The European Central Bank, acting as the single supervisor for the eurozone banking union, unveiled on Monday 18 October the methodology that will be applied to the climate stress test it will conduct from March to July 2022.
Three modules will be implemented: - a questionnaire will assess how banks integrate climate risk into their risk management process; - a benchmarking exercise will measure banks on a number of parameters, such as their income from carbon-intensive industries and the volume of greenhouse gas emissions they finance; - a stress test will analyse how extreme weather conditions would affect each bank next year, the vulnerability of financial institutions to a sharp increase in carbon emissions over the next three years, and how banks would perform under a green transition scenario over the next 30 years.
The stress test, says the ECB, will be a learning exercise for both supervisors and banks themselves and will increase and refine the data available on how banks deal with the various aspects of climate risk. And to highlight that the stress test will have “no direct impact” in terms of capital requirements (via Pillar II of banking prudential rules).
More info at: https://bit.ly/3aSGNuQ
Climate stress test file: https://bit.ly/3ASK1ZZ (MB)