BoE stress tests could include climate change resilience, Carney says

UK bank stress tests could include investigating the financial system’s resilience to the impact of climate change from 2019, Bank of England (BoE) governor Mark Carney yesterday announced.

The Financial Times reported that Carney was evaluating whether the risks and opportunities of climate change should be included in the test, named the exploratory scenario.

The stress tests conducted by the BoE explore the potential impact of a hypothetical scenario to ensure financial institutions are resilient, possess enough capital to withstand shocks and are able to support the economy in the event of a significant stress.

The exploratory scenario test was introduced last year and takes place every two years, with the next one due in 2019. However, the scenario has no pass mark, unlike the primary stress test, which all lenders passed this year.

The first exploratory scenario conducted last year investigated how the growth and development of fintech would impact the UK’s banking system.

In an interview with the Financial Times, Carney said: “From the first one we learnt a lot about how the banks managed or didn’t manage these types of issues. And it was quite intrusive.

“And so the question is whether climate change is the next one, or the one after.”

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