Climate change, central banking and financial supervision: beyond the risk exposure approach

Yannis Dafermos

No 243, Working Papers from Department of Economics, SOAS University of London, UK

Abstract: It is now increasingly accepted that central banks and financial supervisors can no longer ignore climate change. However, there is no consensus on how they should address climate issues. On the one hand, there is a view that central banks and financial supervisors should mainly contribute to the assessment of the exposure of the financial system to climate-related financial risks, considering at the same time the possibility of incorporating climate risks into monetary policy and financial supervision and regulation. On the other hand, it is argued that central banks and financial supervisors need to take action such that they contribute directly to the decarbonisation of our economies and the prevention of climate systemic risks. In this paper, I analyse the main premises and implications of these two approaches and I explain why a systemic risk approach is necessary in the age of climate emergency. I also discuss the challenges involved in a policy agenda aiming at the reduction of climate systemic risks and I outline how these challenges can be tackled.

Keywords: climate change; central banking; financial supervision; macroprudential regulation; systemic risk (search for similar items in EconPapers)
JEL-codes: E12 E5 G18 Q54 Q57 (search for similar items in EconPapers)
Pages: 23
Date: 2021-09
New Economics Papers: this item is included in nep-env, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Chapter: Climate change, central banking and financial supervision: beyond the risk exposure approach (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:soa:wpaper:243

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