In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans. The letter notes that any substantial amendment of the AnaCredit Regulation, including the possible inclusion of a requirement for banks to disclose the environmental characteristics of their loans, would require a careful impact assessment, including a merits-and-costs procedure. With respect to the question on whether ECB could make its TLTROs dependent on the climate-related impact of bank loans, the letter notes that ECB will consider whether and how its monetary policy could take climate change considerations into account in line with its competences and mandate in the context of the strategy review.
With respect to the question about amendments to the AnaCredit Regulation, the letter stated that the new requirements would need to be translated into a draft update of the AnaCredit Regulation (or its future successor, the Integrated Reporting Framework, or IReF, Regulation), which would then be subject to a public consultation prior to its adoption by the Governing Council of ECB. Moreover, any collection of additional data would require discussion on whether this is necessary and appropriate to deliver the additional information required for monetary policy and financial stability tasks. To date, the Governing Council has not yet discussed any amendment to the AnaCredit Regulation. More fundamentally, a key precondition for the collection of such data through AnaCredit is that banks are able to collect the respective information from their customers. To ensure sufficient detail and quality of information, a standardized framework is needed to allow banks to determine the environmental impact of their credit exposures on the basis of a set of commonly agreed criteria. Establishing a reliable information basis would require close cooperation among the EU co-legislators, EC, and ECB as well as coordination with the current and upcoming policy initiatives on sustainable finance and non-financial disclosures.
In response to the question about TLTROs, the letter highlighted that ECB has been making adjustments to the design of its asset purchase programs and to its collateral framework which signal the support of Eurosystem for innovation in the area of sustainable finance. In particular, this includes the decision of ECB to make bonds with coupon structures linked to certain sustainability performance targets eligible as collateral for Eurosystem credit operations and for Eurosystem outright purchases for monetary policy purposes, provided they comply with all other eligibility criteria. In addition, ECB supports action against climate change through its own investment decisions. Finally, with respect to whether ECB could expand the eligible assets for TLTROs to include loans for the purchase of climate-neutral housing, as in the first two series of TLTROs, eligible loans under the third series of TLTROs continue to be defined as loans to euro area non-financial corporations and households excluding loans to households for house purchase. Loans for house purchase were considered to be adequately served by the banking sector, and their exclusion was designed to avoid contributing to potential financial imbalances in housing markets. In line with their treatment in the statistical framework, which is the basis for TLTRO reporting, loans to households for house purchase include loans for refurbishment purposes in all euro area countries.
Related Link: Letter (PDF)
Keywords: Europe, EU, Banking, AnaCredit, TLTRO, Reporting, Sustainable Finance, Climate Change Risk, ESG, ECB
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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