The Banking Executive Magazine - April 2023 Issue

ECB the BANKING EXECUTIVE 34 ISSUE 172 APRIL 2023 ECB SAYS 16 EURO ZONE BANKS FALL SHORT OF CLIMATE DEMANDS, MAY FACE PENALTIES Sixteen euro zone banks are still fail- ing to disclose enough information about their exposure to climate risk and may face fines or even higher capital requirements from the Euro- pean Central Bank, the ECB said. European regulators have been put- ting pressure on banks to factor in risks relating to climate change, from floods and droughts to a transition to new energy sources, in the way they do business. The ECB said 16 banks, or 15% of those it assessed, were still falling short of the reporting standards, which include identifying any mate- rial exposure to climate risk, describ- ing its impact on the bank's business and spelling out how it would deal with it. It did not disclose the banks' identities. While this was an improvement from a year ago, when 45% of banks were coming up short, the ECB said lenders needed to make "further im- provements" to meet the require- ments, which come into effect in June, or face consequences. "Further improvements are urgently needed," Frank Elderson, vice-chair of the ECB's Supervisory Board, said. "We will take the appropriate super- visory actions to ensure that banks comply." Elderson has said previously that ac- tion could begin with naming the banks that fail to comply and could be escalated to include higher capital requirements or fines equal to 5% of a bank's daily turnover until the issue is resolved. Banks have to make their first sub- mission under the new rules by June 2023, with a fuller one due a year later. The standards were set by the Euro- pean Banking Authority (EBA), the European Union's main banking reg- ulator. Six banks were failing on all of the EBA's five reporting categories and only seven disclosed at least broadly adequate information in all five, the ECB said. Among global banks, the ECB found that those with their parent company outside the European Union were performing worse than those con- trolled by a EU entity. "Banks were informed of the out- come of the ECB’s analysis of the shortcomings in their disclosures via individual feedback letters," the ECB said in the report. "Further supervi- sory investigations will target the soundness of banks’ disclosures and how these align with their internal practices."