Banks Can Suffer Financial Losses From Physical And Transition Climate Change Risk Drivers

Banks Can Suffer Financial Losses From Physical And Transition Climate Change Risk Drivers

Banks and bank supervisors must keep an eye on how climate change will impact banks earnings, ... [+] capital, and liquidity.



getty

The physical and transition climate change risk drivers are likely to generate significant costs and financial losses for banks and the banking system globally. Both banks and bank supervisors need to evaluate banks' existing risk management policies, processes, and procedures to assess whether banks are sufficiently capitalized and liquid to cope with climate-change related risks.



Climate-related Risks, Opportunities, and Financial Impact



Financial Stability Board

The increasing severity and frequency of physical climate risk events can have a significant adverse impact on the borrowers, counterparties and service providers interconnected to banks as well as to the physical properties of banks. Natural disasters, for example, can cause borrowers and banks' counterparties financial loses which in turn could make them unable to meet their obligations to banks; natural disasters can also lead to market volatility which would make pricing collateral posted by borrowers or counterparties difficult to value accurately.



Estimated Global Economic Loss From Natural Catastrophe Events (Not all natural catastrophes ... [+] enumerated in the chart