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

    EC Regulation Sets Out Standards for Reporting and Disclosure of MREL

    EC published the Implementing Regulation 2021/763 that lays down implementing technical standards for supervisory reporting and public disclosure of the minimum requirement for own funds and eligible liabilities (MREL).

    May 12, 2021 WebPage Regulatory News
    News

    EBA Report Notes Loan Origination Should Remain in Supervisory Focus

    EBA published a report that examines the convergence of prudential supervisory practices in 2020 and offers conclusions of the EBA college monitoring activity.

    May 12, 2021 WebPage Regulatory News
    News

    APRA Decides to Standardize Submission Date for Quarterly Reporting

    APRA announced the standardization of quarterly reporting due dates for authorized deposit-taking institutions.

    May 11, 2021 WebPage Regulatory News
    News

    ECB Working Group Publishes Recommendations on EURIBOR Fallbacks

    The private sector working group of ECB on euro risk-free rates published the recommendations to address events that would trigger fallbacks in the Euro Interbank Offered Rate (EURIBOR)-related contracts, along with the €STR-based EURIBOR fallback rates (rates that could be used if a fallback is triggered).

    May 11, 2021 WebPage Regulatory News
    News

    Bundesbank Publishes Supporting Documentation for Reporting by Banks

    Bundesbank published a list of "EntryPoints" that are accepted in its reporting system; the list provides taxonomy version and name of the module against each EntryPoint.

    May 11, 2021 WebPage Regulatory News
    News

    EBA Publishes Phase 1 of Reporting Framework 3.1

    EBA published the phase 1 of its reporting framework 3.1, with the technical package covering the new reporting requirements for investment firms (under the implementing technical standards on investment firms reporting).

    May 10, 2021 WebPage Regulatory News
    News

    IOSCO Sees Support for Mandatory Sustainability Reporting

    The Sustainable Finance Taskforce of IOSCO held two roundtables, with global stakeholders, on the IOSCO priorities to enhance the reliability, comparability, and consistency of sustainability-related disclosures and to collect views on the practical implementation of a global system architecture for these disclosures.

    May 10, 2021 WebPage Regulatory News
    News

    APRA to Finalize Capital Adequacy Standard Revisions by January 2022

    Asia Pacific Australia Banking APS 111 Capital Adequacy Regulatory Capital Basel RBNZ APRA

    May 10, 2021 WebPage Regulatory News
    News

    ESMA Issues Guidelines on Outsourcing to Cloud Service Providers

    ESMA published the final guidelines on outsourcing to cloud service providers.

    May 10, 2021 WebPage Regulatory News
    News

    EBA Publishes Data on Deposit Guarantee Schemes

    EBA published annual data for two key concepts and indicators in the Deposit Guarantee Schemes (DGS) Directive—available financial means and covered deposits.

    May 10, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6967