Climate Change: BAM or how to better anticipate shocks

HIBAPRESS-RABAT-BAM

Future risk analysis work could consider improving production scenarios and their modeling, for example by exploring additional transmission channels to the economy and banking sector. “Future work could attempt to quantify the impacts of drought on other sectors and via other transmission pathways, as episodes of extreme drought can directly and indirectly affect a wide range of sectors,” recommends the joint BAM report. and the WB.

Based on the first analysis of climate risks established by BAM and the WB, the Central Bank could assess whether the macro and microprudential monitoring and evaluation framework of the Central Bank needs to be updated to structurally integrate the consideration takes into account climate and environmental risks. Developing an internal roadmap for integrating consideration of climate-related risks into micro- and macro-prudential supervision can be an important tool for setting forward-looking priorities, engaging relevant internal stakeholders and supporting a coordinated approach to within the organization.

The development of additional prudential guidance on climate and environmental risks can also help improve the banking sector’s response to managing these risks.

As the prudential approach develops, BAM could, according to the report, consider thematic reviews or on-site supervision for highly exposed entities.

In the same vein, the Central Bank could participate in political dialogue on how to stimulate the development of private insurance markets and/or public climate and disaster risk transfer programs.

Policymakers and BAMs should also seek to address critical data gaps that limit the ability of authorities and financial institutions to measure exposure to climate risks and conduct climate-related financial stress tests.

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