Because they don’t actually want to run a bank?

They want to get RBS off their hands as fast as possible, and with as little interference as possible. The second they start interfering in decisionmaking at the bank they open themselves up to all sorts of blame when there are problems, and they make withdrawing from the bank harder, because what happens then to any projects which are part way through?

Much easier to erect a firewall between the two of them, and treat all banks the same for questions of policy.

Maybe because like so many people, they don’t care about green any more?

And whose fault is that?

The green movement has failed to win sufficient support, frankly. Progressives need to focus on social issues – and yes, the environment is a social issue too, but sell the social stuff first, then get in the green stuff through the back door.

#1 Andrew’s explanation is correct, but it doesn’t justify the government’s position.

With ownership comes responsibility – and if RBS’s board is committing environmental crimes, they have a duty to stop it.

The whole policy of getting the banks back into the private sector asap is a scam to get as much money as possible back to the original private shareholders and more cash to City intermediaries as fast as possible, pretend the car crash never happened, and drive off into the next one. The taxpayer will get screwed. If the rapacious, environmentally criminal, newly re-profitable RBS’s shares are climbing, why should the state sell at that point?

Better to abandon the model of a private bank and use RBS as the basis for a powerful new public bank that gives a fuck about the planet and its people.

Banks are there to lend money to people that they think will be able to pay the money (plus interest) back. They’re not there to engage in social engineering or judgements about broader concerns of social desirability – that is what we have governments for. If this tar sands project looks profitable, then of course banks will lend money to fund it.

The question is why the tar sand project is viable in the first place. If governments want to switch to renewables then they can pass laws requiring renewables to be used; they can raise tariffs on carbon; they can subsidise renewables; they can fund research into renewables and they can use planning and environment powers to block the extraction of oil from tar sands. If they do these things, the banks will not be interested in lending money to fund oil extraction from tar sands, because to do so would not be profitable. What the government cannot do is set the rules up so that extracting oil from tar sands makes perfect economic sense, then complain that people are doing it and the banks are lending them the money. The role of the banks in this is something of a red herring, as they’re only doing what they’re constituted to do in the first place. If you want to change their behaviour, change their incentives by changing the legal, regulatory and (through innovation) economic and scientific landscape.

I’d have thought the simplest way to understand what banks do is to think that banks will do anything that they believe will make them money. If RBS is getting out of green lending and into tar sands, I think it’s safe to assume they anticipate profits in the latter but not the former. If you want RBS to start lending money at a loss then I guess you need to takeover management of that bank and instruct it to ignore expected profitability (this is the sort of thing a government run investment fund can do – lend with lower expected returns). If you want the private sector to finance green investment then I think you need to make green investment profitable, and perhaps dirty investment unprofitable, and RBS will then lend to green firms quite happily. So perhaps rather than try to push RBS into making decisions you like on a case-by-case basis, it would be more sensible to impose some general penalty on lending to carbon emitters, or change prices in some other way, so as to alter the underlying environment.

OK, in response to the above two,

It’s true, RBS have made that decision – although it also seems to be about what expertise they currently have, rather than what would be profitable in the abstract. However, there’s a problem.

1) Most investors accept that they do not have the same interests as their investees – pension funds want long term profits across the economy, while the company wants short term growth of itself, so is happy to externalise onto other companies, in whom the investor may hold shares. As a result, many pension funds have ‘universal investor’ policies where they force their companies to be more responsibe. Why don’t RBS.

2) if we don’t stop tar sands, we can’t stop runaway climate change. It is government policy to seek international agreements to stop runaway climate change. In one way or another, such an agreement must stop tar sands extraction and burning from happening (whether directly, or through a price mechanism). RBS are putting money into companies exposed to the risk of their tar sands projects being effectively banned. They think this is a reasonable risk because they do not believe government claims on climate legislation to be credible. If they are credible, then these projects are not financially viable. It makes perfect market sense for RBS to believe that the government is not, and international governments are not, credible on the subject of climate change. But it is difficult for the UK government to maintain the position that ‘this is profitable because our policies are not credible,’.

Adam

@4 But Rob, But Canada’s government won’t do that, it has been bought by the oil industry, it goes to international conferences to ensure that any international agreement to do anything like what you proposed is blocked. And if UK tried to act unilaterally I have no doubt that would be deemed illegal by the WTO or whatever.

@5 Luis. You make the mistake of claiming that anyone is asking banks to lend out at a loss. The problem is not that green investment is unprofitable for RBS it is that it is not as profitable as tar sands.

