Right now the banks finance more than ever what is perceived as safe, because that allows them to hold less equity than when financing what is perceived as “risky”, and so there is where they earn their highest risk adjusted returns on equity.
If the World Bank wonders how to get sufficient finance to meet the MDGs and the SDGs… then think of bank equity requirements not based on credit risk weights but on Millennium Development Goals DG and Sustainable Development Goal Weights.
That way banks would earn higher risk adjusted returns on equity when doing good.
That would help to put some purpose back into banks… because credit risk weighted equity requirements certainly do not.
