Assessing the available evidence related to consumer credit risk

Sergio Scandizzo and Tony Hughes

A key theme running through this book is that the available evidence linking climate change to financial stability is either lacking or too mild to be considered a genuine proximate threat. Normally we would expect public policy, especially around bank supervision, to be conducted strictly on the basis of the available evidence. Put simply, the banking system seems to have been robust to the physical effects of climate change that have been observed in recent decades and may even be a net beneficiary of the conditions that lead to global warming. The financial system has also generally held firm given the variety of transition efforts that have been undertaken by legislators and preference shifts undertaken by the general public.

Indeed, you could argue that global warming is already woven into the risk management fabric of the banking sector. This is not to say that banks cannot refine their practices to better account for the effects of climate change, or that banks cannot use such an initiative to find opportunities to profit and avoid a range of potential losses caused by climate change. We are merely saying that regulators neglecting to explicitly deal with climate change would