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ECB’s call to put banks on climate change stress tests

In this interview with Maya Hojeij from Asharq Business BloombergChristof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Harvard Kennedy School and the Center on Global Energy Policy at Columbia University, discussed the European Central Bank’s call to put banks on a stress test that will show the industry’s vulnerability to climate change.

Christof Rühl discusses the European Central Bank's call to put banks on climate change stress tests with Maya Hojeij

On the likelihood of European banks to adapt with the above decision, Christof said banks could be hesitant due to two main reasons. First, financial institutions are not accustomed to reporting such indicators, in addition to the lack of clarity on the information and risks that have to be reported. Second, Europe is heading towards financial unification but that step has not been achieved yet. Meanwhile, the European financial system is under a dual supervision: the ECB supervises large financial institutions (owning 80% of assets) while domestic governing bodies supervise the rest of the institutions. This duality is leading to a lack of harmony in the banking system and thus calls on climate stress tests will increase the lack of harmony in the system.

Christof added that the lack of data is a legitimate problem that some banks are facing. If we take a step back, we should ask the following question: Why are central banks interested in climate change? It is widely known that central banks target inflation levels, set the monetary policy and supervise banks of the respective economy.  On the answer to the above question, climate change imposes risks on the economy and business activities of financial institutions, therefore restrictions that mitigate this risk should be imposed.

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