Banks’ Capital Requirements in Terms of Implementation of the Concept of Sustainable Finance

Irena Pyka,Aleksandra Nocoń

doi:10.3390/su13063499

Abstract

In 2015, the governments of 193 United Nations member states adopted the 2030 Agenda for Sustainable Development, followed by the Paris Agreement. Their detailed solutions assume the inclusion of the concept of sustainable finance into investment decision-making processes, including directing capital towards sustainable investments and stopping climate change. The main subject of the study is sustainable finance, which is one of the pillars of the sustainable development of the global economy, which has also become an important objective of the European Union, enshrined in the Treaty of Lisbon. The main aim of the paper is an extrapolation of risks appearing in the unstable environment of credit institutions, which are increasingly boldly directing their expectations on their inclusion in the sustainable finance concept implementation. The empirical research included in the first stage a questionnaire survey, while in the second one, a quantitative comparative analysis. The research was aimed at verifying the research hypothesis stating that after the global financial crisis, banks meet the new prudential capital regulations, however by their inclusion in the concept of green finance, they will increase a share of mitigation in the bank risk management strategy. The research, carried out in the Polish banking sector, has shown that domestic banks meet all prudential requirements resulting from the new capital norms. However, investment strategies, based on the composition of the portfolio in accordance with the principles of sustainable finance and on high rates of return in the long term, will change banks’ resilience to key risks from the perspective of sustainable development.

Highlights

Published: 22 March 2021The concept of this paper was born as a result of many years of research conducted in the area of prudential regulations of banks, in which asset portfolios, along with intensively progressing globalization, are exposed to new types of financial risk
It turned out to be dangerous for the economic growth path because it was interrupted by the global financial crisis, which has undermined previous strong confidence in the too big to fail (TBTF)-financial institutions
The main aim of this paper is an extrapolation of risks appearing in the unstable environment of credit institutions, which are increasingly boldly directing their expectations on their inclusion in the sustainable finance concept implementation

Summary

Introduction

Published: 22 March 2021The concept of this paper was born as a result of many years of research conducted in the area of prudential regulations of banks, in which asset portfolios, along with intensively progressing globalization, are exposed to new types of financial risk. It turned out to be dangerous for the economic growth path because it was interrupted by the global financial crisis, which has undermined previous strong confidence in the too big to fail (TBTF)-financial institutions. As a consequence, these institutions were subjected to new regulations, limiting excessive leverage of their activities and obliging them to increase the volume and quality of their equity. Two important documents, the Total Loss-Absorbing Capacity (TLAC) and Minimum Requirement for Own Funds and Eligible Liabilities (MREL) that build a new regulatory order of the European Union were implemented. TLAC was approved in October 2016, focusing on the top

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