Konstantin Haralampiev’s Post

#banks #capital #buffers #resilience #Basel #CRR #CRD #BRRD #systemic #climaterisk #scenarios #ECB #macroprudential I want to believe smart risk managers already include these scenarios in their own capital planning and allocation steering, and that banks already include them in finance contracts too. Projecting climate scenarios further on their own loan portfolio, building on the ECB's climate risk stress test they just had to do anyway. Why wouldn't they? European Banking Federation https://lnkd.in/eZaFWz4q

🌍 Are Banks Penalizing Climate Risk in Their Lending Practices? 🌍 A new study by the European Central Bank uncovers that Eurozone banks are already incorporating a “climate risk premium” in their lending activities. Companies with higher emissions are facing monthly mean interest rates that are up to 0.14% higher than those of their greener counterparts. This may seem like a minor difference, but it’s a clear indication that the financial sector is beginning to internalize climate risks in its decision-making processes. This trend is particularly noteworthy as we anticipate the full impact of the upcoming Corporate Sustainability Reporting Directive (CSRD) and its rigorous disclosure requirements. What does this mean for businesses, especially those publicly committed to low-carbon targets? And how might monetary policy play a role in influencing these dynamics? 📄 [Link to the full paper in the comments] #SustainableFinance #ClimateRisk #MonetaryPolicy #CSRD #ESG

An important straightforward presentation by Ms. Caterina Lepore addressing the 𝗔𝗽𝗽𝗿𝗼𝗮𝗰𝗵𝗲𝘀 𝘁𝗼 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗥𝗶𝘀𝗸 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀. Climate risk analysis provides an opportunity to 𝗯𝘂𝗶𝗹𝗱 𝗿𝗲𝘀𝗶𝗹𝗶𝗲𝗻𝗰𝗲 𝘁𝗼 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗰𝗵𝗮𝗻𝗴𝗲 through understanding and treating its physical and transition risks. Regulators around the world. Since June 2022, the #Basel Committee on Banking Supervision (#BCBS) has published principles for the effective management and supervision of climate-related financial risks. The document forms part of the Committee's holistic approach to addressing climate-related financial risks to the global banking system and seeks to improve banks' risk management and supervisors' practices in this area. Central Banks around the world and supervisory authorities have followed suit notably the European Central Bank (#ECB), the US Federal Reserve Board (#FRB), the Bank of England (#BOE), the Reserve Bank of India (#RBI) and others. The purpose of the presentation is to: -Introduce financial stability policy makers and national prudential supervisors to climate risk analysis (namely the key technical terms and concepts used in climate risk analysis: emissions and temperature scenarios, physical and transitions risk definitions) -Lay out approaches to climate risk analysis, based on the #IMF framework to climate risk analysis in #FSAPs.  #riskmanagement #climateriskmanagement #transitionrisk #physicalrisk #riskassessment #riskmeasurement #riskmitigation #stresstesting #climatechange #ESG #supervisoryguidance #riskmetrics #information #resources #COP29 #sustainability #biodiversity #knowledge #emissions #pollution #financialrisk #environment #extremeweather #lowcarbon #hazards #carbontax #correlation

#SUERFpolicybrief “Designing a macroprudential capital buffer for climate-related risks” by Florian Bartsch (Boston Consulting Group (BCG)), Iulia Busies, Tina Emambakhsh, Michael Grill, Mathieu Simoens, Martina Spaggiari, Fabio Tamburrini (European Central Bank) Climate change poses unprecedented risks to financial stability, requiring new and targeted approaches to mitigate its impact. To this end, our paper explores the design of a macroprudential capital buffer tailored to address climate-related risks, building on granular data and state-of-the-art climate stress testing methods. We first project losses due to climate transition risk by leveraging on the ECB top-down climate stress test. We document a large dispersion of banks’ exposure to transition risk, with the highest losses concentrated in the portfolios of banks characterized by lower excess capital. We then present a calibration methodology for a climate-related systemic risk buffer (SyRB), which enables to tailor bank-specific buffer requirements and to address the build-up of climate-related systemic risks in the banking sector, while limiting adverse impacts on bank lending. The focus of our application lies on transition risks, however, the flexibility of the framework allows to capture all types of climate risks in general and over different time horizons. https://lnkd.in/dviaiCj9 #MacroprudentialPolicy #ClimateChange #TransitionRisk #ClimateRisk

🌍🚨 Elderson urges all financial instruments to consider climate risks—a crucial call for action by Frank Elderson of European Central Bank . As climate-related risks continue to impact global markets,His message underscores the importance of integrating climate considerations across all financial instruments. Incorporating these risks isn’t just about compliance; it’s about creating a resilient financial system that can adapt to the realities of climate change. From asset management to lending, the transition to a greener financial landscape requires that climate risk assessment become the norm, not an exception. This perspective aligns with the growing movement within the financial sector to factor in climate resilience, pushing the envelope toward sustainability and long-term risk management. Elderson’s call for uniform integration of climate risks across financial instruments could be a game-changer in how the industry approaches sustainable finance. 🌿📊 https://lnkd.in/dJttCHcv #ClimateRisk #SustainableFinance #GreenBanking #FinancialResilience #ClimateAction Venu Borra Fabian Vandenreydt Chris Sunderman Bob Gravestijn

