Featured Product

    BCBS Report Concludes Basel Risk Categories Can Capture Climate Risks

    April 14, 2021

    BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks. The reports provide a conceptual foundation for the next phase of the Basel Committee work to identify potential gaps in the Basel Framework and consider measures to address them. The key finding of the analyses is that the drivers of climate risk can be captured in traditional financial risk categories, but additional progress is needed to better estimate these risks. As key challenges are addressed, the ability to estimate and effectively mitigate climate-related financial risks will improve.

    The report on drivers and transmission channels of climate risks explores how climate-related risks arise and affect both banks and the banking system via micro- and macro-economic transmission channels. The report notes that economic and financial market impact of climate-related risks can vary based on geography, sector, and economic and financial system development. The report concludes with two recommendations for areas of focus in the future public, private, and academic work:

    • Since the impact of climate risk drivers can be observed through traditional risk categories (such as credit risk, market risk, liquidity risk, operational risk, and reputational risk), consideration could be given to the way these risks can be addressed in the existing Basel framework. Part of BCBS' near-term work on climate change would be to identify gaps in the Basel framework, in terms of inadequate consideration of climate-related financial risks. This mapping exercise would be comprehensive and could act as a conceptual foundation for the future work of BCBS in exploring possible measures to address the identified gaps. 
    • Existence of research and accompanying data that explore how climate risks feed into the traditional risks is limited. A better understanding of risk drivers and their transmission channels, across all risk types, would be gained from further research. Research would also benefit from more granular information that is often privately held—for example, more granular borrower data for credit risks.

    The report on measurement methodologies provides an overview of conceptual issues related to the measurement of climate-related financial risks and describes current and emerging practices of banks and supervisors in this area. The report highlights the following key findings:

    • Climate-related financial risks entail unique features, which means that sufficiently granular data and forward-looking measurement methodologies are needed to address them.
    • To date, measurement of climate-related financial risks has centered on mapping near-term transition risk drivers into bank exposures. Credit risk measurement has attracted the most effort, with a lesser focus on other risk categories. Initial scenario analyses and stress tests have in many cases focused on selected portfolios, or exposures for transition risks, and selected hazards for physical risks.
    • Key areas for further analysis relate to gaps in data and risk classification, as well as methodologies to address uncertainties associated with the nature of climate change and the potentially longer time horizon for risks to manifest.

     

    Related Links

    Keywords: International, Banking, ESG, Basel, Credit Risk, Market Risk, Operational Risk, Data Gaps, Climate Change Risk, Liquidity Risk, Scenario Analysis, BCBS

    Featured Experts
    Related Articles
    News

    EBA Publishes Final Regulatory Standards on STS Securitizations

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying and, where relevant, calibrating the minimum performance-related triggers for simple.

    September 20, 2022 WebPage Regulatory News
    News

    ECB Further Reviews Costs and Benefits Associated with IReF

    The European Central Bank (ECB) is undertaking the integrated reporting framework (IReF) project to integrate statistical requirements for banks into a standardized reporting framework that would be applicable across the euro area and adopted by authorities in other EU member states.

    September 15, 2022 WebPage Regulatory News
    News

    EBA Publishes Funding Plans Report, Receives EMAS Certification

    The European Banking Authority (EBA) has been awarded the top European Standard for its environmental performance under the European Eco-Management and Audit Scheme (EMAS).

    September 15, 2022 WebPage Regulatory News
    News

    MAS Launches SaaS Solution to Simplify Listed Entity ESG Disclosures

    The Monetary Authority of Singapore (MAS) set out the Financial Services Industry Transformation Map 2025 and, in collaboration with the SGX Group, launched ESGenome.

    September 15, 2022 WebPage Regulatory News
    News

    BCBS to Finalize Crypto Rules by End-2022; US to Propose Basel 3 Rules

    The Basel Committee on Banking Supervision met, shortly after a gathering of the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of BCBS.

    September 15, 2022 WebPage Regulatory News
    News

    IOSCO Welcomes Work on Sustainability-Related Corporate Reporting

    The International Organization of Securities Commissions (IOSCO) welcomed the work of the international audit and assurance standard setters—the International Auditing and Assurance Standards Board (IAASB)

    September 15, 2022 WebPage Regulatory News
    News

    BoE Allows One-Day Delay in Statistical Data Submissions by Banks

    The Bank of England (BoE) published a Statistical Notice (2022/18), which informs that due to the Bank Holiday granted for Her Majesty Queen Elizabeth II’s State Funeral on Monday September 19, 2022.

    September 14, 2022 WebPage Regulatory News
    News

    ACPR Amends Reporting Module Timelines Under EBA Framework 3.2

    The French Prudential Control and Resolution Authority (ACPR) announced that the European Banking Authority (EBA) has updated its filing rules and the implementation dates for certain modules of the EBA reporting framework 3.2.

    September 14, 2022 WebPage Regulatory News
    News

    ECB Paper Discusses Disclosure of Climate Risks by Credit Agencies

    The European Central Bank (ECB) published a paper that examines how credit rating agencies accepted by the Eurosystem, as part of the Eurosystem Credit Assessment Framework (ECAF)

    September 13, 2022 WebPage Regulatory News
    News

    APRA to Modernize Prudential Architecture, Reduces Liquidity Facility

    The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility (CLF) for authorized deposit-taking entities to ~USD 33 billion on September 01, 2022.

    September 12, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8514