(Adds detail on further work)
By Huw Jones
LONDON, March 13 (Reuters) - The Bank of England will
carry out further study as it is not yet clear whether it needs
to require banks and insurers to set aside longer-term capital
buffers to provide for the consequences of climate change, it
said on Monday.
The Bank was setting out its latest thinking on how climate
change will impact the financial firms it regulates.
It may, for example, cause more flooding to destroy property
financed by banks and insured by insurers.
Existing capital rules capture some of the longer-term
fallout, but may be incomplete due to difficulties estimating
risks from climate change, the BoE said.
"Existing capability and regime gaps create uncertainty over
whether banks and insurers are sufficiently capitalised for
future climate-related losses," the BoE said in a statement.
The short-term priority is for firms to get better at
plugging the data gaps that prevent reliable estimates of how
much capital is needed for a bank to withstand shocks.
The Bank said that existing time horizons over which risks
are capitalised, usually covering a few years into the future,
are appropriate for now given there is not yet sufficient
justification for policy changes.
"The Bank will continue to explore how climate risks can be
calibrated within the timelines embedded in existing capital
frameworks," it said.
The BoE said it would also look at whether
"macroprudential," or sector-wide buffers, could be needed,
though this would be challenging.
"A macroprudential response may be justified by the fact
that climate change creates foreseeable risks at the system
level, but these risks are largely unquantifiable and the Bank
is unable to identify which firms they will impact," it said.
"These issues would benefit from further research to inform
ongoing policy work."
Global banking regulators are also looking at whether
bespoke capital buffers are needed for climate risks.
(Reporting by Huw Jones; editing by Jason Neely and Barbara
Lewis)
Messaging: huw.jones.thomsonreuters.com@reuters.net))
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