Green Risk-Based Capital Requirements

House Democrats are considering legislation to mandate a punitive capital construct for bank and, in some cases, also to certain nonbank exposures to companies with fossil-fuel links.  A still higher capital surcharge would also govern large-BHC activities that may increase greenhouse-gas emissions, a criterion bank regulators would have to define ahead of deciding what surcharge to set.  This surcharge appears to contemplate a capital requirement on some of the so-called “Scope 3” climate exposures and thus could prove particularly problematic given ongoing methodological uncertainties in this area.