The UK’s central bank will screen its banks and insurers for their resilience to the effects of climate change and their adaptation to the transition to a carbon-neutral economy, according to Reuters.
The study will cover the 19 largest banks and insurance companies. The results – as confirmed by the Bank of England (BOE) – will not yet be used to determine capital requirements.
The table states that in May 2022 only the total results of this stress test will be published, without going into the details of each of the entities surveyed. The Bank of England states that if there is no need for a second round of testing, results may be published earlier.
The stress test assumes three scenarios spanning a 30-year period: early actions by governments around the world to reduce carbon emissions, delaying actions and no additional action.
The analysis for banks will focus on credit risk, with an emphasis on the detailed risk research of large corporate counterparties. For insurers, it will focus on changes in invested assets, reinsurance receivables and insurance liabilities.
The end result will be stronger management of climate-related financial risks across the sector. This will shape the way regulators do their work and help financial firms better respond to climate risks, said Andrew Bailey, head of the Bank of England’s business.