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19 - Integrating Climate Risk in Banking Regulation

from Part IV - Ensuring Financial Stability and Sustainability

Published online by Cambridge University Press:  30 January 2025

By
David Ramos Muñoz
Edited by
Kern Alexander ,
Matteo Gargantini  and
Michele Siri
Kern Alexander
Affiliation:
University of Zurich
Matteo Gargantini
Affiliation:
University of Genoa
Michele Siri
Affiliation:
University of Genoa
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Summary

Climate change is humanity’s greatest challenge for the XXIst century. Its effects will be felt for generations to come. In light of the enormity of the challenge, bank regulators are moving, yet reforms are neither homogeneous nor comprehensive. The EU is clearly more committed to the effort than any other player, and even within the EU, attitudes are cautious towards Pillar 1 (prudential requirements) and macroprudential measures, and bolder towards Pillar 3 (market discipline through disclosures) and Pillar 2 (supervisory review), though more uneven on the latter. This does not follow a scientific logic (due to the high uncertainty of climate risk) but a policy logic, since legislators and regulators tend to follow a path of minimum resistance, and undertake first the reforms that require them a lower epistemic burden.

Keywords

banking regulationclimate change-related physical risksclimate change-related transition risksclimate change-related litigation risksBasel Framework Pillarssupervisory reviewdisclosuresupervisioncoercion
Type
Chapter
Information
The Cambridge Handbook of EU Sustainable Finance
Regulation, Supervision and Governance
 , pp. 493 - 525
Publisher: Cambridge University Press
Print publication year: 2025

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