francois villeroy de galhau : central banks and climate - not the only game in town, but more committed than ever speech by mr francois villeroy de galhau, governor of the bank of france, at the climate finance day, paris, 26 october 2021. * * * ladies and gentlemen, it is always a pleasure to attend this landmark event for sustainable finance. but on the eve of cop 26 opening, climate emergency is such that i owe you more than just another speech. i see it as my duty both to report the great progress we have made in this area and to set out the enormous challenges that lie ahead : in very concrete and practical terms, what we have achieved since the last climate finance day in october 2020 ( i ), and what we have to further achieve in the coming year, notably on a better understanding of the macroeconomic effects of climate change ( ii ). * * i. our climate action has accelerated over the past year i am proud to stress that the banque de france, and more generally central banks have never been more committed. addressing climate change is part of our missions as supervisor and central bank : we are acting in the very name of our mandates. our actions revolve along two axes, as stylised in this quadrant. [ slide ] against the vertical axis, as supervisors, we have made significant progress to identify and help contain climate - related risks born by financial institutions. the acpr took a decisive step forward with the very first climate related stress tests, whose results were published in may 20211. a large number of major banks and insurance companies took part on a voluntary basis. the two key takeaways from this pilot exercise are that ( i ) financial risks are better contained in the context of an early and orderly transition to a greener economy, ( ii ) all main supervisors should now follow suit, as for instance the ecb and the bank of england will in spring 2022. when it comes to climate stress tests, learning by doing is much better than waiting for the perfect solution before taking any action. on voluntary disclosure of risks, the tcfd increased its footprint ; it now has more than 2, 600 supporters ( a number that has more than doubled since last year ), including more than 50 central banks. the european union is about to make a significant step forward, as it will implement mandatory disclosure for corporates through a new standard developed by the efrag with the corporate sustainability reporting directive (

rather variable. next i turn to dwelling prices. as everyone knows, dwelling prices rose a great deal over the decade or more from 1995, and not just in australia. this occurred globally. the fact that it was a widespread phenomenon is a hint that we should be wary of explanations that are solely domestic in their focus. it suggests that the global dwelling price dynamic had a lot to do with financial factors – and there is little doubt that finance for housing became more readily available. in various countries prices have subsequently fallen. in the united states, for example, prices are down by about 30 per cent from their peak, though they look like they have now reached bottom. in the united kingdom the fall was smaller – at about 15 – 20 per cent. in australia, the decline since the peak has been about 5 to 10 per cent, depending on the region. there are of course prominent examples of particular localities or even individual dwellings where price falls have been much larger. scaled to measures of income, australian dwelling prices on a national basis have in fact declined and are now about where they were in 2002 ( graph 5 ). that is, housing has become more “ affordable ”. four or five years ago we supposedly had a housing affordability “ crisis ”. now it seems that the problem some people fear is that of housing becoming even more affordable. are dwelling prices overvalued? it ’ s very hard to be definitive on that question. there are two aspects to the claim that they might be. the first is that prices relative to income are higher than they were 15 or 20 years ago. if this ratio is somehow mean - reverting, then either incomes must rise a lot or prices must fall. it could be that this analysis is correct, but the problem is that there is no particular basis to think that the price to income ratio 20 years ago was “ correct ”. there are reasons that might be advanced for why the ratio might be expected to be higher now than then – that the mean has shifted – though again there is little science to any quantification for such a shift. in any event, arguments that appeal to historical averages for such ratios lose potency the longer the ratio stays high. in australia ’ s case the ratio of prices to income on a national basis has been apparently at a higher mean level – about 4 to 4½ – for about a decade now. the second support for the claim that dwelling prices are overvalued is the observation that they seem