ECB urges eurozone banks to factor climate risk into their risk models

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FRANKFURT, July 8 (Xinhua) — The European Central Bank (ECB) on Friday printed the outcomes of a climate risk stress take a look at of main banks within the eurozone and urged them to higher factor climate-related dangers into their credit score risk models.

The ECB defined that the climate risk stress take a look at, the primary of its type, served as a studying train for each the supervisor and the banks themselves.

While confirming that appreciable progress has been made, the ECB revealed that there are nonetheless deficiencies and requested banks to “make substantial additional progress within the coming years.”

The take a look at discovered that “banks’ vulnerability to a drought and warmth state of affairs is very depending on sectoral actions and the geographical location of their exposures.”

As a part of the take a look at, banks have been requested to present projections of losses beneath totally different climate risk eventualities. For the 41 immediately supervised banks, the mixed credit score and market risk losses would quantity to round 70 billion euros (71.2 billion U.S. {dollars}) beneath a short-term, three-year disorderly transition risk state of affairs and the 2 bodily risk eventualities collectively.

The results of the stress take a look at additionally signifies that an orderly phasing-in of sustainable climate insurance policies will lead to decrease losses for banks than delayed and disorderly transition paths beneath a 30-year transition state of affairs, driving house the need for industries to make early and orderly strikes when it comes to climate insurance policies.

The ECB’s Governing Council has determined to take additional steps to embody climate change issues within the euro system’s financial coverage framework.

The ECB stated it’ll take climate elements into consideration in its financial coverage operations.



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