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Brown bag seminar - Marcus Opp, (SHoF/SSE), Green Capital Requirements

Marcus Opp, Swedish House of Finance at the Stockholms School of Economics

We study the effects of green capital requirements that give preferential capital treatment to clean loans. From a positive perspective, our analysis clarifies the differential effects of green supporting and brown penalizing factors. From a normative perspective, we contrast optimal capital requirements under a classic prudential mandate, which is affected by carbon emissions only through climate-related risks to the banking sector, with those under a broader green mandate that accounts for more general carbon externalities. While climate-related risks that affect bank stability can be optimally addressed by a combination of green supporting and brown penalizing factors, capital regulation is a less effective tool to address carbon externalities that manifest itself outside of the banking sector.

Dept. of Finance

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