The Green Swan: central banks and financial stability in the era of climate change

A new book written by Luiz Awazu Pereira de Silva, Patrick Bolton, Morgan Després, Frédéric Samama and Romain Svartzman and published by the Bank of International Settlements as of January 20, 2020 states how climate change poses new challenges to central banks, regulators and supervisors.

Traditional backward-looking risk assessments and existing climate-economic models cannot anticipate accurately enough the form that climate-related risks will take. These include what we call “green swan” risks: potentially extremely financially disruptive events that could be behind the next systemic financial crisis.

Central banks can therefore have an additional role to play in helping coordinate the measures to fight climate change. Those include climate mitigation policies such as carbon pricing, the integration of sustainability into financial practices and accounting frameworks, the search for appropriate policy mixes, and the development of new financial mechanisms at the international level.