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Zoom URL: uni-frankfurt.zoom-x.de/j/68203226482
Meeting ID: 682 0322 6482
Password: 908071

Abstract:

This article proposes a novel approach to the sustainable banking regulation debate, focusing on information asymmetry and, thus, departing from the current legal literature which assumes perfect information about the quality of banks’ assets. In contrast to capital markets, banks operate through opaque balance sheets and enjoy structural informational advantages over both supervisors and the market. These features make climate-related prudential regulation prone to adverse selection: brown assets can be disguised as green, undermining transition goals and increasing bank leverage. 
The article conceptualises this dynamic as a ‘market for limes’– a climate-oriented take on Akerloff’s market for lemons) – and takes a critical stance against green capital requirements. It argues that existing regulatory proposals underestimate the informational architecture of banking and the limitations of public law tools in this domain. The article proposes the use of mandatory contractual clauses—imposed through regulation and enforced through supervision—as the key legal mechanism to prompt bank transition to climate-oriented activities. 
Unlike the proposals focusing on the alteration of prudential regulation, this approach does not require the regulator and the supervisor to possess all the relevant information about the (sustainability) quality of banks’ assets. This article demonstrates that private law can represent a microbased tool of climate governance in banking and that it can work effectively if mixed with ex ante regulatory requirements on bank contracts and ongoing supervision. In light of the current retreat from climate-oriented policies, the focus on effectiveness proposed legal tools is is even more crucial.