Bank of England Deputy Governor, Sam Woods has said Britain’s banks are unlikely to need a bespoke buffer of capital to cover fallout from climate change given the lengthy time frame involved as regulators globally are debating whether an extra capital buffer is needed as banks face climate challenges such as increased flooding hitting mortgaged properties.
“There might be a question that in order to capture climate risks… might you need a new slab of capital to deal with climate risks?” Woods told parliament’s Treasury Select Committee.
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“I have become more sceptical about that proposition through time,” Woods said.
Woods said the BoE’s climate-related testing of banks carried out in 2022 showed that fallout from climate change on banks would manifest itself over a long period of time, thereby making it more of a “pay as you go” rather than capital upfront type of risk while data to quantify the risks will also improve.
“We will expect people to be able to capture these primary effects in a very granular way,” Woods said, adding this casts doubt on whether banks will face a big hike in their capital requirements due to climate.
The BoE will set out its thoughts on climate risks in a paper shortly, Woods said.
Story was adapted from Reuters.
