Prudential requirements framework and sustainability

34 Pages Posted: 15 Nov 2022

See all articles by Jens-Hinrich Binder

Jens-Hinrich Binder

Eberhard-Karls-University - Faculty of Law; London School of Economics - Law School; EUSFIL Jean Monnet Centre of Excellence

Date Written: November 14, 2022


As part of a broader policy agenda promoting more sustainable financial markets, legislative and policy initiatives within the European Union in recent years have explored the activation of micro-prudential requirements for banks and other financial intermediaries with a view to incentivise regulated institutions to change business models and investment patterns and shift funding towards projects and beneficiaries identified as sustainable. This is compatible with traditional regulatory objectives (only) to the extent that regulatory measures try to enhance the sensitivity of existing arrangements vis-à-vis new types of sustainability-related risks, the most obvious example being climate-related risks to the viability and profitability of existing loan and investment portfolios. This Chapter assesses the relevant policy initiatives in the light of recent promulgations by international standard-setters, and critically discusses the potential and the functional limits of micro-prudential regulation as a driver towards more sustainable lending – as well as potential repercussions on the existing prudential frameworks.

Keywords: micro-prudential financial regulation, sustainable finance, bank capital, climate change, ESG risk

JEL Classification: D4, G1, K2, Q56

Suggested Citation

Binder, Jens-Hinrich, Prudential requirements framework and sustainability (November 14, 2022). European Banking Institute Working Paper Series 2022 - no. 131, Available at SSRN: or

Jens-Hinrich Binder (Contact Author)

Eberhard-Karls-University - Faculty of Law ( email )

Tuebingen, 72074
++49-(0)-7071-29-76119 (Phone)
++49-(0)-7071-29-35283 (Fax)


London School of Economics - Law School ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

EUSFIL Jean Monnet Centre of Excellence ( email )


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