As central banks have the legal authority and moral influence over banks , central banks through their supervision can play adecisive role in formulating a newly created system for green banking activties which include environment pillar into their financing policies . The question is "How central banks could exercise their new role against the traditional history of banks financing ?
Prof. Fouad Beseiso
The central bank is given the power to issue several strategic policies in each country, so that the policy can direct each bank below to follow the priority goals of the central bank. the solution is to make related regulations
I believe it can be implemented gradually. For a start few banks may start first (eg govt owned bank). Or giving incentives for banks moving into this direction.
I will agree with Mr. Rafiq and Mr.Emmanuel that it can be done gradually may be using credit rationing accompanied by certain incentives for banks.
To adopt effective and sustained central bak strategy to inject into the banks policies and financing practices a new role directed to encourage green economic and investment policies , central banks could use their reserve requirement policies and initiate incentives inlcuding as axample establishing certain funds for supporting the green economic activities.
I disagree.
The central bank already has too much problems to deal with, it should not be involved in green banking. Central banks are responsible for monetary and financial stability of most countries, they should not be involved in green banking as this could distract them from their main functions.
Rather, each bank can individually commit themselves to promote green banking, the central bank does not need to get involved with it. Green banking will be costly to banks which will be an additional cost to the already high costs that banks face daily.
There are great benefits of green banking but these benefits only exist in theory. But, in practice, these benefits do not exist. And even when these benefits exist, there are short-lived. This is the reason why the Basel committee will not encourage banks set aside risk-capital for green banking or sustainability banking.
If CBs force banks to promote green banking as you are suggesting, how would it work in practice? Should banks be forced/pressured/told to plant trees in every community to become green-compliant? Or should banks only keep provisions for green risks so that the provisions could be used to 'save the environment'?
We need to allow banks (and the central bank) to focus on their core objective.
I think if there has to be green banking, another institution should take responsibility for green banking, not the central bank. Maybe some 'Green Banking Association' or 'Committee for Promoting Green Banking (CFPGB)'
In summary, the green banking idea is a convenient idea. But can it work in practice?
Some thought!
My belief for central banks role is anew poposed role intending to enlarge their just monetary policy to play ahuman role including some priority social as well as environmental activities by encouragin banks as example to consider environmental aspects of their credit and investment activities.Now some central banks like bank og england initiated interest in environmental activities within some specialized expert group meetings on this issue. I never meant that central banks should order banks to implement related projects or do it by themselves .If Central Banks restricted themselves to the traditional monetary role I think they would remain an independent part from the whole of the human developmet role .
Central banks, acting as banks of banks towards commercial banks, may inspire commercial banks to develop banking conducted in the green banking concept, including granting green loans. central banks could grant loans on preferential terms, granted to commercial banks, intended for the development of lending, granting loans with the help of which would finance pro-ecological economic undertakings, e.g. by financing the development of energy based on renewable energy sources.
Best wishes,
Dariusz Prokopowicz
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