#centralbank urgently need to update their risk management to ensure the transition to a #sustainable post-#COVID19 economy!
New @CEPweb blog and its thread below
(1/6)
cepweb.org/the-transition…
Pandemic and environmental crises profoundly modify demand and supply for some goods and services.
This radically reshuffles firms' asset values on financial markets and creates substantial financial risks.
See @NGFS_ for the case of climate change
(2/6)
ngfs.net/sites/default/…
Financial markets are not good at assessing transition risks linked to pandemic and environmental crises. They are mispricing them.
This is acknowledged by central banks and financial supervisors.
See, eg, the last ESRB report on climate risks
(3/6)
esrb.europa.eu/pub/pdf/report…
Financial supervisors must take risk metrics used by markets with caution and add a precautionary margin to them to set capital requirements and macroprudential buffers to reflect unaccounted transition risks
See @jryancollins and @Frank_vanlerven
(4/6)
ucl.ac.uk/bartlett/publi…
Central banks must integrate transition risks in their monetary policy operations to make sure that their balance sheets are not exposed to unaccounted risks and protected from undue losses
Climate risk assessment tools are already available for that
(5/6)
cepweb.org/shifting-gears…
Integrating transition risks in monetary policy operation and prudential regulation is an urgent step to take!
It has the additional benefit to set financial incentives to progressively align investment flows with a path towards a resilient and sustainable economy.
(6/6)
Share this Scrolly Tale with your friends.
A Scrolly Tale is a new way to read Twitter threads with a more visually immersive experience.
Discover more beautiful Scrolly Tales like this.