For appropriate economic policies to be designed and implemented in the climate sphere it is also essential to understand that, in the transition to a more sustainable economy, there will be individuals, sectors and even countries whose welfare will inevitably be reduced (at least during the phase of transition to a new stationary state). Our responsibility for economic policy means we must properly identify those who are most likely to become “losers” and to take measures to mitigate the net negative impact on them of the transformation into a more sustainable economy. To illustrate this, let me use an example that I have referred to on other occasions:7 the globalisation debate. From the standpoint of economic theory there is little doubt that international trade has a net positive effect on the level of activity and global welfare. However, we know that in reality this is so when we compare aggregate aspects of the economy in two different equilibria, one with little international trade and another with a high 5  https://www.bankingsupervision.europa.eu/ecb/pub/ra/html/ssm.ra2020~a9164196cc.es.html#toc3 See the latest progress report of the Task Force on Climate-related Financial Disclosures (2019), available at: https://www.fsb-tcfd.org/wp-content/uploads/2019/06/2019-TCFD-Status-Report-FINAL-053119.pdf 7 Pablo Hernández de Cos (2019), Global Imbalances and Capital Flows in the Era of New Technologies, opening remarks, Banco de España and the Reinventing Bretton Woods Committee. Available at: https://www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/IntervencionesPublicas/Gobernador/Arc/Fic/h dc100919.pdf 6  Pablo Hernández de Cos (2020), “Multilateralism and globalisation reforms”, presentation of the book Excesos: amenazas a la prosperidad global, by Emilio Ontiveros. Available at: https://www.bde.es/f/webbde/GAP/Secciones/SalaPrensa/IntervencionesPublicas/Gobernador/Arc/hdc280120en.pdf  3  level.

Stress regimes need to capture market risk and credit risk across the firm, incorporating exposures in priced credit products, such as credit default swaps and structured credit products, and the strong linkages between these priced credits and traditional credit  2  BIS Review 28/2005  instruments such as bank loans. Stress regimes need to take into account the effects of a firm’s own actions and trading strategies on market prices during times of stress, and the constraints on their room for maneuver imposed by size. Banks hold a special place in our financial system, and most of our focus on improving the regulatory framework for capital will always be on banks. Getting to a greater degree of comfort about the adequacy of the capital cushion for banks is a necessary but not sufficient condition for achieving a higher level of comfort about the resilience of our financial system. This point applies equally well to non-bank financial firms that play critical roles in our financial system. These institutions, too, need to have internal controls and risk management systems and capital levels commensurate with their critical role in the financial system. The SEC’s initiative to implement internal-models-based regulatory capital requirements for securities firms as part of the Consolidated Supervised Entity (CSE) framework will help bring more consistency and more sophistication across banks and securities firms in the capital treatment of traded positions.