WASHINGTON — Some Democratic lawmakers are criticizing a section of regulators' embattled proposal to raise capital requirements on the largest banks that, they say, could have a chilling effect on financing renewable energy projects.
A group of moderate Democratic senators, led by Senate Banking Committee member Chris Van Hollen of Maryland, wrote to the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency on Thursday urging them to consider an "appropriate balance of strong capitalization and risk weightings that would prevent a permanent chilling effect on future clean-energy deployments." The lawmakers asked that regulators finalize a rule that "reflects the low-risk profile of tax equity investments."
"We are concerned that without recalibration, the rule could potentially have a chilling effect on clean energy financing across the country," the lawmakers said. "Several institutions are beginning to shy away from tax-equity-funded clean energy investments, including some multimillion-dollar clean energy projects across the nation. Developers of multiple renewable energy project sponsors across the country have expressed concerns with the sudden shift in deals failing to move forward until further notice."
Overall, Van Hollen and the other lawmakers said in the letter they are "supportive" of the agencies' work to "strengthen the banking system's ability to withstand economic challenges and further improve the safety and soundness of our financial system." They also said that they appreciate that regulators have
Still, the letter is the latest example of mounting criticism of the Basel III endgame plan from various quarters.
Banking trade groups have waged an
"Renewable energy projects will be harder to finance at a time when the administration is looking to expand investment in alternative energy sources," ABA CEO Rob Nichols said on a press call earlier this week.
He continued: "I don't think in my experience in representing and serving the banking sector I've ever seen so many disparate groups across the ideological spectrum raise their hands with concerns over rule proposals, ever."
The proposal drew nearly 200 comments, and only a few from energy-related firms. Yet Van Hollen's letter shows that the complaints these companies are making cut across the aisle, and could present a major problem for bank regulators going forward.
The issue that renewable-energy firms have with the Basel III proposal is in how it would change the risk weightings of qualifying renewable energy U.S. tax credit financing projects. Under the current regime, these financing projects get a 100% risk weighting, with yields similar to debt because, the industry argues, of the low risk profile of the underlying investments.
The Basel proposal — which would lump these tax credit financings with other more speculative investments and give them a 400% risk weight — would be "misguided," wrote Daniel Nelson, an advisor at Renewable Energy Tax Advisors LLC, a boutique advising firm on the issue, in his comment letter to the agencies.
"A 'one size fits all' risk weighting requirement would devastate the U.S. tax equity financing markets," he said. "Quite simply, regarding U.S. tax equity financing investments in renewable energy projects, requiring a 400% risk weight is a solution in search of a problem."
Van Hollen pressed banking regulators on treatment of clean energy tax credits when regulators went to Congress to testify in November, saying that he is "concerned" about the issue. Regulators answered Van Hollen's question by saying they would consider the information they received during the comment period. Federal Deposit Insurance Corp. Chairman Martin Gruenberg, for example said that the comments "raise attention to this issue that we may not have fully appreciated,"
"I am going to interpret those responses in a positive way, and let me leave it this way: If you are not going to address some of these concerns, I would appreciate the opportunity to weigh in before any final decisions are made," Van Hollen said.
