A storm is coming
Climate change is a serious issue and many of us want to do our part to address it. Credit unions want to prepare themselves to be resilient to the physical and transitional risks. With improved data and climate-risk economic analysis available today, regulators can no longer ignore the connection between climate change and the financial system. Regulators have a number of policy levers at their disposal that they can use to mitigate these risks. The policy debates over the right combination of these levers are now front and center among the international community and the international standard setting bodies.
This position is now evident in the most recent consultation by the Basel Committee on Banking Supervision in Principles for the Effective Management and Supervision of Climate Related Financial Risks. The Basel Committee really pulled every policy lever possible to address climate change in this document. The principles call for requirements addressing climate-related risks, including an internal control framework, capital and liquidity adequacy requirements, a risk management process, management monitoring and reporting requirements, comprehensive management of credit risk requirements, comprehensive management of market, liquidity, operational and other risks, and scenario analyses. Analyzing each of these, it is easy to see that a regulatory storm is coming. The key here is to secure a proportional approach that works for credit unions. The Basel Committee needs to explicitly recognize proportionality in these principles, or the storm of financial exclusion will only get larger.
WOCCU Urges Proportionality in Climate Principles
World Council of Credit Unions urged the Basel Committee on Banking Supervision to include proportionality in its Principles for the Effective Management and Supervision of Climate Related Financial Risks. The comments came as a response to the Basel Committee’s request for comments on its efforts to address the physical and transitional risks that could affect the safety and soundness of individual financial institutions as a result of climate-related financial risks. The Basel Committee is looking to strengthen the regulation, supervision and practices of financial institutions worldwide.
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