Featured Product

    ECB Publishes Scenarios and Templates for Climate Risk Stress Tests

    The European Central Bank (ECB) launched the supervisory climate risk stress test exercise for 2022, to assess the degree of bank preparation for dealing with financial and economic shocks stemming from climate risk. ECB has published the macro-financial scenarios and templates for this climate risk stress test exercise. The exercise will be conducted in the first half of 2022, with ECB expecting to publish the aggregate results in July 2022. The stress test will use macro-financial scenarios based on scenarios from the Network of Central Banks and Supervisors for Greening the Financial System or NGFS. These scenarios reflect possible future climate policies and assess both physical risks as well as short- and long-term risks stemming from the transition to a greener economy.

    The stress test targets specific asset classes exposed to climate risk, instead of the overall balance sheets of banks. It focuses on exposures and income sources that are most vulnerable to climate-related risk, combining traditional loss projections with new qualitative data collections. The exercise consists of three distinct modules. Module 1 consists of a questionnaire designed to get an overview of the institution’s internal stress-testing capability and capacity. Module 2 focuses on two climate risk metrics, providing an insight into the sensitivity of income and exposures to transition risk. Module 3 comprises bottom-up stress testing, focusing on transition and physical risks. The macro-financial scenarios are designed exclusively to serve the purpose of Module 3 of the climate risk stress test for 2022. To ensure the proportionality of the exercise, smaller banks will not be asked to provide their own stress test projections.

    From March 2022, banks will submit their climate risk stress test templates to ECB for assessment. The supervisor will subsequently engage with the banks, provide feedback, and ensure fair and consistent outcomes. The results will feed into the Supervisory Review and Evaluation Process (SREP) from a qualitative point of view. This means that this stress test could indirectly impact Pillar 2 requirements through the SREP scores, but will not directly impact capital through Pillar 2 guidance. This stress test is a learning exercise, for banks and supervisors alike, which aims to identify vulnerabilities, best practices, and challenges banks face when managing climate-related risk. The ECB climate risk stress test for 2022 will complement other ECB Banking Supervision and central banking climate-related deliverables. These include the economy-wide climate change stress test, the assessment of how banks are adjusting their practices to manage climate-related and environmental risks, and the 2022 thematic review on the incorporation of climate-related and environmental risks into the risk strategies, governance, and risk management frameworks and processes of banks. 

     

    Related Links

     

    Keywords: Europe, EU, Banking, Climate Change Risk, Stress Testing, ESG, Physical Risks, Transition Risks, SREP, Pillar 2 Guidance, Pillar 2, Scenario Analysis, Basel, Headline, ECB

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    BIS Bulletins Discuss DeFi Lending and Aspects of Crypto-Assets

    The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8292