number of complications associated with the wider use of fair values. first, there is a question as to how one can obtain robust fair values for instruments which are not priced, even indirectly, in reasonably deep and liquid markets. model - based valuation techniques may be used, but they may not be analogous to genuine market clearing prices. the issues here include determining the conceptual basis for valuation ( “ the model ” ), obtaining the necessary inputs, and avoiding slavish adherence to a model which may in some circumstances deliver misleading results. in other words how, and to what extent, can human judgement properly be used to modify the model? second, there is the question of the economic relevance of unrealised gains and losses - particularly if they are not immediately realisable. for example, while information on changes in the fair value of bank loans conveys useful economic insights, it needs to be interpreted carefully. in many cases, a gain cannot be realised “ up front ” given the absence at present of developed secondary markets in bank loans - even if securitisation may be increasing in that area. volatility further concerns about wider use of fair value accounting relate to the possible implications for volatility in financial markets and in the economy more widely. in my view, there is an important distinction to be drawn between accounting rules which capture accurately the volatility inevitably present in the real world, and “ spurious ” volatility introduced by the accounting rules themselves. few i hope would suggest that we should remove genuine economic volatility from accounting numbers. it is surely better for users to apply their own smoothing to data if they think that is justified rather than impose smoothing rules, which can both be arbitrary and may serve to obscure the underlying data, through obligatory accounting standards. recent experience in the us and the uk is encouraging in these respects. the widening use of fair values does not seem to have had an adverse impact on the stability of the us financial system, on the equity prices of us banks, or on banks in europe which have adopted us or international accounting standards. and the move in the uk to a pensions standard with a strong fair value flavour ( frs 17 ) initially led to strong reactions, but over time i think has led to a better understanding of the actual economics of pension arrangements. at the macro - economic level, concern has been expressed that greater use of fair values could have a procyclical impact. banks ’ assets might be marked up in booms, as

need to develop the appropriate tools to identify, monitor and manage these risks. from one perspective, climate - related risks may manifest as realizations of familiar risks such as credit, market, operational, legal and reputational risk. the tools risk managers use, however, will need to change to reflect new data, changing relationships, and evolving interconnections. traditional backward - looking models based on historical trends may no longer be reliable, so the development of forward - looking 1 / 4 bis central bankers'speeches approaches grounded in scenario - based analyses may be necessary. 4 perhaps even more importantly, physical and transition risks will likely introduce new strategic risks associated with the challenges and opportunities of sectoral reallocations of economic activity, new production patterns and evolving industry exposures. range of practices given these emerging risks, what are large financial institutions actually doing to identify, monitor, and manage them? this is a new and rapidly evolving field, so we are far from coalescing around best practices or industry standards. nevertheless, some emerging themes are emerging from the largest, most complex financial institutions. i will touch on governance, risk identification and management, scenario analysis, and transparency. i ’ ll begin with governance. boards of directors and senior management are increasingly attuned to the risks posed by climate change as pressure from various stakeholders intensifies. for example, some firms are establishing internal climate - related working groups to develop enterprise - wide climate frameworks and to ensure climate considerations such as geographic concentrations or regulatory changes are better integrated into strategic decision - making. some senior leaders are discussing risk materiality in geographic and sectoral reviews and results of forward - looking climate scenario analyses. few firms, however, have formally modified or qualified enterprise - wide risk appetite statements to acknowledge climate to date, although some are considering this. based on our observations, information flows and detailed climate reporting appear more prevalent at the management committee level rather than boards of directors. in terms of risk identification and management, some firms are beginning to assess how gradual changes in climate impact operational resilience and the potential for business disruption. several conduct periodic disruption simulations with predictive weather modeling as part of their resiliency programs. this work builds on experience managing risks posed by disaster events, including severe weather, to their operations and infrastructure such as branches, equipment and data centers. this includes updating disaster response playbooks and business continuity plans to address the resultant operational risks. in terms of credit and market risk, some firms are building