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ECB Stress Test: Imperial Regulators — Mad Emperor Edition?

Brittany Jordan



European central bank

European central bank

European Central Bank headquarters in Frankfurt, Germany. (Ralph Orlowski/Reuters)

If this (almost week-old) story is true, at a first glance it would appear to suggest that those running the European Central Bank may have lost their minds.

Via Bloomberg:

 Europe’s banks will be told to brace for a much more rapid fallout from global warming than previously assumed, according to people familiar with the design of this year’s climate stress tests.

European Central Bank stress tests due to start this quarter will ask banks to gauge the impact on their books of governments failing to mitigate climate change. In that scenario, they’re being asked to prepare for conditions expected for 2080 four decades earlier, according to people with knowledge of the matter. The ECB is expected to brief banks on the scenarios later this month, the people said.

2080! 2040! 2080 in 2040!

For the purposes of bank regulation, stress tests are not predictions. Rather, they are an exercise designed to see how banks might fare under certain unfavorable (perhaps highly unfavorable and not very likely) circumstances.  To believe that there is any realistic basis on which banks could be expected to consider the implications of fast forwarding to 2040 the effect of conditions predicted for 2080, conditions created by governmental failings — as judged (essentially) against the establishment’s climate consensus of the last few years — is delusional something of a stretch.

Perhaps it is unkind to mention that the ECB is the institution that failed to anticipate the Eurozone crisis which arguably came close to shattering the currency of which it is the guardian. This was despite the fact that flaws built into the euro had been identified as possible causes of major trouble even before the single currency was launched.

But the “2080 in 2040” ploy is almost certainly rather saner than it at first seems, however doubtful its intellectual foundations. Best guess is that it is another part of a longer-term strategy to draft banks into becoming key players in the climate wars. That’s nothing new, particularly when it comes to encouraging banks to steer their lending away from greenhouse-gas heavy sectors. In this case, the angle may be to use banks’ “findings” of the challenges that they may face in 2040 (and, by implication, “will” have to confront in 2080) if governments fail to do what is deemed to be necessary (which, to be fair, is reportedly only “one of several long-term scenarios included in the stress test”) both (1) to put more pressure on banks and (2) as the basis for propaganda either to be used by governments as “evidence” to support their climate policies or as “evidence” to be used against governments that are not felt to be doing enough to stave off a climate apocalypse.

Whether a central bank should be playing such games, well:

The risk that governments might not take adequate steps to fight climate change is far from theoretical. In fact, according to the latest annual Global Risks Report, published by the World Economic Forum, “climate action failure” is deemed the biggest global threat in the next decade.

The World Economic Forum, eh? “Davos,” in other words. Well, it must be true.

I’ll just put my tinfoil hat on while waiting to see whether 2022 is the year in which 2080 in 2040 makes it into the ECB’s stress tests.

Brittany Jordan is an award-winning journalist who reports on breaking news in the U.S. and globally for the Federal Inquirer. Prior to her position at the Federal Inquirer, she was a general assignment features reporter for Newsweek, where she wrote about technology, politics, government news and important global events around the world. Her work has also appeared in the Washington Post, the South Florida Sun-Sentinel, Toronto Star, Frederick News-Post, West Hawaii Today, the Miami Herald, and more. Brittany enjoys food, travel, photography, and hoarding notebooks and journals. Her goal is to do more longform features journalism, narrative writing and documentary work, and to one day write a successful novel and screenplay.

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