BBVA-The first climate stress tests for European banks have arrived.
ENPNewswire-May 3, 2022--BBVA-The first climate stress tests for European banks have arrived
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Release date- 03052022 - In January 2022, the European Central Bank (ECB) launched the first stress test for European banks using climate criteria.
Ana Rubio, the Head of Financial Regulation at BBVA, and Antoni Ballabriga, the Global Head of Responsible Business at the bank, help us to better understand exactly what these tests are.
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What are the climate stress tests and who conducts them?
Every two years, European banks undergo a European Banking Authority (EBA) stress test. In 2022, the ECB is adding a new test that incorporates climate criteria. So far, 'the European supervisor has various lines of work underway on this subject, including periodic evaluation of the guides on supervisors' expectations and thematic inspection of banks,' Ana Rubio explained. This year, in addition to this framework for action, 'the first stress test to assess banks resistance to different scenarios of climate change will be tested.' It is a process that is 'in its infancy,' Antoni Ballabriga added.
What do the tests consist of?
The ECB has divided the exercise into three modules: i) a questionnaire on banks' capacity to carry out the climate stress tests; ii) a comparative analysis to assess the sustainability of the bank's business models and their exposure to companies that produce the most emissions; and iii) a bottom-up stress test. To ensure proportionality, smaller banks will not be required to include projections for the stress tests.
Specifically, 'the test will use macrofinancial scenarios based on those put together by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS).These scenarios reflect possible climate policies in the future and take into account physical risks like rising temperatures, drought and flooding, and short- and long-term risks associated with the transition toward a greener economy,' the ECB indicated.
Therefore, in the words of Ana Rubio, it is a 'very ambitious exercise', as it includes a qualitative part that focuses on evaluating the banks' internal procedures, a comparative analysis of banks in terms of the sensitivity of their income and their exposure, and an exercise to analyze the impact of the various scenarios on lending portfolios.' Furthermore, it analyzes both physical risks like those associated with...
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