What Should Bank Supervisors Do About Climate Risks?


This paper considers the role of bank supervisory authorities with respect to climate change. The emerging consensus is that financial supervisors and regulators must address climate-related risks to banks and other financial institutions. The paper discusses potentially productive avenues for doing that in the near term. It suggests that the role of regulatory capital requirements, while important, merits less attention than other aspects of regulation and supervision. In particular, it argues that a supervisory (as opposed to regulatory) process guided by clear principles for sound risk management and including scenario analysis is an effective route for the near term. Such an approach, leveraging the supervision process and emphasizing risk management, can be pursued within the current mandates of most authorities around the world. With regard to the critical challenge of data, the paper suggests that while disclosure is important, information needs for management of climate-related risks are broader, and financial supervisors can and should be taking various steps to support the collection of better data and the development of supporting technology and other infrastructure to effectively use that data in risk management.