Insurers have responded by developing their modelling and forecasting capabilities, improving exposure management, and adapting coverage and pricing.8 In the process, insurers have learned that yesterday’s tail risk is closer to today’s central scenario. Sadly with climate, history repeats not as a farce but as tragedy and with growing frequency. For banks, the financial risks from climate change have tended to be beyond their planning horizons. The PRA’s survey of 90% of the UK banking sector, representing over $ of assets, found that these horizons averaged four years – in other words, before risks would be expected to be fully realised and prior to ambitious climate policies taking effect. 9 That notwithstanding, the PRA’s latest survey finds that almost three quarters of banks are starting to treat the risks from climate change like other financial risks – rather than viewing them simply as a corporate social responsibility issue. Banks have begun considering the most immediate physical risks to their business models – from the exposure of mortgage books to flood risk, to the impact of extreme weather events on sovereign risk. And they have started to assess exposures to transition risks in anticipation of climate action. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles, and buy-to-let lending given new energy efficiency requirements. 8 Prudential Regulation Authority. (Sept 2015). The impact of climate change on the UK insurance sector. Available: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/publication/impact-of-climate-change-on-the-uk-insurancesector.pdf 9 Prudential Regulation Authority. (Sept 2018). Transition in thinking: The impact of climate change on the UK banking sector. Available: https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/report/transition-in-thinking-the-impact-of-climate-change-onthe-uk-banking-sector.pdf?la=en&hash=A0C99529978C94AC8E1C6B4CE1EEC.

The AQR itself resulted in a gross impact on asset values in need of adjustment by € billion, € billion of which did not generate a capital shortfall. So if you add up the € billion with the € billion shortfall, you get the overall impact on the banks of € billion coming from the comprehensive assessment. This you can compare with the expectations in the market. I just quote two examples of publications by investment houses of September, the more recent ones, of two big investment banks. One made calculations for a sample of 37 banks and found that, considering the measures already taken by the banks, the shortfall would be zero, and three banks would fail. The other one considered a sample of 34 banks and concluded that, taking  BIS central bankers’ speeches  1  into account the capital measures taken by the banks in 2014, zero banks would fail and the capital shortfall would be zero. This compares with our result that out of the 25, 12 banks have already taken measures in 2014 that are enough to cover their shortfall. But there are then 13 banks that still have either to exactly apply their restructuring downsizing as it is foreseen in their plans with the European Commission, or they will have to come up with ways to increase their capital. So this is an important explanation of the meaning of the results that we have.