ECB kicks off climate stress test for banks By Reuters

ECB kicks off climate stress test for banks

EconomyJan 27, 2022 08:00AM ET

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ECB kicks off climate stress test for banks

FRANKFURT (Reuters) - The European Central Bank launched a stress test on Thursday to assess how prepared banks are to deal with potential shocks stemming from climate risk, it said in a statement.

The ECB has long warned that euro zone lenders are failing to meet its climate risk management goals, and repeatedly called on them to adjust to its standards more quickly.

"This is not a pass or fail exercise, nor does it have direct implications for banks’ capital levels," the ECB said. "It aims to identify vulnerabilities, best practices and challenges banks face when managing climate-related risk."

Still, the results of the test will feed into a broader review called the Supervisory Review and Evaluation Process and could thus indirectly impact capital requirements, the ECB added.

The results of the exercise will be published in July.

The ECB will target specific asset classes exposed to climate risk rather than banks' overall balance sheets, it said.

It will focus on exposures and income sources that are most vulnerable, combining traditional loss projections with "new qualitative data collections".

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