The Bank of England on Monday said it would carry out further study to ascertain if there would be any need to require banks and insurers to set aside longer-term capital buffers to provide for the consequences of climate change as it continues to set out its latest thinking on how climate change will impact the financial firms it regulates.
The BoE said existing capital rules may be incomplete due to difficulties estimating risks from climate change, albeit it capture some of the longer-term fallout.
“Existing capability and regime gaps create uncertainty over whether banks and insurers are sufficiently capitalised for future climate-related losses,” it said in a statement.
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However, the short-term priority is for firms to get better at plugging the data gaps that prevent reliable estimates of how much capital is needed for a bank to withstand shocks as the Bank said that existing time horizons over which risks are capitalised, usually covering a few years into the future, are appropriate for now given there is not yet sufficient justification for policy changes.
“The Bank will continue to explore how climate risks can be calibrated within the timelines embedded in existing capital frameworks,” it said.
The BoE said it would also look at whether “macroprudential,” or sector-wide buffers, could be needed, albeit it would not come easy.
“These issues would benefit from further research to inform ongoing policy work,” it said.
Global banking regulators are also looking at whether bespoke capital buffers are needed for climate risks.
Story was adapted from Reuters.