Your worldview that it is alright to have sociopathic profit & externality maximising corporations on the loose in society because the state can create a framework within which they can be made to behave responsibly doesn’t work when the mafia have bought the local chief of police.

The market purists on here need to understand the real world, not just their Chicago School textbook.

What market purists?

All I’m saying is that if the government wants banks to act differently then micromanaging the policies of the one they happen to temporarily own is a pretty crap way of doing it, when they could, say, pass some laws which would affect _all_ the banks.

Strategist @7

@4 But Rob, But Canada’s government won’t do that, it has been bought by the oil industry, it goes to international conferences to ensure that any international agreement to do anything like what you proposed is blocked. And if UK tried to act unilaterally I have no doubt that would be deemed illegal by the WTO or whatever.

Well, quite. That’s why I described the banks as being a red herring – there’s a real problem underlying this which is that [some] governments are the ones actively promoting tar sand development, which would still be a problem irrespective of what RBS does.

@5 Luis. You make the mistake of claiming that anyone is asking banks to lend out at a loss. The problem is not that green investment is unprofitable for RBS it is that it is not as profitable as tar sands.

Luis probably knows more about this than me, but I’ve been under the impression that a bigger problem for banks at present is the lack of good lending opportunities, projects which are likely to turn a profit. If the green projects are likely to make a profit, albeit a smaller profit than the tar sands, then they shouldn’t have too much trouble getting funding. Perhaps they’re not as profitable as you suggest? (In which case, if you want them to get funded then you should probably want the government to skew the energy market further in favor of renewables, either by tax breaks, subsidy or regulation).

Adam @6

if we don’t stop tar sands, we can’t stop runaway climate change. It is government policy to seek international agreements to stop runaway climate change. In one way or another, such an agreement must stop tar sands extraction and burning from happening (whether directly, or through a price mechanism). RBS are putting money into companies exposed to the risk of their tar sands projects being effectively banned. They think this is a reasonable risk because they do not believe government claims on climate legislation to be credible. If they are credible, then these projects are not financially viable. It makes perfect market sense for RBS to believe that the government is not, and international governments are not, credible on the subject of climate change. But it is difficult for the UK government to maintain the position that ‘this is profitable because our policies are not credible,’.

Again: well, quite. The problem is that whilst a ban on tar sand development lacks credibility, there’s really nothing more that the government can do. They can stop RBS from lending to companies developing the tar sands, but that won’t actually stop the development from going ahead.

Adam,

that’s an interesting point about the inconsistency of the govt. position. On your point 1, I think you’ve answered your own question. Knock-on consequences for the wider economy are internal to pension funds, external (or less internal) to RBS. As to whether the right fix is political / technocratic control of bank lending decisions, to account for these externalities, or whether to try to reflect the externalities in the prices, well I couldn’t say. I’d certainly like to see legislation to make tar sands oil extraction prohibitively expensive.

Strategist,

My language was perhaps not general enough, but still if there are two lending opportunities, one more profitable than the other, why isn’t RBS doing both? If it’s a matter of limited capacity, then asking RBS to pursue the least profitable is tantamount to asking it to make a loss (where a loss is definited as negative ‘economic’ profit, not an accounting loss). By the way, please don’t make unwarranted assertions about my worldview or my textbooks; you are quite wrong on both counts.

If RBS is getting out of green lending and into tar sands, I think it’s safe to assume they anticipate profits in the latter but not the former.

And RBS obviously have a stellar record when it comes to picking investments, don’t they?

If tar sands projects are so profitable, why is the Canadian government still subsidizing them to the tune of $300 million a year?

If tar sands projects are so profitable, why is the Canadian government still subsidizing them to the tune of $300 million a year?

Maybe they’re profitable for the companies in question because the Canadian government is subsidising them to the tune of $300 million per year?

Maybe they’re profitable for the companies in question because the Canadian government is subsidising them to the tune of $300 million per year?

Well, yes. So we have a situation where a UK govt-subsidized bank is financing appallingly polluting and energy-inefficient projects which are only profitable because of Canadian govt subsidies, and people are apparently claiming that this is evidence of the free market at work. To my mind, it’s simply evidence of the remarkable extent to which the fossil-fuel industry preserves itself by sucking money from the public purse.

And all this is happening whilst all parties concerned claim to be serious about addressing pollution… You couldn’t make it up.

Dunc,

of course what RBS anticipates may not come to pass, but I think it’s still safe to say RBS is not lending in anticipation of a loss. You appear to know things about RBS’s track record in corporate lending that I don’t.

