BoE published the Climate Biennial Exploratory Scenario (CBES) to explore the financial risks posed by climate change for the largest UK banks and insurers. The 2021 Scenario will examine resilience of the financial system in UK to the physical and transition risks associated with different climate pathways. BoE expects to publish the CBES results in May 2022. BoE also published key elements of the 2021 Biennial Exploratory Scenario, along with the guidance for participants of the 2021 Biennial Exploratory Scenario.
This is the first time BoE is testing both banks and insurers to allow capture interactions between them and understand the risks presented by climate change across the financial system. The CBES is an exploratory exercise and will not be used to set capital requirements. Instead, participants’ submissions may inform the Financial Policy Committee’s future approach to system-wide policy issues and PRA's future supervisory approach. The key features of the CBES are:
- Three scenarios of early, late, and no action built on a subset of NGFS scenarios. These are applied over a span of thirty years, reflecting the longer-term nature of climate-related risks.
- Sizing the risks participants face based on their current (fixed) balance sheets. For banks, the exercise will focus on their credit books while, for insurers, the exercise will assess risks to both their assets and liabilities.
- Qualitative questionnaire. This will capture participants’ own views on their risks, their approach to climate risk management, and their potential management actions
- Detailed counterparty-level analysis for the largest counterparties. CBES asks firms to use novel modelling approaches to conduct a detailed, bottom-up analysis of their largest counterparties. For the remainder of counterparties, firms are expected to differentiate exposures by geography and sector.
The objectives of the exercise are to size the financial exposures of individual firms and the financial system to their end-2020 balance sheets. This will shine a light on risks that are currently opaque. The exercise aims to understand business model challenges and likely responses to these risks. This will highlight where action may be needed and any implications for the provision of financial services. Moreover, the exercise aims to improve firms’ risk management and prompt a strategic view; this includes building capability, both among participants and within BoE. The exercise will also encourage participants to engage their largest counterparties to understand their vulnerability to climate change.
The guidance for participants of the 2021 Biennial Exploratory Scenario accompanies the final data templates and the final qualitative questionnaire. In April 2021, BoE had published an early version of this guidance document to support participants by improving their readiness for the exercise. The purpose of this document is to help participants understand the data requirements, including any changes to requirements, compared to those published in April. Relative to the April publication, this document includes additional sections with more detail on the approach to analysis participants should adopt for different asset types, explicitly linking that approach to scenario narratives and published variable paths.
- News Release
- Key Elements of CBES
- Guidance for CBES Participants (PDF)
- CBES Data Templates (ZIP)
- Qualitative Questionnaire (XLSX)
Keywords: Europe, UK, Banking, Insurance, CBES, ESG, Stress Testing, Reporting, Climate Change Risk, Data Templates, BoE
Previous ArticleAPRA Proposes Phased Implementation of Reporting Standard ARS 220.0
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.
The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.
The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.
The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.
The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.
The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.
The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.
The Australian Prudential Regulation Authority (APRA) updated the list of authorized deposit-taking institutions, granting license to Barclays Bank PLC and Crédit Agricole Corporate and Investment Bank to operate as foreign authorized deposit-taking institutions under the Banking Act 1959.