News and Commentary
A blog post from Lauren Anderson and Francisco Covas discuss the implications of suggestions made by several regulators and academics to require regulation of bank capital requirements to incorporate the climate risks associated with their investments. While they make some valid points related to the difference between time horizons for risk-weighted capital requirements versus climate risk (the former are usually over the span of a few years, while climate risks are over a much longer time period) and the problems with using financial regulation as a roundabout climate policy, there is nonetheless an argument to be made about the need for investors to “price in” the costs of climate change in their investments–even if proposals related to capital requirements specifically aren’t the best way to go about it.
Even so, they appear to be coming. Frances Schwartzkopff for Bloomberg writes about the potential for risk-adjusted capital requirements based on climate risk. Though such proposals have not been made specific, European regulators are informing regulators to consider the risks from climate change when determining their capital needs.
In Bloomberg, Jesse Hamilton writes about comments by the new Comptroller of the Currency Michael Hsu saying there was no need to change current bank capital requirements. While this is disappointing to some progressives who have “been been eager for President Joe Biden to appoint financial watchdogs who will dramatically tighten Wall Street’s leash” it’s also bad news for banks who were hoping for laxer capital requirements going forward.
A new paper from the Federal Reserve Bank of Boston examines the 2020 mortgage market through the course of the pandemic, finding that while many borrowers benefited from low interest rates, these benefits were limited due to increases in markups by lenders.
A forthcoming paper for the Georgia Law Review by Jeremy C. Kress and Matthew C. Turk examines current components of the current countercyclical regulations in the financial sector and why they weren’t enough to fully prevent financial stress during COVID-19. They argue further for reforms across the financial sector to tighten these rules and make them apply automatically.
A new paper from the National Bureau of Economic Research by Bo Becker and Efraim Benmelech examines corporate bond markets during the COVID-19 downturn. The market stood up well against the downturn, thanks in large part due to aggressive interventions by the Fed.