Podcast: Andreas Dombret on central bank climate supervision

The Basel Committee on Banking Supervision should publish a form of global guidance on climate risk, says Andreas Dombret, former deputy governor of the Deutsche Bundesbank.

Dombret, now a global senior adviser to Oliver Wyman, says banking supervision is the most important area for central banks to take a position with regards to climate change.

“That is why the Basel Committee will of course have to come up with some form of guidance, preferably global guidance. I am sure they are working on that already,” he tells Central Banking.

While Dombret believes much of the action to mitigate the effects of climate change should be taken by governments, central banks do also have a role to play.

One of the tools available to central banks are stress tests, some of which have been adjusted to include new climate scenarios.

“The stress test is a very good tool to understand where the sector is, which banks are lagging, and where the best in class are and why. This is the best approach to take in order to gain and understanding of where you want to be going,” Dombret says.

At the current juncture, the climate stress tests are exploratory in that there are no penalties in the form of additional capital requirements if banks fall short. Moving forward, Dombret says it will be interesting to see how central banks integrate the tests within their supervisory frameworks.

Dombret argues climate change is the “most dangerous medium-term risk” facing the planet right now.

“I believe we are all still underestimating the risks we are facing because of the lack of data, and because the real biting effects of climate risks are maybe 30 years away,” he says.

“We see it is on the horizon, but when it will be up close it will be too late and we won’t be able to turn it back. We have a tendency of underestimating medium- to long-term risks.”

Index

00:00 Introductions

01:15 Waking up to the problem

05:15 Are current efforts sufficient?

07:00 Climate stress tests

12:14 Role of Basel Committee

13:30 Future prudential measures

16:50 Co-ordinated approach

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