This key global authority fears banks are mispricing climate risks on their books
New research finds a disconnect between how loan books and equity markets are judging the risks of climate change.
It sounds like good news: the global banking authority has found the climate change impact on the banking system is not as great as feared. The bad news is that’s probably because the risk is being under-priced.
In research released overnight, the Bank for International Settlements (BIS) found the microeconomic impacts of climate change on loan and bond spreads was less than 50 basis points - although stock markets are pricing the risk more significantly.
“(But) the overall balance is more in the direction of an underestimation of the risks from climate change from the perspective of banks, rather than a situation where risks are likely to be fully manageable by banks,” BIS found.
“The main channel is the materialisation of unexpected risks insufficiently priced in lending or bond spreads.”
