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Risks of Climate Change and Credit Institution Stress Tests

Eszter Boros ()
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Eszter Boros: Magyar Nemzeti Bank

Financial and Economic Review, 2020, vol. 19, issue 4, 107-131

Abstract: Climate change is one of the greatest challenges of our time, even in the short term, and financial institutions will not escape its economic effects either. Focusing on the key players of the Hungarian financing model, i.e. commercial banks, the essay reviews how the risks associated with climate change can be assessed in the context of stress tests. To do this, it considers the most recent literature on the topic and aspects that have emerged in analyst practice. The discussion of the connected issues of this special stress testing process contributes to developing the framework of domestic bank climate stress tests, to identifying the most important challenges, and it provides guidelines for their management. The most significant revealed difficulties are the accurate capturing of climate shocks and identifying their macroeconomic channels. In addition, the transformation of standard banking risk models may also require significant work.

Keywords: sustainable finance; climate change; carbon neutral transition; stress test; risk management (search for similar items in EconPapers)
JEL-codes: C51 C58 G17 G21 Q56 (search for similar items in EconPapers)
Date: 2020
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