2  BIS central bankers’ speeches  Climate change is the Tragedy of the Horizon. We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix. That means beyond: •  the business cycle; 9  •  the political cycle; and  •  the horizon of technocratic authorities, like central banks, who are bound by their mandates. The horizon for monetary policy extends out to 2-3 years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade. 10 In other words, once climate change becomes a defining issue for financial stability, it may already be too late. This paradox is deeper, as Lord Stern and others have amply demonstrated. As risks are a function of cumulative emissions, earlier action will mean less costly adjustment. 11 The desirability of restricting climate change to 2 degrees above pre-industrial levels 12 leads to the notion of a carbon “budget”, an assessment of the amount of emissions the world can “afford”. Such a budget - like the one produced by the IPCC 13 – highlights the consequences of inaction today for the scale of reaction required tomorrow. These actions will be influenced by policy choices that are rightly the responsibility of elected governments, advised by scientific experts.
Solvency ratio of the banking system percent 20 18 16  14 12 10  Solvency ratio  mar.-18  sept.-17  mar.-17  sept.-16  mar.-16  sept.-15  mar.-15  sept.-14  mar.-14  sept.-13  Minimum regulatory capital requirements = 8%  Note: Solvency ratio = Total own funds/ Risk weighted assets  Source: NBR  mar.-13  sept.-12  mar.-12  sept.-11  mar.-11  sept.-10  mar.-10  sept.-09  mar.-09  sept.-08  mar.-08  8  Source: NBR Source: NBR NPL ratio (NBR definition)  Jun. 2018  percent  Mar. 2018  Dec. 2017  Sep. 2017  Jun. 2017  Mar. 2017  Dec. 2016  Sep. 2016  Jun. 2016  Mar. 2016  60  Dec. 2015  Loan-to-Deposit ratio, %  Sep. 2015  70  Jun. 2015  90  Mar. 2015  100  Dec. 2014  percent  Sep. 2014  Dec. 2017  Apr. 2017  Aug. 2016  Dec. 2015  Apr. 2015  Aug. 2014  Dec. 2013  Apr. 2013  Aug. 2012  Dec. 2011  Apr. 2011  Aug. 2010  Dec. 2009  Apr. 2009  130  Aug. 2008  Dec. 2007  Figure 11. LTD and NPL ratio Non-performing loans  25  percent 61  120 60  20 59  110 58  15 57  56  10 55  80 54  5 53  52  0 51  NPL Coverage Ratio (rhs)  Figure 12.