Author : Maria J Nieto, Bank of Spain
Date of publication : September 27, 2017

There is a growing consensus that climate change risks have important implications for financial stability. Following Weyzig et all (2014) methodology, this paper quantifies the (syndicated) loan exposure to elevated environmental risk sectors of the banking system in the US, EU, China, Japan and Switzerland in USD 1.6 trill and highlights the importance in terms of total banking assets. Hence, the relevance of exploring prudential policy responses including a harmonized statistical and reporting framework, which could contribute to internalizing the negative externalities associated with climate risks by both banks and their supervisors. Among the prudential supervisory tools, credit registers facilitate the assessment of environmental risk drivers in “carbon stress tests” (ESRB, 2016) formulated to assess the sensitivity of loan quality to changes in climate risk factors such as disruptive technology shocks. These recommendations could contribute to make the Recommendations of the Task Force on Climate operational –related Financial Disclosures for banks (TCFD b, June, 2017).


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