BoE sees no evidence yet to support climate capital charges on banks

The Bank of England Deputy Governor Sam Woods said that BoE does not have evidence yet to force banks to hold more capital to cover risks from climate change. The BoE is for the first-time stress testing how banks and insurers would cope with meeting the United Kingdom’s net zero climate goals. But capital requirements will not be affected by the results, unlike its routine stress test.

Woods told a London Climate Action Week event that they do not currently have the evidence base to directly include certain types of mortgages which carry a higher risk weight. This is because of their climate risk, that they just don’t have that. Woods also expects that the price banks that ae charging for polluting industries will go up to reflect the risks from climate change. He added that when they look around today, they try and find evidence of those risks being factored into prices of various kinds in financial markets.

Banks had faced many protests for their financing of polluting industries. But Woods said that it would be overreach for the BoE to penalize the flow of finance towards carbon heavy industry, in that manner. He said that what they can do is say to the firms that they regulate that first of all they need to have a great understanding of what their exposures look like in this respect.

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