The PRA survey finds that a majority of banks now see them as financial risks – rather than just a reputational or corporate social responsibility issues. As such, oversight of climate-related risks and overall responsibility for setting the climate risk strategy, targets and risk appetite has been elevated to Board level. Banks have begun considering the most immediate physical risks relevant to their business models – from the exposure of mortgage books to flood risk or, for globally active banks, the impact of extreme weather events on country risk. And they have begun to assess exposures to transition risks where government policy is already pulling forward the adjustment. This includes exposures to carbon-intensive sectors, consumer loans secured on diesel vehicles and buy-to-let lending given new efficiency requirements. But many banks have indicated that there is some way to go to identify and measure climaterelated risks more comprehensively, including given the need to improve data and expertise. This includes developing their approaches to stress testing for climate-risks as well as, over longer horizons, more dynamic scenario analysis. It is clear, however, that the TCFD framework is helping, including to identify metrics and promote use of climate-related scenario analysis. 6  Bank Underground post, forthcoming, See PRA (2015), The Impact of Climate Change on the UK Insurance Sector, https://www.bankofengland.co.uk/prudentialregulation/publication/2015/the-impact-of-climate-change-on-the-uk-insurance-sector 7  7  All speeches are available online at www.bankofengland.co.uk/speeches  7  Fourth, financial policymakers.
The fourth lesson is on capital flows: Deal with the inflows if you want to avoid the risk of having to introduce comprehensive capital controls on outflows, which can work as in Iceland but have increasingly negative side effects on the economy. The measures that can be taken to deal with the inflows include adopting correctly aligned macroeconomic and macroprudential policies, leaning into the wind by buying part of the inflows into foreign exchange reserves, and even in extreme cases, deploying selective capital inflow management tools. The final lesson from all of this is that if we are going to reap the benefits of financial globalisation, we must make it safer. 4  BIS central bankers’ speeches  BIS central bankers’ speeches  5