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[quote=Anonymous][quote=Anonymous]King Manchin strikes again. Suck it haters.

[twitter]https://twitter.com/mkraju/status/1462815019041763342[/twitter][/quote]

What this debate is really about is whether or not policymakers should use the banking system to implement climate change policies. That is, increasing capital requirements for banks on exposures to oil & gas companies, which in turn makes financing more expensive for these companies. Some jurisdictions are even going so far as to highly restricting the amount of exposure banks have to such companies.

One of the most controversial options in play is a macroprudential climate risk contribution capital surcharge. This would be an additive capital requirement solely focused on climate risk.

Frankly, the capital rules already cover some element of climate risk via operational risk rules. This is a highly punitive capital surcharge for tail-risk events - the London Whale loss, legal risks (eg, fraud settlements paid by the bank), large losses stemming from over-exposure to one counterparty, etc. There's also market risk surcharges for trading losses, which would certainly happen in instances where a climate-based disaster affected the markets and prices.

My guess is that Powell said he won't push a punitive climate surcharge, but assured policy makers that the current rules do account for climate-related risks and losses. And he's right on that.

The fundamental question at hand is whether we should use banking regs to punish certain industries or increase their borrowing costs. I'm quite progressive, but I think this is a pretty bad distortion of the market and could be a terrible precedent for banking rules. We'd be much better off with a cap & trade regime, but the Democrats don't have the votes for that to get it through Congress so they are trying this.

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