Current Challenges in Economics and Finance

Climate change has the potential to do significant economic harm, and poses worrying tail risks. It creates new challenges for monetary policy and financial regulation. This conference organized by IE University, the Bank of Spain and the St. Louis Fed analyzed the implications of climate change for markets, regulation and central banking. There is no agreement among countries about how to tackle climate risks. For example, Federal Reserve Governor Christopher Waller said that there is no need for central bankers to pay special attention to risks to the financial system from climate change because there is not an obvious danger to financial stability.

“Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States,” Waller said at the conference at IE University in Madrid. “Risks are risks. There is no need for us to focus on one set of risks in a way that crowds out our focus on others. My job is to make sure that the financial system is resilient to a range of risks,” he added. “And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others.”

The Governor from the Bank of Spain said that Spanish banks are well prepared for the current risks to financial stability. He added that the ECB needs to focus on both combating inflation and preserving financial stability as we cannot have one without the other.