ECB, FMA and OeNB will continue to push for climate risks to be integrated into risk management.
The European Central Bank (ECB) published the results of its climate stress tests for large banks in Europe today. The Oesterreichische Nationalbank (OeNB) and the Austrian Financial Market Authority (FMA) will accompany Austrian banks by supervisory means as they overcome the challenges arising from climate risks and shall continue to urge the necessary adaptations in risk management.
Most large European banks – including also Austrian ones, still need to take action regarding the methodological addressing of climate risks. This is a finding from the European Central Bank (ECB) banking supervision climate stress test, which was published today, having been conducted during the first half of 2022. Less than half of the banks that were party to the stress test have integrated in their internal stress testing models, and only a small minority included climate risk aspects in their own process for granting of credit. This can be traced back to the fact there is currently still a lack of climate-relevant data to be able to analyse the risks with a satisfactory level of accuracy. Overall, the stress test shows that the European banking sector has a vulnerability towards climate risks that should not be under-estimated. However, this is significantly lower in an orderly adaptation process by the economy than in the case of delayed, disruptive changes.
“The results of the ECB’s climate stress test for large European banks, including five Austrian banks, depict the same picture as the OeNB climate stress test did in Autumn 2021 for Austria’s regionally relevant banks. They show that many banks are currently still starting their methodological handling of the financial impacts of climate risks,” remarked the OeNB’s Vice Governor, Gottfried Haber. As the goal of climate stress tests as part of the supervisory strategy is to strengthen the banks’ risk management with regard to climate risks, the FMA’s Executive Directors, Helmut Ettl and Eduard Müller, urge “banks to take decisive action. It is necessary to push on further with the integration of climate risks into banks’ risk management.” The ECB, the OeNB and the FMA will jointly drive the banks’ progress in this area in a supervisory manner, accompanying it closely and consistently monitoring it.
The climate stress test was conducted by the participating banks themselves in accordance with a methodology prescribed by the ECB, as is broken down into several modules. It includes an assessment of the adequacy of bank-internal risk modelling as well as calculations about the bank’s exposure to climate risks. In addition, larger banks also calculated the impact of several short-term and long-term climate scenarios. These scenarios contain both extreme weather events such as floods and periods of drought (“physical risks”) as well as risks arising from economic changes, such as for example the pricing of greenhouse gas emissions (transition risks”). Designed as a “learning exercises” the climate stress tests do not focus on capital measures, but instead capture the current state of climate risk modelling, and therefore assist banks and supervisors alike to familiarise themselves with new aspects. A total of 104 European banks took part.
Further information about the ECB Climate Stress Test can be found under: https://www.bankingsupervision.europa.eu/home/html/index.en.html with the methodology and results of the OeNB Climate Stress Tests having been published in Financial Stability Report 42. Basic explanations in German about the climate stress test can be found in Episode 24 of the OeNB Podcast.
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