And they have started to assess exposures to transition risks where government policy is already pulling forward the adjustment. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles, and buy-to-let lending given new energy efficiency requirements. But many banks have some way to go to identify and measure the financial risks from climate change comprehensively. This requires strategic board oversight and more dynamic scenario analysis so actions today can be considered in light of future impacts. Informed by these findings, the PRA published in October a draft supervisory statement for banks, insurers and investments firms which sets out expectations regarding firms’ approaches to managing the financial risks from climate change.8 The supervisory statement gives guidance in four key areas: governance, risk management, scenario analysis, and disclosure. Recognising the need to build capacity and to develop best practice, the PRA is establishing a Climate Financial Risk Forum, jointly with the FCA, to work with firms from across the financial system to advance approaches to managing climate-related financial risks. And the Bank of England is working in close collaboration with central banks and supervisors from around the world as one of the founding members of the Network for Greening the Financial System (NGFS). The NGFS brings together authorities from jurisdictions responsible for almost half the world’s emissions to share analysis and develop policies to climate-related risks and green finance. A4S A4S has long recognised that the business community needs to consider the risks and opportunities presented by climate change.

Macroprudential is no longer the policy that dares not speak its name. To safeguard these hard-won reforms, Europe now has a Single Supervisory Mechanism and European Systemic Risk Board. The Bank of England now houses the Prudential Regulation Committee and the Financial Policy Committee. The independence of these committees and their accountability to the people they serve through their respective parliaments are essential bulwarks against the inevitable recidivism that follows a financial crisis. The longer we go without disruption the more important it is to remember, remember that when it comes to financial stability, success is an orphan. Since the crisis, macroeconomic outcomes have been much less benign. Growth in both the euro area and the UK has been, on average, a percentage point lower; and inflation has been twice as volatile. There has been a persistent margin of spare capacity, with unemployment, on average, 1-1½ percentage points higher. But there have also been important differences. While the euro area has continued to experience ‘divine coincidence’ the UK has not (Chart 1). In the euro area, inflation has averaged half a point below target, reflecting in part the drag from persistent slack in the labour market. In contrast, UK inflation has been above target, averaging 2.3%, during a period where the economy was operating well below potential. That reflects the inflationary impacts of two large exchange rate depreciations and weak productivity that have offset a major positive shock to labour supply.