In June last year, the US Federal Reserve (their version of our Reserve Bank) concluded that 34 European banks had enough capital to weather an economic shock. In the tests, Credit Suisse had the third highest capital ratio. Within a year, Credit Suisse has closed its doors.
Six months before that erroneous Federal Reserve assessment, Credit Suisse published its Climate Action Plan under which they promised to “pursue a strategy to reduce its exposure to companies that are unwilling to transition, that fail to respond to the bank’s engagement efforts, and that have substantial exposure to climate-sensitive activities.” Credit Suisse joined the Net Zero Banking Alliance which committed them to not support the expansion of fossil fuels.
Tragically for the Credit Suisse workers that have lost their jobs, if only their bosses had ignored
the radical green activists. The top performing Australian investment funds over the past year have all been investing in coal. If only Credit Suisse had made some coal investments, they may have been back in the black.
What has happened is quite basic. With finance for new coal mines drying up (thanks to green activism), shortages of coal have emerged. When there is a shortage, prices go up. And, when coal prices go up, coal profits go up too.
This is great for people who own coal mines but not so good for the rest of us who are left with higher energy prices. The higher energy prices are a big reason why inflation has roared
back for the first time in a generation.
With inflation rising central banks have had no choice but to raise interest rates. Those higher interest rates have put pressure on some banks who used the cheap money available during COVID to buy low-yielding government bonds. With interest rates rising the value of these bonds
have fallen considerably putting those banks under pressure.
Things are getting so grim that warnings of a recession are increasing again. This could be the world’s first recession caused by woke obsessions with green investments ahead of everything else. A woke-cession may be coming our way if you like.
Our Australian banks have not been immune from the green virus. All of our major banks have signed up to the Net Zero Banking Alliance committing them to restrict finance to fossil fuel
investments. Even though coal is Australia’s biggest export, our finance industry has not been supporting it.
Their policies do not just impact large companies, I have heard stories of medium sized businesses in mining services (not mining itself) that have had their financial services restricted because of their involvement in coal.
In the United States and Europe, the government has had to bail out banks to avoid a wider contagion spreading. The RBA assured us this week that our banks remain “unquestionably strong”. There is no evidence to doubt them but then Credit Suisse passed stress tests just a year ago. If we believe that things can’t happen here, that is almost a recipe for the worst occurring.
If our banks ever do need that kind of help we should make sure that it comes with strings attached. Banks that rely on public support should not get to decide who and what gets services based on
their personal preferences. Such a rule would most likely help save them from themselves in any case.
