From Bloomberg:
A Subprime Parallel to Green Bank Loans Is Drawn in Finland
Finland is worried that European plans to potentially make it cheaper for banks to lend to green projects could underestimate default risks, much in the same way that subprime lending in the U.S. did over a decade ago.....MUCH MORE
Marja Nykanen, who chairs the Financial Supervisory Authority in Helsinki, says her concern is that supporting ethical lending through more lenient risk weights on bank loans might threaten financial stability.
“The pricing or the risk weight should reflect the risk. We have seen quite alarming examples, for instance the subprime loans, where banks were incentivized to grant loans with lowered lending standards,” she said in an interview in the Finnish capital.
“Using risk weights as an incentive to promote green financing is a risk,” unless there is “evidence that these kinds of green projects default less,” Nykanen said.
The European Commission is looking into rewarding banks that lend to climate-friendly projects by lowering their capital requirements. That’s as the European Union estimates that 260 billion euros ($280 billion) of annual investments are needed to meet the bloc’s 2030 climate and energy targets. And to become carbon-neutral by 2050, that figure needs to be even bigger....
