European Climate Bank: ECB To Scrutinize Bank Trading Books For "Climate Change Risk"

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by Tyler Durden
Friday, Sep 17, 2021 - 09:45 AM

Back in June we explained why contrary to the virtue-signaling intentions of its ideological proponents, the fraud that is ESG would likely trigger energy hyperinflation, destroying any hopes for perpetuating the "green" lie once billions of consumers realize it will cost them an arm and a kidney. And one place where this reality is already manifesting itself, is Europe where nat gas and electricity prices have hit new record high virtually every day in recent weeks, sparking angry protests as furious citizens refuse to pay their electric bills.

Spanish households are paying roughly double what they paid for electricity a year ago, prompting protests against utility companies.

So while one would think that Europe - the epicenter of the current energy hyperinflation phase - has learned its lesson and would ease back on central planning when it comes to energy policies to avoid even higher prices, one would be wrong because this morning instead of focusing on its sole mandate (and what it does worst) namely keeping inflation and unemployment stable, the ECB has decided to add yet one more mandate to its ever growing list of things its career economists needs to fix, and according to Bloomberg, the central bank "will look at the trading operations of major lenders as part of climate stress tests next year, after judging that an assessment of loan books alone won’t give enough insight into the fallout they face from global warming."

The ECB - which now stands for European Climate Bank - will also study the reputational and operational risks banks face, Alvarez & Marsal, a consultancy firm that’s involved in the process, told Bloomberg. In other words, if some bank is found to finance nat gas exploration it will be shamed in public for not being one of the ESG groupthink. The result will be even less investment in carbon development and - since green energy is still unviable without massive government subsidies and is also years away from even considering replacing carbon as an energy source - even higher energy prices.

Meanwhile, because the ECB doesn't already have enough things on its plate to screw up, the Climate Bank will now reach into banks’ trading operations, which as Bloomberg notes represents an additional challenge for an industry that’s already warned it’s not ready for next year’s landmark tests. The ECB is seeking more details than other central banks and, behind the scenes, has stepped up pressure on the industry to meet the moment.

Why this latest ridiculous push to centrally-plan and micromanage yet another aspect of everyday lives In Europe? Because in the continent, cowardly politicians - unwilling to take on the career risk of legislating the unpopular change they want - instead want banks to become a key plank in the fight against climate change by steering capital away from polluters. Investors are taking note as banks burdened by carbon-intensive balance sheets may face higher capital requirements, which could erode their power to pay dividends; it would also mean less maintenance capex which would lead to asset erosion and even greater energy hyperinflation.

“No bank has what the ECB wants,” said Fernando de la Mora, a managing director at Alvarez & Marsal who’s advising banks on how to prepare for the stress tests. “Global banks face the added challenge of finding data from regions outside Europe, which is limited.”

The ECB, going to lengths not even Stalin's top economic "advisors" ever reached, is also asking banks for data on emissions associated with the revenue they generate, an approach the Bank of England opted against for its climate tests this year because of a lack of available data, according to Alvarez & Marsal.

Of course, getting the exact numbers is impossible, so euro-zone banks will have to estimate the carbon emissions of companies behind most of their fee and interest income. They’ll also need to provide data on the emissions, loans and revenue associated with their biggest clients across industries, the firm’s analysis shows.  

In short, this is just the latest sheer idiocy from the ECB which is just creating work for the sake of creating work to give the impression that it is as the forefront of the great climate change revolution, even as banks merely come up with fabricated numbers. The decision to include banks’ trading books adds a further layer of idiocy complexity to the exercise. But it will also allow the ECB to see what might happen to stock or bond portfolios if they’re exposed to shocks such as losses on the debt of oil companies, de la Mora said.

Then again this is the ECB, so expect everything to be dead wrong as usual.