Well, now we are talking. ECB published a paper about a capital buffer linked with the climate risk. This may be the first steps on imposing a capital charge on banks which are not serious enough on climate. Based on the results of the paper, most of the banks would receive a SyRB (Systemic Risk Buffer) of 50bps, while the maximum a bank would receive is 200bps. Cummulated, the SyRB would equal 51 billion EUR. The study covered 107 Significant Institutions from Euro Zone, and is only looking to the transition risk. So, this is only a minimum amount. The "real" amount will be larger. The buffer is depending on the transition risk losses as percentage of RWA. #EY #ClimateRisk #Banking

𝗡𝗼𝘄 𝘄𝗲 𝗮𝗿𝗲 𝘁𝗮𝗹𝗸𝗶𝗻𝗴🔥 The European Central Bank is set to take the unprecedented step of imposing fines on several lenders for their protracted failure to address the impact of climate change. Three years after the publication of the ECB's recommendations, 20 european banks that are still silent on the impact of climate and environmental risks on their portfolios. This can now result in fines that will rack up every day and could amount to 5% of daily average revenue. 𝗡𝗼 𝗺𝗼𝗿𝗲 𝘁𝗶𝗺𝗲 𝗳𝗼𝗿 "𝗼𝘀𝘁𝗿𝗶𝗰𝗵𝗲-𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗲𝘀" 🪶 But on the other side: 𝗥𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝘁𝗮𝗸𝗲𝘀 𝘂𝘀 𝗻𝗼𝘄𝗵𝗲𝗿𝗲 𝘂𝗻𝗹𝗲𝘀𝘀 𝘄𝗲 𝘁𝗿𝘆 𝘁𝗼 𝗺𝗮𝗻𝗮𝗴𝗲 𝘄𝗵𝗮𝘁 𝘄𝗲 𝗵𝗮𝘃𝗲 𝗷𝘂𝘀𝘁 𝗺𝗲𝗮𝘀𝘂𝗿𝗲𝗱; “It remains unclear from what the banks themselves are reporting and in the targets they are setting whether they are actually providing the finance required to transition our economy and mitigate against the most damaging consequences of climate change,” said Xavier Lerin, senior research manager at ShareAction Also reported here: https://lnkd.in/d4ZsmCuz

On May 9th, 2024, the Federal Reserve released its first-ever report examining the potential risks of climate damage to America's banking sector. The analysis underscores the importance of investing in climate mitigation strategies, highlighting it as a clear opportunity for the sector. After reading this article, do you think its worth playing the game of investment chicken? #FederalReserve #ClimateRisk #BankingSector #InvestingInClimateMitigation #MoodysAnalytics #ClimateonDemand #MoodysClimateModel #Climate

Frank Elderson gave the clearest indication yet that the European Central Bank will fine some banks for shortcomings in their #climate #risk #management. In an interview today, Elderson said the process to impose #period #penalty #payments (#PPPs) is ongoing and the outcome may be annoucned by the end of the year. Check out my thoughts on this #PPP news in my latest Substack post:

𝐉𝐮𝐬𝐭 𝐢𝐧 𝐓𝐢𝐦𝐞 "𝐓𝐡𝐞 𝐢𝐦𝐩𝐚𝐜𝐭 𝐨𝐟 𝐄𝐂𝐁 𝐁𝐚𝐧𝐤𝐢𝐧𝐠 𝐒𝐮𝐩𝐞𝐫𝐯𝐢𝐬𝐢𝐨𝐧 𝐨𝐧 𝐂𝐥𝐢𝐦𝐚𝐭𝐞 𝐑𝐢𝐬𝐤 𝐚𝐧𝐝 𝐒𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐥𝐞 𝐅𝐢𝐧𝐚𝐧𝐜𝐞" Click here to read more: https://lnkd.in/ejQgWmrk The paper explores the effects of the ECB’s supervisory actions on climate #riskmanagement and sustainable finance among banks, in particular, the introduction of the climate-risk-related supervisory efforts since 2020 to enhance banks' awareness and preparedness for managing climate-related risks. The first analysis are included in the «Guide on C&E Risks» and in the first climate risk #stresstest in 2022 where aims to assess the impact of these supervisory efforts on banks' climate risk exposure and management, as well as their green finance activities. Authors: Gianluca Abate, Bianca Ghilardi, Marco Najm and Tommaso Travenzoli #ECB #ESGRisk #ClimateRisk #SustainableFinance #DataQuality