Prudential regulation tools | Nature Climate Change
Diego Hidalgo-Oñate from Jaume I University, Spain, and co-authors conducted a systematic review of what climate-related prudential regulation tools currently exist and how they could help manage climate risk in banking. The authors first describe the overall landscape of the literature, including its evolution and geographic distribution. They then identify the tools that are the most cited, including disclosure requirements, climate-related stress testing, differentiated capital requirements, targeted refinancing lines and green finance guides. The authors also point out that there are gaps that could promote future research, including a green bubble, double materiality, interactions between policies, compound risks, small and medium enterprise banking, and bank governance.