Banks begin tackling climate stress tests of trading books

Market risk professionals see major shortcomings in available scenarios

Climate change target

Banks are beginning to design and implement internal tests for assessing trading book losses resulting from governments’ successes – or failures – in drastically cutting greenhouse gas emissions.

Many banks and regulators already run crisis simulations to assess how their loan books will be affected by a pledge to limit global warming to 1.5°C above pre-industrial temperatures by 2050. With greater attention now being paid to trading businesses, banks are looking beyond regulator-crafted tests

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