The consequences of mismanaging their risks can therefore be very severe not only for the individual bank, but also for the system as a whole. Chairperson, it must further be noted that Banks are highly leveraged institutions, funding their assets largely from customer deposits. Banks must therefore be accountable to their  BIS central bankers’ speeches  1  depositors. The failure of a bank can therefore result in monetary loss for depositors. The interests of depositors must therefore be protected. It is for this reason that corporate governance for banks and other financial institutions is crucial and therefore the boards of directors and management of banks have to pay particular attention to the interests of depositors and other creditors. The Basel Committee on Banking Supervision states that “effective corporate governance practices are essential to achieving and maintaining public trust and confidence in the banking system, which is critical to the proper functioning of the banking sector and the economy as a whole. Poor corporate governance may contribute to bank failures, which in turn can pose significant costs on the treasury and can have other macro-economic effects like contagion risks. Additionally poor corporate governance can lead to financial markets to lose confidence in the ability of banks to properly manage their assets and liabilities, including customer deposits, and this could in turn trigger a run on a bank or precipitate a liquidity crisis. Furthermore, effective corporate governance is also crucial for banks since it enhances transparency.

Its work should be completed within one year in order to rapidly ensure the effective disclosure on climate risk. It will formulate recommendations for voluntary disclosure, according to harmonised and therefore comparable methods. This should enable stakeholders and the public to find out about the share of financial sector assets linked to carbon emissions and the sector’s exposure to climate risk. 3. The time horizon challenge: the gradual implementation of stress tests  Stress testing is an integral part of risk management by financial institutions. It is particularly developed in the insurance and reinsurance sectors. Modelling disaster risk and capital levels – as set out in Solvency II – takes into account some of the climate risks. But the current regulatory framework for banks somehow overlooks climate change as a source of risk. Yet this would be the way to handle the question of the time horizon. In this respect, the Act on energy transition provides for the submission by end-2016 of a report on the implementation of a scenario of stress tests representative of the climate risks for banks. However, achieving this raises serious questions. Two approaches are possible. Either comprehensive stress testing, covering all risks and associated asset classes for financial institutions, which would allow supervisors to monitor the total exposure to climate risk. Or granular stress testing, focusing on assets that are more specifically exposed to climate risk, which would be more appropriate for analysing specific sectors and financing needs, such as the financing of the oil sector.