Dunc @ 13:

So we have a situation where a UK govt-subsidized bank is financing appallingly polluting and energy-inefficient projects which are only profitable because of Canadian govt subsidies, and people are apparently claiming that this is evidence of the free market at work.

Where are these claims being made?

To my mind, it’s simply evidence of the remarkable extent to which the fossil-fuel industry preserves itself by sucking money from the public purse.

And all this is happening whilst all parties concerned claim to be serious about addressing pollution… You couldn’t make it up.

Couldn’t agree more. There’s certainly a discrepancy between rhetoric and policy. Both the UK and Canadian governments seem to be putting certain industrial interests ahead of the interests of the public (though public choice theory does suggest that this is entirely predictable), whilst simultaneously claiming to be acting ‘for the future of the planet’.

My only real point is that the problem can be reduced down to the fact that the Canadian and UK governments both support, either explicitly or implicitly, the exploitation of tar sand oil deposits, next to which RBS’s position on the matter pales into relative insignificance. Given that the Canadians have the final say, our best bet is probably trying to figure out how best to influence them.

Now, it may be that the Canadian government disputes the environmental claims about the damage caused by tar sand oil extraction, or they might believe that the revenues gained can be reinvested in research and funding for alternative fuel sources that create a better long-run outcome. They might believe that there’s an upcoming energy gap which can only be filled by fossil fuels and that allowing living standards to crash for a few generations whilst alternative energy research continues would be a poor trade-off. It will be necessary to prove that they are wrong about this, and that renewable energy can safely and cost-effectively remove the need to develop the tar sands at all. These would be better approaches to addressing the cause of the problem, rather than a symptom (that the current misapprehension on the part of the Canadian government is creating lucrative investment opportunities for British banks).

@15

Where are these claims being made?

Comment no 5, if I understand Luis’ thrust correctly. I’m not disagreeing with you in the slightest.

Meanwhile, @14:

of course what RBS anticipates may not come to pass, but I think it’s still safe to say RBS is not lending in anticipation of a loss. You appear to know things about RBS’s track record in corporate lending that I don’t.

Well, you know, I’m just drawing an inference from the whole “nearly collapsing into a massive flaming crater and having to be bought out by the government to prevent the collapse of civilisation” thing. That doesn’t look like the sort of thing that happens to well-run businesses, and I’m pretty sure they weren’t anticipating that either. I don’t think anyone got up one morning and thought “You know, I fancy running my company into the ground through a combination of bad investment decisions and insane attempts to buy worthless foreign banks”.

Or are you claiming that their poor track record over the last few years is completely irrelevant to corporate lending for some magical reason I’m unaware off? Well, that’s as may be, but broadly speaking, when a major bank has to be nationalised to avoid collapse, I tend to downgrade my assessment of their general competence. No doubt this is hugely unfair.

Dunc,

You have not understood me correctly. Nowhere have I argued anything like “there is a free market at work”, I merely suggested that the easiest way to understand what RBS does is to think that RBS just cares about making money. This, I’d have thought, would also be the standard left-wing way of thinking about what banks do. The existence of banks trying to make money is quite compatible with non-free-markets. I wouldn’t for a moment suggest that the energy sector resembles some utopian vision of a free market (a dystopian vision, more like it).

@17: Then I apologise for the slur. However, I’m sure that if anyone could be bothered looking, it wouldn’t be too hard to find someone making that claim. There always is.

@7, @10: Luis, more than happy to except you from my general insult aimed at the Chicago School freaks and weirdos that visit this site.

However, I would be interested to hear your response to my other charge, more directly aimed at you: “Your worldview [is] that it is alright to have sociopathic profit & externality maximising corporations on the loose in society because the state can create a framework within which they can be made to behave responsibly” and my argument that this doesn’t work when “the mafia have bought the local chief of police”.

Next, to pick you up on your comment @16: “the easiest way to understand what RBS does is to think that RBS just cares about making money. This, I’d have thought, would also be the standard left-wing way of thinking about what banks do.”

My point @3 is that we own RBS. “What RBS does” is not an unalterable force of nature. As the owners the government on behalf of we the people are ultimately responsible for what RBS does. It’s just not good enough to appoint a Board with the brief to do whatever wherever to make as much money as possible as long as its technically legal with no thought as to the environmental or social damage being caused or the moral/ethical questions raised.

A strong case has been made that the exploitation of the tar sands is the final nail in the climate coffin. That means it’s the end of Earth as the nice habitable planet as we know it: billions dead and the natural world wrecked. Acting to stop RBS funding this avoidable catastrophe is dubbed “micromanagement”. In fact it would be perfectly possible to insist RBS work to some kind of code on corporate social responsibility without micromanaging everything they do.

