Iceland: Financial Sector Assessment Program-Technical Note on Management and Supervision of Climate-Related Financial Risks in the Banking Sector
IMF Staff Country Reports, July 28, 2023
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- Iceland: Financial Sector Assessment Program-Technical Note on Management and Supervision of Climate-Related Financial Risks in the Banking Sector
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Bibliographic details
- Published: July 28, 2023
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400248955.002
Overview
- The technical note analyzes management and supervision of climate-related financial risks in the Icelandic banking sector.
- Icelandic authorities are committed to addressing climate change issues and reaching ambitious objectives to reduce greenhouse gas emissions.
- The Central Bank of Iceland (CBI) has begun incorporating climate-related financial risks into macroprudential surveillance and supervisory processes.
Major findings
- Domestic coordination with the Central Bank of Iceland (CBI) should be enhanced to support adequate consideration of climate-related financial risks within the financial sector.
- CBI faces data quality and availability issues on climate-related financial risks that should be addressed as soon as possible.
- The intensity and thoroughness of systematic supervision of climate-related financial risks within the banking sector should be gradually increased.
- Banks have made commendable efforts toward transparency but should fully incorporate climate-related financial risks into their risk management frameworks.
- CBI should determine whether banks’ capital and liquidity buffers are adequate to cover climate-related financial risks.
Policy recommendations
- Enhance domestic coordination with CBI to ensure climate-related financial risks are adequately considered across the financial sector.
- Prioritize resolving data quality and availability issues on climate-related financial risks at CBI as soon as possible.
- Gradually increase the intensity and thoroughness of systematic supervision of climate-related financial risks in the banking sector.
- Require banks to fully integrate climate-related financial risks into risk management frameworks beyond current transparency efforts.
- Assess whether existing capital and liquidity buffers at banks are sufficient to cover climate-related financial risks.
Supervisory and bank actions
- CBI has started to integrate climate-related financial risks into macroprudential surveillance and supervisory processes, marking an initial step in supervisory practice.
- Banks should move from transparency toward full operational integration of climate-related financial risks in their risk management and internal controls.
- Supervisory focus should shift to more systematic and thorough oversight, including evaluation of capital and liquidity adequacy relative to climate-related financial exposures.
International Monetary Fund. Iceland: Financial Sector Assessment Program-Technical Note on Management and Supervision of Climate-Related Financial Risks in the Banking Sector.
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- 1islea2023005