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By Huw Jones
LONDON, March 10 (Reuters) - Britain's first stress test of
the response of banks to climate change will help the Bank of
England determine if polluting assets should face "penalty"
capital charges.
Its governor Mark Carney has told parliament's Treasury
Select Committee that the central bank is examining the case for
a "brown penalising factor", effectively a tougher capital
requirement for polluting assets held on a bank's books.
Carney said in a letter to the TSC published on Tuesday that
there are impediments, including no common definition of "brown"
and the possibility of activities moving to "green" over time.
"The adoption of a brown penalising factor is also hampered
by the absence of data that allows us to measure the riskiness
of an asset," Carney said in the letter.
The Bank will conduct its first climate change related
stress tests of Britain's leading banks in 2021 and Carney said
this will provide additional data on the links between climate
risks and write-downs for different types of assets.
He was responding to TSC Chair Mel Stride who had asked the
BoE whether it was developing any proposals that would force
banks and insurers to hold extra capital against assets that are
particularly exposed to climate risk.
Carney has said that climate change could make financial
assets worthless in some cases.
Separately, Stride had also asked Andrew Bailey, chief
executive of the Financial Conduct Authority, whether regulators
could implement a system that rates financial products according
to how sustainable or climate friendly they are.
Bailey, who becomes BoE governor on March 16, said the FCA
is analysing how financial firms design and inform retail
customers about products they say are climate friendly.
The work includes considering whether additional actions,
guidance or rules are necessary to achieve this, with initial
findings and next steps due over the summer, Bailey said.
"The FCA has powers available which could allow us to
introduce rules on regulated financial services firms to
disclose a 'simple, comparable and consumer-friendly'
environmental carbon footprint visual rating system, if
appropriate," Bailey said.
Stride said action is needed to help consumers navigate the
market and labels to clearly signal sustainability of a product
may be a good start.
(Reporting by Huw Jones;
Editing by Alexander Smith)
