We will need to know what issues to pay attention to, how those issues affect your business and find a common language to discuss them in a meaningful way. To this end, the Bank and Securities Commission Malaysia, are collaborating with the World Bank to develop a principles-based taxonomy to enable financial institutions in Malaysia to classify green assets consistently. This framework aims to support informed decisions and analysis of exposures to climate risk in fund raising, lending and investment activities. The Bank expects to issue the first draft of the taxonomy by the end of this year for industry feedback prior to its adoption. Second, we need to develop a more complete understanding of the impact of climaterelated risks to the Malaysian financial system and economy. In this regard, the Bank is actively involved in working together with the Central Banks and Supervisors Network of Greening the Financial System (NGFS) to develop an analytical framework to assess such risks. This entails sizing the impact of climate change on our financial system and economy, both in the central case and tail-end scenarios. This exercise also aims to estimate the relevant time frames in which these risks may materialise. To do so, we would need to better understand the transmission channels of climate-related risks, taking into consideration potential second-round effects and feedback loops.
Public authorities – at least in Europe – have tended to come to the aid of weak institutions, thus confirming the existence of an implicit guarantee for banks’ liabilities. This guarantee distorts the incentive system for the managers of banks and for their creditors, generating considerable costs for the public finances of the countries concerned. A key factor in encouraging the suitable risk perception of each liability instrument, and thus in minimising the cost for taxpayers, is bail-ins. These establish a clear order for the incurring of losses by shareholders and creditors, and provision is made for this arrangement to be activated prior to any injection of public funds. In Europe, given the political agreement reached on the Recovery and Resolution Directive, a set of common rules will be adopted in the near future establishing a clear and homogeneous order of seniority of liabilities in the event of bank resolution, and it will ensure the administrative power to impose losses on the holders of each instrument. That will notably minimise the cost to taxpayers of bank bail-outs. But common rules are not enough. The only way to ensure the possible homogeneous application of these rules is through the creation of a common resolution authority for all countries. BIS central bankers’ speeches  3  Similarly, it is important to have a common resolution fund in place which ensures, under similar conditions, that there is the necessary financial support for those institutions which might need it, irrespective of the budgetary situation of the State concerned.