Climate Change Fever: Can Deposit Insurers Stay Cool?

Whereas research regarding the impact of climate change on the global financial system is ever growing, the impact of climate change and risks related therewith on deposit insurance has remained largely undealt with in literature. As global financial standard-setters have set the treatment of climate risks high on the agenda , this Policy Brief represents the first attempt to identify five core challenges that climate change may pose to the activity of deposit insurers and their ability to deliver on key objectives. The paper also classifies the challenges as to their risk-nature as well as to their directness, urgency and the feasibility of deposit insurers’ to respond to them. Given the novel nature of these issues as well as the high uncertainty and long time horizon inherent to them, the discussion here is by no means meant to be exhaustive. It is also recognised that the scale and degree to which climate change affects deposit insurers may vary significantly. This may be so due to differences in mandates or geographical exposure to climate risks. Nevertheless, the breath and scope of climate change-related risks as well as financial standard-setters’ omnipresent activities in the field make this topic of strategic interest to the deposit insurance community. The links between these challenges and the IADI Core Principles underscores the strategic urgency of this contemporary policy issue.