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ECB’s First Climate Test Sees Up to $71 Billion Hit to Banks

  • Lenders faulted for inadequate management of climate risks
  • Stress-test results won’t have direct impact on capital
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WATCH: ECB Executive Board member Frank Elderson says climate stress tests are not the “endgame.”Source: Bloomberg
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The European Central Bank’s first major climate stress test shows banks face a potential 70 billion-euro hit ($71 billion) from increasing natural disasters and sweeping changes across industries.

The figure totals credit and market losses in the toughest scenario where governments act late to fight global warming, droughts and floods, the ECB said on Friday. The result still “significantly understates” actual risks, partly because climate shocks weren’t accompanied by broader economic downturns and limited to specific portfolios.