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The regulatory response to climate risks: some challenges

In February, the Financial Stability Institute (FSI) published a paper on the regulatory response to climate risks. From a technical standpoint, this paper examines the challenges authorities would face when trying to adapt the prudential framework to deal with climate-related financial risks, and it examines different policy options.


Below you can find the key takeaways:

  • In order to have financial stability, authorities should revise their prudential frameworks to make sure that climate-related risks are fully considered.
  • Due to the longer time horizons and a greater level of uncertainty associated with climate-related financial risks, standard Pillar 1 instruments may not be adequate to address these risks.
  • By comparison, Pillar 2's inherent flexibility makes it an optimal framework for ensuring that banks can manage such risks effectively and have sufficient loss-absorbing capabilities against them.
  • Current macroprudential frameworks are unlikely to manage systemic climate-related risks effectively and can even be counterproductive to financial stability. Green supporting factors would be similarly ineffective.

Published on 13.07.2022


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RBI Regulatory Advisory

Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria  | Tel: +43 1 71707 - 5923