This chapter, structured in three sections, discusses an aspect of significant importance in relation to sustainable finance under EU secondary law: the gradual shift from capital markets to banking regulation. Section 21.1 sets the scene, by briefly overviewing the initiatives of (mainly) the (European) Commission in relation to sustainable finance – which are mainly related to EU capital markets regulation, albeit with an impact on credit institutions as well – and the rules adopted by the European Parliament and Council during the period 2019–2021. The focus of the following section 21.2 is on the legislative proposals submitted by the Commission in 2021 to amend the CRD IV and the CRR in relation to sustainability and contribution to the green transition. After a general overview of this legislative ‘banking package’ and some introductory remarks on the proposed amendments (including the harmonised definitions of the ESG-related risks by amendment of the CRR), this section presents the key proposed new rules (by amendment of the CRD IV) which relate to governance issues, ESG risks, the supervisory review and evaluation process (SREP) and the enhanced competent authorities’ powers, as well as the (further) amendments proposed to the CRR. Section 21.3 contains the concluding remarks.

Climate change is humanity’s greatest challenge for the XXIst century. Its effects will be felt for generations to come. In light of the enormity of the challenge, bank regulators are moving, yet reforms are neither homogeneous nor comprehensive. The EU is clearly more committed to the effort than any other player, and even within the EU, attitudes are cautious towards Pillar 1 (prudential requirements) and macroprudential measures, and bolder towards Pillar 3 (market discipline through disclosures) and Pillar 2 (supervisory review), though more uneven on the latter. This does not follow a scientific logic (due to the high uncertainty of climate risk) but a policy logic, since legislators and regulators tend to follow a path of minimum resistance, and undertake first the reforms that require them a lower epistemic burden.

The evolution of banking regulation and banking crises are highly intertwined. The post–World War Two period was marked the globalisation of banking and increased banking instability. This initiated a trend towards harmonised frameworks for banking regulation, leading to a common framework for measuring capital adequacy in 1988 (Basel I). The path towards the Basel framework in 1988 was very different in the United States, the United Kingdom, and Switzerland. When statutory capital requirements were introduced in Switzerland in 1935, most banks were indifferent. This indifference changed towards the end of the 1950s, when capital regulation became a bottleneck for growth. The United Kingdom lacked the experience of a solvency crisis during the 1930s, resulting in capital in banking becoming an almost irrelevant topic. It took until the secondary banking crisis in 1973/4 for banks’ regulation to be reconsidered. The United States did experience a deep banking crisis in the 1930s but introduced statutory capital requirements only in the 1980s, following increased domestic banking instability and the threat of potentially high losses from the Latin American debt crisis.

The epilogue covers the development from Basel I to III and reflections on the evolution of capital regulation in the long run. Particular emphasis is given to the divergence of risk-weighted and risk-unweighted capital ratios among large, global banks – most of which have their roots in the nineteenth century. The chapter calls for a fundamental reassessment of banking regulation. From a historical perspective, regulatory frameworks are highly path dependent and seldom fundamentally reconsidered, aiming to increase financial stability. Moreover, once we accept a certain degree of banking instability in modern banking, the focus should be on who covers losses and how significant such losses can potentially be without the involvement of the public.

In discussing Islamic banking and finance (IBF), I first provide a brief overview of its development in Gulf monarchies, before turning to an investigation of particularities of its form and substance. I address a set of issues related to, on the one hand, the adoption, governance and regulation of IBF and on the other hand, the conformity of its practice with its alleged purposes. My aim is to uncover the actual goals of IBF, that has become prominent in the Gulf (and in the global economy) in recent decades. The analysis shows that IBF is a means for regimes to both appease their restive populations and respond positively to the material interests of key segments of society. Thus, ruling priorities related to enrichment and social management cohere; these are the principal purposes, even though ruling elites cloak their intentions in religiosity and ethical commitments. Like the other institutionalized practices discussed in this book, IBF represents the conjoined instrumentalization of (oil) wealth and Islamic doctrine for the sake of social control, and beyond that, the ongoing political domination and material enrichment of the royal family.

