Joint letter warns MEPs that abandoning capital requirements for climate risk will shift costs to taxpayers

  • European Parliament Committee on Economic and Monetary Affairs looks set to abandon the one-for-one rule, caving to pressure from the banking lobby and jeopardising financial stability.
  • The one-for-one rule means that for each euro that finances new fossil fuels, banks should have a euro of their own funds held liable for potential losses. It would help protect citizens and taxpayers from a climate-driven financial crisis.
  • 16 organisations, including Finance Watch and the Climate Safe Lending Network, issue final warning to MEPs in joint letter ahead of vote on 24 January.

Finance Watch, founded after the global financial crisis to help policymakers make decisions that protect EU citizens and safeguard financial stability, has sent an joint letter co-signed by 15 other organisations to members of the European Parliament Committee on Economic and Monetary Affairs ahead of their vote on the Capital Requirements Regulations and Capital Requirements Directive on 24 January. This vote is an opportunity for EU policymakers to introduce a one-for-one rule (a 1250% credit risk weight) for the financing of new fossil fuel projects.

Introducing a one-for-one rule would help protect citizens and taxpayers from a climate-driven financial crisis without cost to sound European banks. For each euro that finances new fossil fuels, banks should have a euro of their own funds held liable for potential losses. The joint letter stresses the rule would not affect banks with robust risk management, as financing new fossil fuel exploration is incompatible with any net zero pathways and the EU’s international climate commitments.

By introducing a one-for-one rule, EU policymakers would turn words – and years of analysis by central banks – into credible action and contribute to Europe’s legally binding climate objectives. MEPs across political groups have tabled amendments supporting the one-for-one rule. However, pushback from the financial lobby is putting commitment to the one-for-one rule in danger.

Benoît Lallemand, Secretary General of Finance Watch, which coordinated the letter, said: “Citizens should not pay the price when a bank’s decision to make new fossil fuel investments goes wrong. MEPs must not bend to pressure from the financial lobby and join the ranks of climate-risk deniers. The argument that ‘higher capital requirements reduce our ability to lend’ is outrageous at a time when EU banks are planning huge payouts and profiting from increased interest rates.”

James Vaccaro, Executive Director of the Climate Lending Safe Network, signatory on the letter, said: “The one-for-one rule is a safety net for citizens. It will protect them from banks reckless enough to finance the proliferation of fossil fuel projects. But it can also protect the broader financial system, including financial institutions that are not part of the problem but will be impacted if the market crashes.”

Alongside ASUFIN, Bürgerbewegung Finanzwende, the Climate Safe Lending Network, E3G, Fair Finance International, Greenpeace EU, Greentervention, Milieudefensie – Friends of the Earth Netherlands, the New Economics Foundation, Reclaim Finance, ShareAction, SumOfUs, the Sunrise Project, Urgewald and WWF, Finance Watch calls directly on MEPs to support the one-for-one rule on 24 January. With the vote too close to call, there is a risk that all references to capital requirements will be dropped and only requirements on climate transition plans and targets will be added, which alone will not be sufficient.

In the net-zero transition, fossil fuel assets of banks will rapidly diminish in value or become entirely worthless. Massive losses will follow, which could result in bank bailouts, paid for by the public. Meanwhile, more frequent and severe natural disasters mean that banks are exposed to financial losses through assets and business operations that are destroyed. But there is a solution: one-for-one capital requirements for the financing of new fossil fuels.

Finance Watch encourages everyone working to secure both the future of our planet and our financial system to join the Change Finance campaign to tell their MEP to support the one-for-one rule.

To arrange an interview with Benoît Lallemand, Secretary General of Finance Watch, or James Vaccaro, Executive Director of the Climate Lending Safe Network, please contact Alison Burns at alison.burns@finance-watch.org or call on +32 (0)471577233

About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.

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