May 24, 2022
UK banks face up to £225bn in climate-related credit losses, stress test finds
UK banks and insurers that fail to manage the risks associated with climate change could suffer a 10-15 per cent hit to their annual profits, the Bank of England warned on Tuesday. The results of the regulator's inaugural "Climate stress test" indicated that banks could incur up to £225bn in credit losses by 2050, while insurers' asset values could fall 15 per cent under a worst-case scenario. The analysis suggested that the losses would be "Absorbable for banks and insurers, without a worrying direct impact on their solvency", said Sam Woods, head of the BoE's Prudential Regulation Authority. The stress test looked at the exposure of the largest 19 UK banks and insurers to climate-related risks - both physical risks, such as flooding, and "Transition" risks, such as potential regulatory or policy changes. The BoE's stress test envisages that banks and insurers do not change the composition of their balance sheets.
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