widespread assumptions about the distribution of shocks or the linearity of impacts) may fail to take account of certain unique features of climate risks.21 Prudential authorities are increasingly asking financial intermediaries to improve their models and integrate climate risks into them.22 In May, the NGFS published its guide for integrating climate-related and environmental risks into prudential supervision.23 The ECB recently consulted on a ‘Guide on climate-related and environmental risks’,24 which explains how supervisors expect banks to consider climate-related and environmental risks in their governance, risk management frameworks, and business strategy.
Furthermore, domestic interest rates, which have traditionally followed the path of U.S. rates, have recently gone their own way, with an upward tendency and widening spreads. See Graph 5 By far, exchange rates have been the most affected financial variable, with generalized depreciations of emerging-market currencies against the U.S. dollar on a trade-weighted basis.