Featured Product

    BIS Discusses Role of Central Banks in Addressing Climate Change Risks

    January 19, 2020

    BIS published a book that reviews ways of addressing the climate change risks within the financial stability mandate of central banks. The book outlines policy responses, with central banks as coordinating agents in the age of climate uncertainty and examines, among other issues, challenges related to the integration of climate-related risks into prudential supervision. In this context, the book covers a discussion on how the three pillars of the Basel framework could integrate climate-related risks. The book also reviews some of the methodological challenges that financial institutions and supervisors face when conducting forward-looking, scenario-based analysis aimed at identifying, measuring, and managing climate-related risks.

    The book highlights that integrating climate-related risk analysis into financial stability monitoring is particularly challenging because of the radical uncertainty associated with a physical, social, and economic phenomenon that is constantly changing and involves complex dynamics and chain reactions. Traditional backward-looking risk assessments and existing climate-economic models cannot anticipate accurately enough the form that climate-related risks will take. These include "green swan" risks: potentially extremely financially disruptive events that could be behind the next systemic financial crisis. In this context of deep uncertainty, traditional backward-looking risk assessment models that merely extrapolate historical trends prevent full appreciation of the future systemic risk posed by climate change. The book, however, highlights that scenario-based analysis is only a partial solution to apprehend the risks posed by climate change for financial stability.

    Additionally, the book emphasizes that central banks have a role to play in avoiding such an outcome, including by seeking to improve their understanding of climate-related risks through the development of forward-looking scenario-based analysis. However, central banks alone cannot mitigate climate change. This complex collective action problem requires coordinating actions among many players including governments, the private sector, civil society, and the international community. Central banks can therefore have an additional role to play in helping coordinate the measures to fight climate change. Those include climate mitigation policies such as carbon pricing, the integration of sustainability into financial practices and accounting frameworks, the search for appropriate policy mixes, and the development of new financial mechanisms at the international level. All these actions will be complex to coordinate and could have significant redistributive consequences that should be adequately handled, yet they are essential to preserve long-term financial (and price) stability in the age of climate change.

     

    Related Links

    Keywords: International, Banking, Climate Change Risk, ESG, Basel, Financial Stability, Scenario-Based Analysis, BIS

    Related Articles
    News

    APRA Plans to Assess Climate Risks and Develop Prudential Guidance

    APRA published a letter that outlines its plans to undertake a climate change vulnerability assessment and develop a prudential practice guide focused on climate-related financial risks.

    February 24, 2020 WebPage Regulatory News
    News

    FDIC Publishes Guide to Help with Third-Party Risk Management

    The technology lab of FDIC (FDiTech) published a new guide to help financial technology, or fintech, companies and others partner with banks.

    February 24, 2020 WebPage Regulatory News
    News

    APRA to Transition to Annual Stress Testing of Large Banks in 2020

    APRA published key findings of the stress testing assessment conducted on authorized deposit-taking institutions.

    February 21, 2020 WebPage Regulatory News
    News

    IAIS Statement on Monitoring Period of Insurance Capital Standard

    IAIS published a statement from its Secretary General Jonathan Dixon on the Insurance Capital Standard (ICS) monitoring period.

    February 21, 2020 WebPage Regulatory News
    News

    EC Consults on Review of Non-Financial Reporting Directive

    EC is launched a consultation on the review of the Non-Financial Reporting Directive or NFRD (Directive 2014/95/EU, as part of its strategy to strengthen sustainable investment in Europe.

    February 20, 2020 WebPage Regulatory News
    News

    EIOPA Consults on Standards for Supervisory Reporting Under PEPP Rule

    EIOPA is consulting on the implementing technical standards for supervisory reporting and cooperation, as mandated by the Pan-European Personal Pension Product (PEPP) Regulation (Regulation 2019/1238).

    February 20, 2020 WebPage Regulatory News
    News

    EIOPA Publishes Statement on Adverse Interest Rate Environment

    EIOPA published a supervisory statement on the impact of the ultra-low or negative interest rate environment on the insurance sector in EU.

    February 20, 2020 WebPage Regulatory News
    News

    ECB Report on Transfer of Liquidity from EONIA Products to €STR

    ECB published a report on the transfer of liquidity from the cash and derivatives products of the Euro Overnight Index Average (EONIA) to the Euro Short-Term Rate (€STR).

    February 19, 2020 WebPage Regulatory News
    News

    ESRB Publishes Report on Systemic Cyberattacks

    ESRB published a report that explores systemic implications of cyber incidents, such as cyberattacks.

    February 19, 2020 WebPage Regulatory News
    News

    FSB Chair Sets Out Key Deliverables for G20 Presidency of Saudi Arabia

    FSB published a letter from the Chair Randal K. Quarles to the G20 finance ministers and Central Bank governors ahead of the meetings in Riyadh on February 22-23.

    February 19, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4720