How can I simulate crisis and the potential impact of climate risk on bank capital?
Many stakeholders have pointed to the financial stability risk of climate change, but analysis of the potential impact has been limited, hampered by the challenge to establish relevant climate risk scenarios and associated data.
To this end, we provide a tool to simulate the impact of climate risk scenarios as projected by the Network for Greening the Financial System ( NGFS) on bank capital ratios. Specifically, the tool allows running stress tests for the universe of countries with a few clicks, to simulate the standalone impact of climate risk or the combined risk of recessions and climate risk scenarios in the near- and longer-term.
How do I know how climate change will affect banks’ capital ratios in difficult times ? Are we talking about one percentage point in 10 years or is it less?
As an example the following table shows the impact of a potential double dip recession in a large European economy triggered by geopolitical events with the potential impact of climate risk expected for the medium- and long-term, respectively.
example
