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

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699