Bank of England urged to stop subsidising fossil fuels as collateral for public loans

The Bank of England has been accused of subsidising fossil fuels via its lending practices by campaigning group Positive Money.

The group said that by accepting fossil fuels as collateral for loans to financial firms, the Bank is effectively giving an “implicit subsidy” to oil and gas firms and is now calling for the Bank of England to overhaul its lending practices.

In its research, Positive Money says that since 2014, BoE has lent £165bn to banks and financial firms through a scheme lending public money to financial institutions against collateral.

The collateral can include government bonds.

Firms whose bonds are accepted by the Bank as collateral include oil giant Shell and mining firms Rio Tinto and BHP Group, which have all faced criticism over the damage they do to the planet.

Positive Money says that in accepting bonds from oil and mining firms the Bank is “implicitly subsiding” firms that are not environmentally friendly.

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The campaign group said: “Assets that are accepted as collateral by central banks, and on more favourable terms, receive an implicit subsidy, as greater demand for such assets raises their prices and lowers yields, an impact that reverberates through the financial sector.

“This has significant impacts on borrowing and lending activities across the broader economy, and thus for the green transition.”

The campaigners say the government has given the Bank a mandate to support net-zero transition, but the Bank’s “progress on operationalising its green remit has stalled”.

It has now called for reforms to the Bank including to “exclude assets from issuers whose main economic activity is incompatible with climate and environmental goals”.

Last year, it was revealed the Bank of England was pushing for new tests so that City lenders can see how they would cope if an ‘extreme catastrophe’ was to plunge “Westminster under water”.

The former Bank of England governor Mark Carney last year accused the prime minister of watering down Britain’s net zero pledges with delays.

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