capital base and high credit ratings, counterparties in recent years have increasingly insisted both on netting of exposures and on daily posting of collateral against credit exposures. us dealers, in particular, have rapidly expanded their use of collateral to mitigate counterparty credit risks. in these programs, counterparties typically agree that, if exposures change over time and one party comes to represent a credit risk to the other, the party posing the credit risk will post collateral to cover some ( or all ) of the exposure. these programs offer market participants a powerful tool for helping control credit risk, although their use does, as we all know, pose significant legal and operational issues. legitimate concerns despite the commendable historical loss record and effective market discipline, there are undoubtedly legitimate concerns and avenues for significant improvement of risk management practices. moreover, during the recent phenomenal growth of the derivatives market, no significant downturn has occurred in the overall economy to test the resilience of derivatives markets and participants ’ tools for managing risk. the possibility that market participants are developing a degree of complacency or a feeling that technology has inoculated them against market turbulence is admittedly somewhat disquieting. such complacency is not justified. in estimating necessary levels of risk capital, the primary concern should be to address those disturbances that occasionally do stress institutional solvency - the negative tail of the loss distribution that is so central to modern risk management. as such, the incorporation of stress scenarios into formal risk modeling would seem to be of first - order importance. however, the incipient art of stress testing has yet to find formalization and uniformity across banks and securities dealers. at present most banks pick a small number of ad hoc scenarios as their stress tests. and although the results of the stress tests may be given to management, they are, to my knowledge, never entered into the formal risk modeling process. additional concern derives from the fact that some forms of risk that we understand to be important, such as liquidity and operational risk, cannot at present be precisely quantified, and some participants do not quantify them at all, effectively assuming them to be zero. similarly, the present practice of modeling market risk separately from credit risk, a simplification made for expediency, is certainly questionable in times of extraordinary market stress. under extreme conditions, discontinuous jumps in market valuations raise the specter of insolvency, and market risk becomes

in line with our supervisory expectations. given the difficulties to assess the exposure to and the impact of climate - related risk we have not assigned to this exercise quantitative objectives, beyond providing participants and us with a first bottom up assessment of their exposure, based on common assumptions, assessment which appears to be moderate by 2050. in particular, we didn ’ t set as an objective to assess the extent to which the current regulatory framework is sufficient and well suited to absorb climate - related risks, and whether additional supervisory capital requirements would be legitimate. models, metrics and methodologies developed so far are still in their infancy and the data too sparse to allow drawing firm conclusions about the loss absorption capacity of current capital levels. nonetheless, we already see at the acpr these exercises as prudential tools, as they have proved helpful to us at incentivizing financial institutions to give the proper level 1 / 3 bis central bankers'speeches of priority and resources to the monitoring and management of climate - related risks. the publication in november 2020 of the ssm guide on climate and environmental - related risk was driven by the same logic and the preparation underway of an ssm stress test should provide an additional step at european level towards more supervisory scrutiny in the process of fully integrating these risks into the day - to - day risk management of banks. 2 - there are also a few lessons that can be drawn from our experience from a methodological standpoint, as the use of such scenario analysis by supervisors is likely to be repeated and is likely to spread among supervisors. i would like to highlight two of them. first, tremendous progresses have been made in the domain of climate risk scenarios under the aegis of the network of central banks and supervisors for the greening of the financial sector, the ngfss. thanks to this “ coalition of the willing ”, gathering today more than 90 central banks and supervisors across the world, high level scenarios were published in july last year, updated a couple of weeks ago by a set of 6 scenarios. this set of global reference scenarios provide a good basis for financial authorities. of course, the ngfs should continue to develop and refine those scenarios. however, there will remain the need to tailor those scenarios to the circumstances of each jurisdiction, for instance specifics of their climate policies, or more precise meteorological data at the national level. in addition, st may legitimately differ along other methodological dimensions. a case in point is the use or not of a dynamic balance sheet assumption