International Banking Regulation and Climate Change

Abstract

Climate change is a major threat to financial stability and requires financial institutions and the regulatory bodies that supervise them to put climate change at the core of their strategies and processes. The global climate crisis and the economy’s green transition are giving rise to new types of risks for banks. This paper analyses some of the key international bank regulatory standards, namely, disclosure, risk management, governance and regulatory capital. We develop the novel argument that these regulatory instruments should serve as a basis for developing more harmonised international bank supervisory standards to control the cross-border financial stability risks associated with climate change. International standard setting bodies have a role to play in promoting convergence in state regulatory practice to address climate financial risks. Accordingly, an international regulatory regime is required to coordinate the national regulatory practices of states so that they can most effectively address and control these risks.

Keywords: Banking regulation, Climate change, Financial stability, Bank governance, Environmental sustainability

JEL Classification: K23, F38, F42, F65