Feeling the heat? Preparing for the certainty of an uncertain future
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Supervision Newsletter article on physical climate and nature-related risks. More than 90% of banks consider them material, but serious weaknesses persist at some banks. The ECB announces deep dives from 2027 and dialogues on banks' response to extreme events.
Key points
- Losses have been limited because insurance and public aid absorb them, mechanisms that are under pressure
- Available estimates probably underestimate the magnitude of physical risks
- Deep dives on the measurement and management of physical risk at client and transaction level: first sample of banks in 2027, extended in 2028 and 2029
- The 2027 EU stress test will include flood losses before and after insurance and public aid
- The usual remediation framework will apply, with escalation of measures if necessary
Who is affected
Significant banks in the euro area
Deadlines
Deep dives from 2027; 2027 EU stress test
Plain-language version
The ECB, the central bank for the euro countries that also supervises the big banks, warns that floods, heatwaves and other climate effects are a real risk for banks. Over 90% of banks agree, but some handle it badly. From 2027 it will check them in depth, because a weak bank ends up hurting the people who keep their savings or mortgage there.
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