For example, from 1993 to 2008 the total assets of a sample of what we call global systemically important banks saw a twelve-fold increase (increasing from $ trillion to just over $ trillion). But the capital funding these assets only increased seven-fold, (from $ billion to $ billion). Put differently, the average risk weight declined from 70% to below 40%. The problem was that this reduction did not represent a genuine reduction in risk in the banking system. To take an even more concrete example from my own country: during the past twenty years or so, the risk weights for retail mortgages in the major Swedish banks have decreased from 50% to 35% with the adoption of Basel II (from Basel I) and further, to about 6% when banks themselves were allowed to model risk weights. In equity terms, this means that instead of SEK 17,000 of their own equity to fund a mortgage of 1 million, banks’ models implied that SEK 1,200 was enough.1 In retrospect, it is clear that the decrease in risk weights did not reflect actual risks and banks therefore needed more capital. Furthermore, although it is a historical fact that banks’ problems often start in the form of liquidity constraints, there were no global liquidity regulations for banks prior to the crisis. This meant that banks could rely heavily on very short-term market funding to finance highly illiquid and long-term assets.
Here in Malaysia, buildings consume almost half (48%) of the electricity generated in the country. In response to this, green buildings were conceived, prioritising environmental and health concerns as well as resource efficiency throughout their life cycle. In the process, they also respond to the changing preferences of an increasingly environmentally conscious population. As a country, Malaysia has committed to the target of reaching Net Zero emissions as early as 2050. In line with this and the priorities laid out in the 12th Malaysia Plan, state and city councils have increasingly stepped up efforts to spur the greening of their respective jurisdictions. DBKL for instance has issued the Kuala Lumpur Climate Action Plan 2050, which details out the actions necessary to achieve the goals of the Paris agreement. While we will be mainly focusing on green housing at this event, it is important not to forget that this is a cross-cutting agenda that requires many different parts of the ecosystem to work effectively. With climate change, however, we are not simply pursuing an aspirational goal. We are dealing with an existential treat for which bold and decisive actions are needed to correct what has been described as the “greatest market failure the world has ever seen”. Central to these actions is the remarkable capacity of the private sector to innovate solutions that will move us closer to our climate goals, and our collective responsibility to harness that capacity. Physical risks associated with climate change are already with us and are rising.