imported>Doug Williamson |
imported>Doug Williamson |
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| ''Sustainability - sustainable finance - pricing.'' | | ''Banking - regulation.'' |
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| Greenium is a compound of "green premium".
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| It is sometimes also expressed in full as a green premium.
| | Pillar 2 is the aspect of banking supervision which addresses firm-wide governance and risk management, among other matters. |
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| | Additional capital requirements may be imposed by bank supervisors under Pillar 2, depending on their evaluation of banks' internal assessments of their risks and capital requirements. |
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| In this context, greenium means the saving that an issuer can enjoy on its cost of borrowing, because it is issuing a green bond - or other green instrument - rather than a conventional instrument.
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| The greenium is the amount by which the yield on the green instrument is ''lower'', compared with the conventional instrument. | | =====UK Pillar 2 supervisory reviews===== |
| | The UK supervisor is the Prudential Regulatory Authority (PRA). |
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| | There are two main areas that the PRA considers when conducting a Pillar 2 review: |
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| One explanation for the greenium is that investors are willing to pay more - reflected in a reduced investment yield - for the perceived benefits of investing in the green instrument.
| | (i) Risks to the firm which are either not captured at all, or not adequately captured, under Pillar 1 capital requirements, referred to as Pillar 2A; and |
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| However, observed differences in yield may also stem from other factors including limited supply of green instruments, some dedicated funds being mandated to invest in green instruments only, and differences in maturity, coupon, or issuers' credit ratings.
| | (ii) Risks to which the firm may become exposed over a forward-looking planning horizon - e.g. due to external stresses - referred to as Pillar 2B. |
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| There is broad - though not universal - agreement about the existence of a greenium, but divergence of estimates about its size.
| | The assessment will generally include an Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP). |
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| | | =====IRRBB===== |
| :<span style="color:#4B0082">'''''Calculating the 'greenium'? Germany may have the answer'''''</span>
| | Most regulators worldwide treat Interest Rate Risk in the Banking Book (IRRBB) as a Pillar 2 risk. |
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| :"Germany’s debut green bond may finally provide an answer to the question that’s been at the heart of the sustainable investing spree - how much of a premium must investors pay to get hold of green securities?
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| :The deal launched with a -0.463% yield, which lead managers said meant a one basis point premium compared to a conventional equivalent.
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| :That difference represents what investors often call a 'greenium' - the price tag for a green issue.
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| :Germany's green debt plan differs from peers such as France and the Netherlands in that each green bond sold will be matched with a conventional twin.
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| :And whenever an existing green bond is tapped, its twin will be upsized by the same amount.
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| :The structure will show investors the exact cost of going green. Until now, gauging the green premium meant examining an issuer’s regular yield curve to gauge where a hypothetical conventional bond identical to the green bond in question might trade.
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| :'For the first time, we will be able to exactly see what the (green) premium looks like without having to do any maths, except for a simple "minus" calculation, one yield minus the other,' said Christoph Rieger, head of rates and credit research at Commerzbank in Frankfurt...
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| :So Germany’s structuring of this issue could well be key in drawing more borrowers to the green market."
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| :''Reuters - Yoruk Bahceli - 2 September 2020''
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| :<span style="color:#4B0082">'''''Issuers enjoy greenium'''''</span>
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| :"Investor interest in sustainability-linked bonds (SLB) is clear from the ‘greenium’ or pricing benefits issuers have enjoyed.
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| :Tesco’s [January 2021] SLB, for example, priced 15bps inside its secondary curve."
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| :''Agnes Gourc and Cecile Moitry - co-heads, sustainable finance markets - BNP Paribas - The Treasurer online - 10 June 2021''
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| == See also == | | == See also == |
| * [[Bond]] | | * [[Bank supervision]] |
| * [[bp]] | | * [[Basel III]] |
| * [[COP26]] | | * [[Capital adequacy]] |
| * [[Coupon]] | | * [[Interest Rate Risk in the Banking Book]] |
| * [[Credit rating]]
| | * [[Internal Capital Adequacy Assessment Process]] |
| * [[Green]]
| | * [[Pillar 1]] |
| * [[Green bond]]
| | * [[Pillar 3]] |
| * [[Green curve]]
| | * [[PRA buffer]] |
| * [[Green gilt]]
| | * [[Prudential Regulation Authority]] |
| * [[Liquidity premium]]
| | * [[Supervisory Review and Evaluation Process]] |
| * [[Maturity]]
| | * [[Stress]] |
| * [[Premium]]
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| * [[Return]] | |
| * [[Risk premium]] | |
| * [[Secondary curve]] | |
| * [[Sustainability-linked bond]] (SLB) | |
| * [[Tap]] | |
| * [[Term premium]] | |
| * [[Yield curve]] | |
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| [[Category:Accounting,_tax_and_regulation]]
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| [[Category:The_business_context]]
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| [[Category:Corporate_finance]]
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| [[Category:Investment]]
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| [[Category:Long_term_funding]]
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| [[Category:Compliance_and_audit]]
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| [[Category:Ethics]]
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| [[Category:Identify_and_assess_risks]]
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| [[Category:Manage_risks]]
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| [[Category:Risk_frameworks]]
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| [[Category:Risk_reporting]]
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| [[Category:Financial_products_and_markets]]
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Banking - regulation.
(P2).
Pillar 2 is the aspect of banking supervision which addresses firm-wide governance and risk management, among other matters.
Additional capital requirements may be imposed by bank supervisors under Pillar 2, depending on their evaluation of banks' internal assessments of their risks and capital requirements.
UK Pillar 2 supervisory reviews
The UK supervisor is the Prudential Regulatory Authority (PRA).
There are two main areas that the PRA considers when conducting a Pillar 2 review:
(i) Risks to the firm which are either not captured at all, or not adequately captured, under Pillar 1 capital requirements, referred to as Pillar 2A; and
(ii) Risks to which the firm may become exposed over a forward-looking planning horizon - e.g. due to external stresses - referred to as Pillar 2B.
The assessment will generally include an Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP).
IRRBB
Most regulators worldwide treat Interest Rate Risk in the Banking Book (IRRBB) as a Pillar 2 risk.
See also
