In a report released Tuesday, the nonprofit organization Finance Watch estimates that the world’s 60 largest banks have about $1.35 trillion in credit exposure to fossil fuel assets.
Potential weather-related losses associated with these assets are not covered by the companies’ existing capital, according to Finance Watch. To address the shortfall, the research group estimates that banks will require between $157 billion and $210 billion of additional capital, which is equivalent to three to five months of net profit for companies in 2021.
And that’s the minimum amount needed, he said julia symonhead of research Finance Watch.
“The banks are going to have to reinforce their capital and they are going to have to do it now”, Symon pointed out. “It is significant and necessary not only to help address the climate crisis, but also to prevent the next financial crisis.”
Meanwhile, the industry continues to provide financing to fossil fuel companies. In the first nine months of this year, banks led by Wells Fargo & Co., RBC Capital Markets and JPMorgan Chase & Co. helped arrange loans and bond sales totaling about $397 billion, down 16% from a year earlier, according to data compiled by Bloomberg.
This year’s drop reflects the record rally in crude prices, which has generated huge cash flow for oil and gas producers and allowed companies to reduce their debt levels.