Linda van Goor’s Post

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

🌍🚨 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

#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

The financial sector is often the first to push forward some of the most progressive ideas out there ... even when it comes to fines. Up to 5% of daily revenue for a bank, can be quite a substantial amount 💰 💰 💰 In November 2020, the ECB published a catalogue of recommendations for banks to identify and manage climate and environmental risks as part of their governance, strategy and overall risk management mainly lodged with their borrowing clients. For example, one recommendation asks banks to quantify the amount or percentage of carbon-related assets in each portfolio. #climatechange #banks #ECB #ESG #sustainability #finance

What happens if banks fail to comply with EU Pillar 3 reporting requirements? In a recent interview, Clarity AI’s regulatory lead, Tom Willman explains the risks banks face when they fall short of compliance: 1️⃣ Financial Penalties: In the last year, we have seen that the European Central Bank (ECB) is ready to issue fines in cases where it sees that banks are not taking ESG risks sufficiently into account. 2️⃣ Reputational Damage: Non-compliance can lead to negative press coverage and loss of trust from clients and partners. 3️⃣ Missed Strategic Opportunities: More than just a disclosure exercise, Pillar 3 reporting helps banks build robust climate risk strategies—critical for long-term resilience and competitiveness. 👉 Watch the full video to learn why Pillar 3 compliance is not just about avoiding penalties—it’s a foundation for stronger ESG risk management. #sustiainablefinancec | #sustainableinvesting | #responsibleinvesting | #EUPillar3 | #banking | #climate | #climaterisk | #ESG

Macroprudential capital buffers are a key instrument to consider for safeguarding the banking sector against systemic risk challenges posed by climate change. Discover this proposed framework by Florian Bartsch, Iulia Busies, Tina Emambakhsh, Michael Grill, Mathieu Simoens, Martina Spaggiari and Fabio Tamburrini (European Central Bank) to calibrate a macroprudential capital buffer for climate purposes ⤵️

Published jointly by #OliverWyman and #afme (Association for Financial Markets in #Europe), this important guidance report entitled: 𝗔 𝗰𝗼𝗺𝗺𝗼𝗻 𝗽𝗮𝘁𝗵 𝘁𝗼 𝗶𝗺𝗽𝗿𝗼𝘃𝗲 𝗘𝘂𝗿𝗼𝗽𝗲𝗮𝗻 𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗥𝗶𝘀𝗸 𝗦𝘁𝗿𝗲𝘀𝘀 𝗧𝗲𝘀𝘁𝗶𝗻𝗴 𝗮𝗻𝗱 𝗦𝗰𝗲𝗻𝗮𝗿𝗶𝗼𝘀 𝗔𝗻𝗮𝗹𝘆𝘀𝗶𝘀 aims to propose an appropriate scope for internal and external regulatory exercises, the sufficiency of existing analytical tools and data sources, and analytical capabilities banks should develop. It also tackles the question of how climate risk stress testing results should be used by banks and regulators and embedded into bank operations. The other issues analysed in the report include various aspects of the climate risk stress test, including modelled risk types, portfolios in scope, modelling granularity, time horizons, and balance sheet approach. As noted in the report: “𝗖𝗹𝗶𝗺𝗮𝘁𝗲 𝗿𝗶𝘀𝗸 𝘀𝘁𝗿𝗲𝘀𝘀 𝘁𝗲𝘀𝘁𝗶𝗻𝗴 𝗶𝘀 𝗽𝗿𝗼𝘃𝗶𝗻𝗴 𝘁𝗼 𝗯𝗲 𝗮 𝗰𝗿𝘂𝗰𝗶𝗮𝗹 𝗳𝗿𝗼𝗻𝘁𝗶𝗲𝗿 𝗶𝗻 𝘁𝗵𝗲 𝗯𝗮𝗻𝗸𝗶𝗻𝗴 𝘀𝘆𝘀𝘁𝗲𝗺". #GRC #ESG #climaterisk #riskmodeling #riskmanagement #stresstesting #riskmeasurement #modelriskmanagement #MRM #governance #scenarioanalysis #regulatoryguidance #financialrisks #transitionrisk #balancesheetapproach #capitaladequacy #bankingsector #financialmarkets

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:

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

How does climate change impact banks? And how can #banks practically integrate #climate #risk into their risk management frameworks? Climate risks are inherently different in nature to the risks traditionally managed by banks (credit, market, operational). As the climate changes, banks will need to operate amongst increasing uncertainty, balancing their strategic ambitions with prudently managing the risk. This means making climate-risk informed assessments of new loan applications, understanding climate-related risks embedded into the existing lending portfolio, and managing financial resources such as capital resources in the context of climate related risks. Last week Sharanjit Paddam, Senthooran Nagarajan, John Evans and I presented our paper for the Actuaries Institute Summit which addresses these issues, and provides practical guidance for banks to effectively manage the impact of climate risk. Read our paper here: https://lnkd.in/ehjguBEA