Climate Change-Related Financial Risks Embraced in Revision of Core Principles for Banking Supervision

Climate Change-Related Financial Risks Embraced in Revision of Core Principles for Banking Supervision

By Prathamesh 6 May, 2024

The Basel Committee on Banking Supervision (BCBS) has published an updated version of its Core Principles for Effective Banking Supervision – the first update in 14 years. The new Core Principles address emerging supervisory challenges, regulatory developments, and risk mitigation, including those related to digitalisation and climate change.

The Core Principles are a set of global supervisory standards, setting a crucial basis for governments and regulators to draw on when establishing or revising their own rules and regulations. Their revision, which reflects an extensive consultation process, marks a significant development in banking supervision.

Three new topics have been explicitly included in the Core Principles: operational resilience, business model sustainability, and climate-related financial risks. These additions underscore a global consensus on the significance of these risks and the need for supervisors to take proactive measures.

With the heightened focus on operational resilience, supervisors seek to ensure banks’ ability to withstand various operational threats, including pandemics, cyber incidents, and technology failures.

Recognising the importance of sound business strategies, the revised Core Principles also includes the assessment of business model sustainability, aiming to foster banks’ long-term viability.

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