Take the climate stress test to the bank »Social Investor

A year has passed since the Central European Bank (BCE) will announce its historical return to the green and that the first climate stress tests will be carried out at the European Bank in 2022. If there are no unexpected changes, the organism that will lead Christine Lagarde the results will be published this Friday.

It will be aggregated -for countries-. Over the months, the bank has said that the results will be disseminated individually, as happens with the traditional stress tests of the EBAbut BCE has opted to avoid in this test to put names and surnames to the entities most exposed to these risks.

Investors could react negatively to the results and, taking into account that the tests are considered only a primary test and that the climatic data with which the bank can calculate risks are not always of good quality or comparable between them, so a distinction between “approved” and “suspended” as a result of EBA exercise.

But the market can fall into the temptation to make a reading by countries. And the added result could not result in all the positives for the bank very much exposed to southern Europe, among them, the Spanish.

The macro -financial climatic risk scenarios of the test are difficult for Spain, due to related risks, for example, due to the consequences of the seepage and heat waves, which could increase the fires.

The exposure to physical risks is unique to the bank of southern and northern Europe

Among the physical risks tested by BCE are two things: seepage, heat and flooding. For southern Europe, the first ones are the heaviest; to the north, there will be floods.

The test values ​​the impact on economic productivity and business activity in areas that could have been most affected by these types of effects of climate change and how it would affect the bank, for example through its credit card. However, one of the big problems with the tests is that they are partial and do not block all the activities.

The effects of what the BCE denominates as transition risks – are tied to possible regulatory changes that force companies to carbonize or their absence, which also affects the probability of physical risks – are still relatively stable. and others.

The bank, more quiet

The messages that I have launched in BCE on the market have just come in line to quit in some way important to the results; to deal with a testing methodology, a “learning exercise”, which from the market recognizes that it is necessary to improve face in the future.

To eliminate the first serious consequence that the climate could have in the bank -maying capital requirements- the BCE has also avoided speculations on possible additional endowments for a sector that is now achieving, after a number of efficiency adjustments, to recover profitability.

According to the BCE, the result will not generate any direct impact on the capital of any bank. In the middle of nowhere, without embargo, the bank decides that it will do it.

Alejandra Kindelánpresident of the Spanish Banking Association (AEB), during its intervention in the APIE summer course in Santander a few weeks ago, told regulators and supervisors that, in this sense, the same errors as with the ‘fully load’ capital ratio will not be repeated.

Although there was a capital ratio adapted to a norm that still did not remain in vigor (entered in 2019), it is recommended in reference for all investors; and generated an additional demand for the bank.

In the case of a climate, where scenarios take place in a very large area, a regulatory adaptation of advanced capital could be a handicap for the bank; especially if it is built with projections to 2050, which are really unpredictable.

Now, however, the supervisor’s blunt speech on the results of these first climatic stress tests – which are not usual – has left the European bank dead.

According to Bloomberg, which has been in contact with banks in four European economies, they are all confident that in all scenarios they will maintain their minimum capital requirements.


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