Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/299586 
Year of Publication: 
2024
Series/Report no.: 
ECB Working Paper No. 2943
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Amid the growing financial vulnerabilities posed by climate change, we investigate macroprudential capital buffers to mitigate systemic risks and increase the resilience of the banking sector. Leveraging granular data and state-of-the-art stress testing methods, we quantify potential bank losses attributed to climate-related transition risks. Focusing on short-term transition scenarios, we document a significant variance among banks in their risk exposure, with the most exposed institutions being those characterized by lower excess capital. Subsequently, we introduce a methodological framework for tailoring bank-specific buffer requirements to cover these losses, offering macroprudential authorities a practical method for calibrating climate-related macroprudential capital buffers, complementing microprudential policies. While we focus our application on transition risks, the framework can be extended to capture all climate risks in general. The study demonstrates the potential of macroprudential capital buffers to mitigate potential climate-related losses and contributes to the understanding of the appropriate prudential policy response to these challenges.
Subjects: 
macroprudential policy
climate change
transition risk
climate risk
JEL: 
E61
G21
G28
Q54
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-6691-7
Document Type: 
Working Paper

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