Stress test to be learning exercise to assess banks’ climate-risk preparedness; Aggregate results to be published in July 2022; No direct capital impact on banks from exercise
The European Central Bank (ECB) today launched a supervisory climate
risk stress test to assess how prepared banks are for dealing with
financial and economic shocks stemming from climate risk. The exercise
will be conducted in the first half of 2022 after which the ECB will
publish aggregate results.
This test is a learning exercise for banks and supervisors alike. It
aims to identify vulnerabilities, best practices and challenges banks
face when managing climate-related risk. Importantly, this is not a pass or fail exercise, nor does it have direct implications for banks’ capital levels.
consists of three distinct modules: (i) a questionnaire on banks’
climate stress test capabilities, (ii) a peer benchmark analysis to
assess the sustainability of banks’ business models and their exposure
to emission-intensive companies, and (iii) a bottom-up stress test. To
ensure the proportionality of the exercise, smaller banks will not be
asked to provide their own stress test projections.
The stress test targets specific asset classes exposed to climate
risk rather than banks’ overall balance sheets. It focuses on exposures
and income sources that are most vulnerable to climate-related risk,
combining traditional loss projections with new qualitative data
This test will use macro-financial scenarios based on scenarios prepared by the Network of Central Banks and Supervisors for Greening the Financial System.
These reflect possible future climate policies and assess both physical
risks, such as heat and droughts and floods, and short and long-term
risks stemming from the transition to a greener economy.
From March 2022, banks will submit their climate risk stress test templates
to the ECB for assessment. The supervisor will subsequently engage with
the banks, provide feedback and ensure fair and consistent outcomes.
The results will feed into the Supervisory Review and Evaluation
Process (SREP) from a qualitative point of view. This means that this
stress test could indirectly impact Pillar 2 requirements through the
Supervisory Risk and Evaluation Process (SREP) scores, but will not
directly impact capital through Pillar 2 guidance.
The 2022 ECB climate risk stress test will complement other ECB
Banking Supervision and central banking climate-related deliverables.
These include (i) the economy-wide climate change stress test, published in September 2021, (ii) the assessment,
released in November 2021, of how banks are adjusting their practices
to manage climate-related and environmental risks, and (iii) the 2022
thematic review on the incorporation of climate-related and
environmental risks into banks’ risk strategies, governance and risk
management frameworks and processes.
For media queries, please contact Georgina Garriga Sánchez, tel.: +49 69 1344 95368.
© ECB - European Central Bank
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