Weather, or not: is climate risk just part of credit risk?
Practitioners divided on whether climate risk can fit into existing credit risk weights
When regulators face a new risk in the banking sector, their natural response is to decide how much capital banks need to hold against it. The largest emerging risk is from climate change: either the physical risks of extreme weather events and rising sea levels, or the transition risk of policy changes to clamp down on carbon emissions. Both will potentially cause defaults to flow through bank loan books.
The Basel Committee on Banking Supervision has already begun work on how to incorporate
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