Book contents
- Central Banking and Sustainability
- Central Banking and Sustainability
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Introduction
- Part ISustainability as a New Objective of Central Banks
- Part IIUnderstanding and Managing Sustainability Risks
- 7Sustainable Central Bank Balance Sheets and Operations
- 8Climate-Related Risks, Systemic Risks, and Macroprudential Regulation
- 9Central Bank Supervisory Role
- 10Operationalising the Climate Change Action Plan of the European Central Bank
- 11Designing Stress Tests for Sustainability Risks
- 12Central Bank Digital Currencies and Financial Inclusion
- Part IIIIn Search of Guidance
- Index
- References
8 - Climate-Related Risks, Systemic Risks, and Macroprudential Regulation
from Part II - Understanding and Managing Sustainability Risks
Published online by Cambridge University Press: 06 February 2026
Book contents
- Central Banking and Sustainability
- Central Banking and Sustainability
- Copyright page
- Contents
- Figures
- Tables
- Contributors
- Introduction
- Part ISustainability as a New Objective of Central Banks
- Part IIUnderstanding and Managing Sustainability Risks
- 7Sustainable Central Bank Balance Sheets and Operations
- 8Climate-Related Risks, Systemic Risks, and Macroprudential Regulation
- 9Central Bank Supervisory Role
- 10Operationalising the Climate Change Action Plan of the European Central Bank
- 11Designing Stress Tests for Sustainability Risks
- 12Central Bank Digital Currencies and Financial Inclusion
- Part IIIIn Search of Guidance
- Index
- References
Summary
Climate risks pose significant financial challenges that align with the stability mandates of central banks and supervisors. They can lead to economic losses impacting households, firms, and financial institutions, potentially threatening financial stability. Current supervisory efforts have focused on microprudential policies, with the Basel Committee on Banking Supervision (BCBS) establishing a comprehensive approach across the Basel Framework’s three pillars. However, the systemic nature of climate risks necessitates macroprudential responses as well. Like other systemic risks, climate risks are widespread in financial markets and can lead to amplified financial disruptions. However, unlike other systemic risks, climate risks are foreseeable and irreversible, although they are subject to uncertainty in timing and outcomes. This chapter argues that effective macroprudential measures, such as systemic capital buffers and concentration limits, can enhance resilience and mitigate future risks but require careful calibration to avoid adverse effects. Against this background, and given that immediate action is essential to prevent delayed responses that could exacerbate financial instability, central banks and supervisors could prioritize large institutions and high-risk sectors in initial implementations.
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- Central Banking and Sustainability , pp. 154 - 175Publisher: Cambridge University PressPrint publication year: 2026
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