sabine mauderer : getting the full picture - the road ahead for climate stress testing speech ( virtual event ) by dr sabine mauderer, member of the executive board of the deutsche bundesbank, at the 2023 european banking authority workshop on climate risk stress testing, 8 february 2023. * * * 1. introduction ladies and gentlemen, how does climate change affect the economy? what impact does climate change have on growth and inflation? how does climate change affect the financial system? policymakers need answers to these questions. understanding climate - related risks and their transmission channels is essential for designing targeted policies. central banks and supervisors have outstanding analytical capabilities. dealing with financial risks is our bread and butter business. this ample expertise can help to strengthen the understanding of climate - related financial risks. these risks are not a new risk category per se. climate risk drivers can exacerbate " traditional " financial risks and existing vulnerabilities, such as credit risks and market risks. stress tests have been an integral part of the toolbox of central banks and supervisors for a long time. stress tests provide valuable insights into the risk exposure and resilience of individual banks and the financial system. climate stress tests can complement common stress tests to give a fuller picture. 2. climate scenarios – a glimpse of possible futures stress tests are forward - looking analytical exercises that build on baseline and adverse scenarios. the same goes for climate stress tests. this is where climate scenarios come into play. climate scenarios give us a glimpse of different possible future outcomes. they can help us to understand how climate - related risks could evolve and what the implications might be for the economy and the financial system. the network for greening the financial system ( ngfs ) has developed and repeatedly refined a set of six climate scenarios. the scenarios fall into three categories and explore the impact of climate change ( physical risk ) and climate policy ( transition risk ). in the orderly scenarios, the early and gradual introduction of climate policies leads to subdued physical and transition risks. 1 / 4 bis - central bankers'speeches the disorderly scenarios assume that climate policies are delayed or divergent across countries and sectors. these scenarios are associated with higher transition risk as, for instance, carbon prices might need to rise sharply and abruptly. in the hot house world scenarios, global warming cannot be limited due to insufficient global efforts. as a result, extreme weather events become more severe and more frequent. physical risks increase drastically. all these ngfs scenarios help quantify

the cea should not fall within the ambit of the act because they are cleared. if market participants conclude that clearing would reduce counterparty risks in otc transactions, concerns about legal risks associated with the potential application of the cea should not stand in their way. traditional exchanges the working group ’ s report does not make specific recommendations about the regulation of traditional exchange - traded futures markets that use open outcry trading or that allow trading by retail investors. nevertheless, it calls for a review of the existing regulatory structures, particularly those applicable to financial futures, to ensure that they are appropriate in light of the objectives of the act. consistent with the principles of regulation that i identified earlier, the report notes that exchange - traded futures should not be subject to regulations that are unnecessary to achieve the cea ’ s objectives. the report also concludes that the current prohibition on single - stock futures can be repealed if issues about the integrity of the underlying securities market and regulatory arbitrage are resolved. i want to underscore how important it is for us to address these issues promptly. i cannot claim to speak with certainty as to how our complex and rapidly moving markets will evolve. but i see a real risk that, if we fail to rationalize our regulation of centralized trading mechanisms for financial instruments, these markets and the related profits and employment opportunities will be lost to foreign jurisdictions that maintain the confidence of global investors without imposing so many regulatory constraints. my concerns on this score stem from the dramatic advances in information technology that we see all around us. in markets with significant economies of scale and scope, like those for standardized financial instruments, there is a tendency toward consolidation or even natural monopoly. throughout much of our history this tendency has been restrained by an inability to communicate information sufficiently quickly, cheaply, and accurately. in recent years, however, this constraint is being essentially eliminated by advances in telecommunications. we have not yet seen clear evidence of a trend toward natural monopoly. but the diffusion of technology often traces an s - shaped curve, first diffusing slowly, but then rapidly picking up speed. once we reach the steep segment of that s - curve, it may be too late to rationalize our regulatory structure. already the largest futures exchange in the world is no longer in the american heartland ; instead, it is now in the heart of europe. to be sure, no us exchange has yet to lose a major contract to a foreign competitor. but it would be a serious mistake for us to wait for