The European Central Bank (ECB) is facing pressure from the banking sector to disclose its climate risk calculation formula, known as the Climate Factor, after expanding its use from corporate bonds to credit claims, which account for nearly 30% of all collateral in the euro system. This could lead to banks facing additional haircuts of up to 5% on their collateral. The measure is set to take effect at the end of next year. Denisa Avermaete, head of sustainable finance at the European Banking Federation, said the expansion is important but should be carried out transparently, given uncertainties about the calculation. Meanwhile, the ECB clarified that its main purpose is to protect its own balance sheet, not to conduct monetary policy, and it will not disclose data for individual credit claims to the public. BBVA and ING Group stated that the ECB's approach aligns with their own risk assessment methods but acknowledged that there could be significant differences in weighting. Frédéric Ducoulombier from the EDHEC Climate Institute believes that transparency would allow the market to scrutinize the relationship between risk scores and financial sensitivity, and the ECB may not disclose more information without sustained pressure.
Banco Bilbao Vizcaya Argentaria S.ABBVA says the ECB's Climate Factor approach aligns with its own risk methods but notes possible significant weighting differences; the collateral haircut risk is a regulatory development affecting it.
ING Group NV ADR