Among the scores of responses to the Basel Committee’s call for comments its proposals to strengthen the resilience of the banking sector, one stands out – a submission by Friends of the Earth Europe.
And why shouldn’t they have a (left-field) view on the financial system?
Banks and other financial institutions play a crucial role in allocating financial resources in our present, globalizing world. As a large majority of all companies and governments in the world is dependent on the financial services of private banks, these financial institutions play a key role in every segment of human activity. While their financial services are used too often for activities which are harmful to the environment, human rights, and social equity, banks can also be powerful agents of change towards a more sustainable future.
Sustainability is about meeting the needs of the present without compromising the ability of future generations to meet their needs. It is about preserving the environment and biodiversity for future generations, and about being cautious with our natural resources and climate. But sustainability is also about guaranteeing human rights and a life in dignity, free from want and poverty for all people living today and tomorrow.
Except the environmental lobbying group is also determined to share its views on issues like liquidity stress, the leverage ratio, counterparty credit risk, clearance and settlement of derivatives, too-big-to-fail, and so on.
Friends of the Earth even have a view on mark-to-market:
The Working Document discusses possible approaches for to the through-the-cycle provisioning for expected losses. FoEE supports the general thoughts behind the concept of through-the-cycle provisioning, but recommends to rethink the distinction between expected and unexpected losses in this respect. FoEE is of the opinion that many losses which are classified as unexpected at present by banks, actually could be reclassified as expected losses. When a bank sells high-interest mortgages to households without a stable income, the resulting losses – for the selling bank or financial institutions further down the securitization chain – cannot be categorized as unexpected.
Similarly, when a bank lends heavily to a pulp producer expanding its capacity far beyond what its wood plantations can sustain, the bank should expect losses when the government cracks down on illegal logging in the region. This is exactly what happened in the case of Asia Pulp & Paper which in 2001 was unable to service its US$ 13.9 billion debt. This remains the largest ever default by a single company in an emerging country.
Marvelous stuff.
Related links:
Basel letters page (updated) – FT Alphaville
Digesting the Basel reforms – FT Alphaville
Unintended consequences, accounting for Basel edition – FT Alphaville
CVAs, regulation by stealth? – FT Alphaville