Climate risks added to Basel Committee’s core principles

May 1, 2024|Written by Katy Lee|Basel Committee on Banking Supervision

The Basel Committee on Banking Supervision has incorporated climate risks into an update of its core principles, which set out the overarching standards for regulations to keep the global financial system stable.

The changes to the committee’s core principles acknowledge that “climate change may result in physical and transition risks that could affect the safety and soundness of individual banks and have broader implications for the banking system and financial stability”.

The changes were approved at a gathering of more than 200 central bankers and supervisors, representing more than 90 jurisdictions around the world, in Basel, Switzerland on 24-25 April.

“Banks should understand how climate-related risk drivers may manifest through financial risks, recognise that these risks could materialise over varying time horizons (which may go beyond their traditional capital planning horizon), and implement appropriate measures to mitigate these risks,” the updated principles state.

“Supervisors are also expected to consider climate-related financial risks in their supervision of banks, to assess banks’ risk management processes, and to require banks to submit information that makes it possible to assess the materiality of climate-related financial risks.”

The Basel Committee’s core principles had been under review since 2022 with the intention of incorporating lessons learned since the last overhaul a decade earlier, as central banks and financial supervisors were emerging from the global financial crisis.

Beyond tackling climate-related risks, other changes in this update include reinforced corporate governance processes and strengthened macroprudential measures for supervisors.

The changes were approved as the Basel Committee marked 50 years since it was set up by the central bank governors of the G10 countries at a time of major uncertainty in international currency and financial markets.

While the Committee has become the primary global forum for cooperation on banking supervision over the past half-century, its decisions have no legal force, relying on its members’ commitment to meeting its standards.

This page was last updated May 1, 2024

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