The Czech National Bank has published a paper presenting its latest climate stress test, which finds that the Czech banking sector maintains aggregate capital adequacy under a delayed and abrupt transition to a low carbon economy. Strong initial capital positions support this outcome, despite a substantial drawdown of releasable capital buffers. The assessment uses supervisory data as of mid-2024. The adverse scenario features a sharp increase in carbon prices that causes a significant economic shock and persistent macroeconomic losses. The framework incorporates both transition and physical risks, with transition risk dominating the scenario. A carbon competitiveness overlay captures differences in the effects of carbon pricing across countries arising from their emissions intensity, energy mix and industrial structure, reflecting the Czech Republic’s position within EU decarbonisation. The paper also highlights the importance of accounting for indirect transmission channels and modelling uncertainty in climate stress tests.
Czech National Bank stress test finds banks maintain capital adequacy under abrupt climate transition
A Czech National Bank paper finds that the Czech banking sector preserves aggregate capital adequacy under a severe climate scenario, supported by strong starting capital despite substantial use of releasable buffers. The scenario centres on a delayed, abrupt transition and a sharp carbon price increase, with the framework accounting for differences in countries’ exposure to carbon pricing.