Majority of EU banks expect to fail ECB's 2022 climate tests

Banking CIO Outlook | Thursday, January 07, 2021

The European banks are not yet prepared for 2022 in terms of handling environmental, social, and governance risks as they are facing immense pressure from their regulators.

FREMONT, CA: According to an industry survey conducted by Bloomberg, a landmark moment for the European regulator's attempts occurred after banks warned that they might not hold the client data in time for the climate stress tests in 2022. Further, due to the frequency of extreme weather crises and carbon emissions growing increasingly expensive, the European Central Bank (ECB) is raising concerns that lenders do not appear to be prepared for this upcoming upheaval. Additionally, the people familiar with the process state that the ECB is ratcheting up pressure on the finance industry in order to make them more adoptable. During these times, the stakes are quite high and the banks that cannot comply may risk more onerous capital requirements, which will result in fewer claims for shareholders.

After a survey conducted of 20 top European banks, the majority of them have unanimously agreed that the industry is not yet prepared for 2022 as the main reason being that much of the client data needed to inform the tests, won't be available until a year later. Many banks are also making sure that these results are not yet made public. Moreover, as scientists caution on how limited time, they have to save the planet from a climate catastrophe, the finance industry is struggling to adapt to Europe's ambitious goal of taking away the capital from polluters.

For asset managers, the prevention of greenwashing can be done by the Sustainable Finance Disclosure Regulation. To make sure that industry stays solvent through the transition, a green asset ratio and climate stress tests are the tools designed for banks. A financial trainer at Fitch Ratings in London, Jo Lock, said in an interview that many banks are calling asking for help on dealing with the rules for handling environmental, social, and governance risks. These banks are handling a lot of pressure on what they need to do or show or on what their plan is, from their regulators.

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