This chapter deals with the Single Supervisory Mechanism (SSM), which is designed as a composite structure, where supervisory tasks are carried out by the European Central Bank and national supervisory authorities. Crucially, both supervisors apply the EU as well as national law. That structure muddles the available accountability routes for the individual. The chapter first presents the legal framework and the organisation of the SSM. highlighting a number of accountability distortions problematic for the political equality of citizens. The chapter next focuses on the judicial review concerning the SSM at the EU level, including the jurisprudence of the General Court and the Court of Justice. This analysis is once again conducted in respect of the national level. In both instances, the chapter looks specifically at how courts dealt with questions of access, remedies, and any possible interpretation of the principles of equality and solidarity. The chapter finally reflects upon the role that judicial interactions play in delivering legal accountability within the SSM.

This chapter describes the international and domestic backgrounds related to the regulations and practices of bankers’ remuneration in the UK and China. It provides an overview of the bank failures in the UK during the GFC and the practice of bankers’ remuneration incentives, which was a significant contributing factor to these bank failures. It also summarises the evolution and development of the modern banking system in China and the transitional reform of corporate governance and remuneration incentives in Chinese banks. Based on these backgrounds, this chapter highlights the rationales for the regulations of bankers’ remuneration in the UK and China respectively.

Choosing the optimum supervisory model to manage financial stability requires a consideration of country-specific preferences based on the level of market development and the configuration of the financial system. The choice of model, its structural design, and the regulatory mandates will influence a supervisor’s effectiveness for managing financial stability. This Chapter analyzes the sectoral models in Mainland China, the United States, and Hong Kong to showcase institutional design elements and variations across different financial systems. The chapter assesses the advantages and disadvantages of the unified central bank and banking supervisory design of the Hong Kong Monetary Authority. Understanding how monetary policies affect banking institutions can be critical for maintaining banking sector stability. A unified structure creates a supervisory synergy when calibrating the lender of last resort and unconventional liquidity tools because coordination tensions are eliminated. The Hong Kong Monetary Authority is compromised because of the Linked Exchange Rate System and the Interest Rate Adjustment Mechanism inhibits its ability to set and control interest rates which can destabilize the banking sector.

Chapter 4 unpacks and illustrates the idea of the sovereignty cartel. It looks at some of the individual-level practices through which the sovereignty cartel is reconstituted in the daily conduct of international politics. The chapter makes the connection between sovereignty as an abstract concept and the actual people who act on the international stage in the name of that concept. It complicates the idea of property rights by discussing the responsibilities that are often part and parcel of rights. These property rights include responsibilities to other sovereigns, but also include responsibilities to the citizenries in whose name states rule. In addition, the chapter provides examples of the sovereignty cartel in action, drawn from a variety of issues, including multilateral participation, human rights, and the governance of the global commons. These all show ways in which sovereign right involves specific and historically contingent claims by states, and requires of those states specific behaviors, rather than being a generic claim that can be understood and studied out of context.

This chapter discusses the contribution of BIS research to the shift in the way financial stability issues have been looked at before and after the great financial crisis of 2007–9. It also considers the policy implications for the post-crisis reforms. The 1997–8 Asian crisis was an important turning point, focusing BIS research on the endogenous causes of financial instability and thus on the resilience and the risks of the financial system as a whole. From the late 1990s, the BIS started advocating a macroprudential approach to financial stability, including the adoption of countercyclical macroprudential policies. These ideas, while being shared by some academics and central banks, were largely ignored in policy circles, including in the Basel Committee on Banking Supervision. The chapter argues that the great financial crisis of 2007–9 catapulted these same ideas to the top of the reform agenda. Work done previously by the BIS and others, i.a. on the issue of countercyclical capital buffers, could be leveraged and find its way on the reform agenda pushed by the Financial Stability Board and the G20. The ‘measured contrarianism‘ of the BIS in this area thus added real value.