Although I myself would go further and I reject the short term profit maximisation model as the best way of getting a socially useful banking system. I personally would like to see a system whereby every time a corporate leader employs the term “fiduciary duty”, they would have one testicle removed.

@19 Agreed.

We should bear in mind that corporations in their modern incarnation have only had the ethics of “everything for shareholder profit” for a relatively short time. Previously there were wider requirements of public good and neighborliness, to generalise. The current version of capitalism is not inevitable, as some would have us think.

Simple explanation really:

Green projects have thus far been huge cash drains with little or no-profit. They only exist thanks to huge government subsidies. You only have to look over to Europe and see how cost effective wind farms and the like are there….

So, knowing that massive government deficits are going to force major cuts, meaning subsidies are likely to be less forthcoming (leaving the investing bank with more risk) and that green energy is a long, long way from being cost effective let alone profitable, banks are pulling their funding for such projects.

Simples.

“Simples.”

Yes Tyler, you sure are

oh Strategist you wound me so….

My guess, judging by your other comments, is that you are some self-styled “progressive” and all that goes with that. I’m guessing you also scream and shriek every time anyone doubts global warming.

Good luck with that – you’ll need it.

@ 23 Tyler

Sometimes government investment is needed to stimulate the development of technologies we need. Nuclear power was politically necessary in the 1950s as it is becoming now, for example.

You need to refer your opinions to the world outside your window before posting them.

. If we don’t stop tar sands extraction, we can’t stop run-away climate change.

Tar sands produce a lot less CO2 per unit of energy produced than coal, so it would make a lot more sense to mine less coal than to extract less tar sand.

The government or more likely the Treasury anticipated these types of problems when they took an equity stake in RBS. Every activist was likely to object to financing for organisations that they did not approve, and want financing for the organisations that they thought worthy. Therefore, they considered the best solution was to set up UKFI to manage the investment at arm’s length.

Unless a bank is taking an equity stake in a project they don’t care what margin the company they lent the money to is making. They only want to be sure that they will get their money back or the borrower will have assets. A green project would only be refused financing if a bank thought it unlikely that they would get their money back. They would not be refused financing just because the profit margins were lower than an oil company. The profit accrues to the company not the bank.

If people object to oil tar sands that objection should be targeted at the Canadian government. It is a rather bizarre concept only to focus on financing. BP and Shell are heavily involved in the Albertan oil tar sands. BP and Shell employ thousands of engineering, geology and chemistry graduates from public funded UK universities. Why is it OK to target a bank providing financing, but apparently not considered necessary to target publicly funded universities who provide the graduates? The bank is not using taxpayer funds but the universities are indeed using taxpayer funds.

I am not economist. But isn’t there a difference between bank loans (money is given to a company in the expectation that it is returned) and venture capitalism (money is given to a company with the expectation of loss or huge profits)?

RBS is not a venture capital company, so they aren’t going to loan to high risk green or non-green ventures. RBS is just a bank, and even though UK citizens have collective shares we should not think of intervention. The shares were purchased in a bail out and we want to sell them at the right price as quickly as possible in order to reduce national debt. For that to be achieved, RBS has to be allowed to function as a bank.

If a company borrows money from RBS to do something that is legal (and that RBS believes will pay back the loan), we have to swallow it. If we do not like the borrowing company’s behaviour, then change the law for them, not the lender.

Charlieman

You argue that the government shouldn’t interfere.

2 problems.

1) that’s the job of owners. Lord Myners, the minister responsible, is one of the many people who has argued that investors should be ‘active owners’. This doesn’t mean management, but it does mean having a say in setting strategy, and assessing risk.

2) they already do. They have a veto on bonuses, and they require loans to small businesses. If they can do this, why not renewables?

Adam

Or are you claiming that their poor track record over the last few years is completely irrelevant to corporate lending for some magical reason I’m unaware off?

This is pretty much true. RBS’s collapse stemmed from paying vast amounts of cash for ABN (based on central company strategy, not on corporate lending policy or implementation) and on bad property loans (again, not corporate lending policy or implementation).

@ 25 ad

“Tar sands produce a lot less CO2 per unit of energy produced than coal, so it would make a lot more sense to mine less coal than to extract less tar sand.”

Er, not necessarily. It all depends on the methods of extraction. (http://www.newscientist.com/article/mg20427375.900-extreme-oil-scraping-the-bottom-of-earths-barrel.html)

We really need to start looking at alternatives to both anyway.