European Central Bank's Frank Elderson highlights need for banks to build resilience against climate risks

by@ecb

Summary

Frank Elderson, Vice-Chair of the Supervisory Board of the European Central Bank (ECB), delivered a keynote speech at the ECB-Bank of England Conference, highlighting the growing complexity and interconnectedness of global risks, particularly relating to climate and nature crises. He emphasized that banks must enhance their resilience against unexpected challenges as the traditional risk management framework becomes inadequate in this uncertain environment. Elderson noted the need to distinguish between measurable risks, known unknowns, and radical uncertainties, stressing that the ongoing climate impacts could lead to significant economic losses, with estimates suggesting over €50 billion short-term losses in Europe due to this year's droughts alone. The ECB's supervisory priorities for 2026-28 underscore this challenge, calling for comprehensive approaches to manage heightened uncertainty across various risk areas.

Analysis

Frank Elderson: Frank Elderson serves as a Member of the Executive Board of the ECB and Vice-Chair of its Supervisory Board, overseeing banking supervision and contributing to policy on financial risks. In this news, he delivered a keynote speech at the ECB-Bank of England conference, emphasizing the challenges of non-linear climate and nature risks, known unknowns, and the need for banks to enhance resilience against radical uncertainty. European Central Bank: The European Central Bank is the central bank for the euro area, responsible for conducting monetary policy, supervising significant banks through its Banking Supervision arm, and promoting financial stability across the European Union. In this news, the ECB is co-hosting a conference with the Bank of England focused on supervising climate and nature risks in a non-linear world, with its Executive Board member delivering the keynote address on building resilience amid uncertainty. Supervisory Priorities: The ECB's 2026-28 supervisory priorities identify heightened uncertainty as a cross-cutting challenge across multiple risk areas for banks. Risk Management Approach: Addressing climate and nature risks requires distinguishing between measurable risks, known unknowns addressed via scenarios, and radical uncertainty best managed through resilience-building measures. Climate Scenario Analysis: The Network for Greening the Financial System provides evolving global reference scenarios used by central banks to assess climate impacts on economies and financial systems.

Categories

macro
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