine wine to ensure that the NGFS hammers out a non-binding international agreement on “best central bank and regulatory practices” for controlling climate change through financial suppression.
Make no mistake, the NGFS’s goal is a new type of industrial policy administered through the financial system. Bank and securities market regulators will introduce new rules and requirements to discourage financial institutions from lending to or investing in businesses or projects that are deemed to be “environmentally unsustainable”— whatever that means. Ambiguity is an attractive feature for politicians and their bureaucrat enablers. Consumers should demand transparency. Central banks and financial market regulators have no expertise in judging which investments will lead to economic growth, a higher standard of living and a healthier environment for the citizens at whose pleasure they serve.
How exactly will the ultimate NGFS “best practice standards” suppress loans and investments deemed to be unsustainable by the central bank and regulatory ruling class? The details are yet to be determined, but efforts are underway to translate specific categories of the NGFS’s enumerated environmental risks into the market, credit, legal and reputational risk framework that underpins international bank minimum regulatory standards. An alternative approach may be to argue that disfavored activities create a new type of risk — “environmental systemic risk” — that requires a new minimum regulatory capital surcharge.
For example, financial institutions that choose to invest in disfavored activities could be held to higher minimum regulatory capital requirements. This will lower returns on and discourage investments in activities claimed to create environmental risk for the financial system. Naturally, central bank and regulatory experts will argue that they are best situated to choose the right amount of extra capital needed to balance “environmental sustainability” against the need for economic growth.
The real risk for businesses and consumers is that central banks and financial regulators will be as successful as stewards of “environmental sustainability” as they have been of ensuring monetary stability. The past 50 years have witnessed huge changes in the way central banks think about and manage monetary policy. For the most part, policy changes have been enacted because earlier policies failed to achieve expectations or ended in crisis. No doubt environmentally sustainable financial policies will experience a similar cycle of failure and revision.
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via The Global Warming Policy Forum
May 19, 2021