![]() The CBES uses three scenarios to explore the two key risks from climate change: the risks that arise as the economy moves from a carbon-intensive one to net zero emissions – transition risks and risks associated with the higher global temperatures likely to result from taking no further policy action – physical risks. Instead, participants’ submissions may inform the Financial Policy Committee’s (FPC’s) approach to system-wide policy issues the Prudential Regulation Authority’s (PRA’s) approach to supervisory policy and guide further work between participants and supervisors to address any issues highlighted. ![]() The exercise will not be used by the Bank to set capital requirements, and individual participants’ projected losses will not be tied directly to actions participants are required to take. The exercise also covers the management actions participants would anticipate taking in the published scenarios as well as participants’ present and future planned approaches to managing climate risk. ![]() The CBES will also explore how firms intend to adapt their business models over time, in light of climate changes. For insurers, the CBES will focus on changes in Invested Assets (and Reinsurance Recoverables) and Insurance Liabilities (including accepted Reinsurance). For banks, the CBES focuses on the credit risk associated with the banking book, with an emphasis on detailed analysis of risks to large corporate counterparties. To do this, participants will measure the impact of the scenarios on their end-2020 balance sheets, which represents a proxy for their current business models. In doing so, it will help to identify the potential risks posed to those business models over time. The CBES will explore the vulnerability of current business models to future climate policy pathways and the associated changes in global warming. Expertise in modelling climate-related risks is in its infancy, so this exercise will develop the capabilities of both the Bank and CBES participants. The Bank intends for the CBES to be a learning exercise. This includes engaging counterparties to understand their vulnerability to climate change. Assist participants in enhancing their management of climate-related financial risks.Understand the challenges to participants’ business models from these risks and gauge their likely responses and the implications for the provision of financial services.Size the financial exposures of participants and the financial system more broadly to climate-related risks.The desired outcomes of the 2021 Climate Biennial Exploratory Scenario (CBES) are to: The 2021 exercise explores the resilience of the largest UK banks and insurers to the physical and transition risks associated with climate change. Running biennial exploratory scenarios allows policymakers to probe the resilience of the UK financial system to a wide range of risks, and is a tool to enhance participants’ strategic thinking on how to manage those risks. The Bank also runs stress tests on a periodic basis for a number of insurance firms. There are two types of exercise within the Bank’s concurrent stress-testing framework for banks and building societies (hereafter ‘banks’): annual solvency stress tests and biennial exploratory scenarios. The Bank runs regular stress tests to help assess the resilience of the UK financial system and individual institutions. News and publications Open News and publications sub menu.Option-implied probability density functions ![]() ![]() Gross Domestic Product Real-Time Database The PRA’s statutory powers and enforcement Money Markets Committee and UK Money Markets Code Greening our Corporate Bond Purchase Scheme (CBPS) Operational resilience of the financial sector Wholesale cash distribution in the futureįinancial market infrastructure supervision ![]()
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