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BoE's Carney says may test banks for climate change impact

The Governor of the Bank of England, Mark Carney hosts a Financial Stability Report news conference at the Bank of England, in London, Britain November 28, 2018. Photograph taken on November 28, 2018. Daniel Leal-Olivas/Pool via REUTERS

LONDON (Reuters) - Banks in Britain may be tested for their resilience to the impact of climate change on their balance sheets, Bank of England Governor Mark Carney said on Monday.

Carney told the Financial Times he was weighing whether the risks and opportunities from climate change should be the focus of the BoE’s “exploratory scenario” test of banks.

The exploratory scenario test was introduced in 2017 and takes place every two years, with the next one due in 2019. It has no pass mark, unlike the main, annual health check which all lenders passed this year.

The BoE said in October that banks must come up with credible plans for protecting themselves against risks from climate change and may need to hold more capital.

The BoE under Carney has been vocal in highlighting climate change’s potential impact on the financial sector, such as the impact of floods on mortgages or valuations of fossil-fuel related investments.

He told the FT he was against lowering capital requirements for a bank that invests in a “green” or climate-friendly project, a step some European Union lawmakers have called for.

Carney said the BoE would be more open to a “brown” penalizing factor, meaning an adjustment in regulatory requirements for polluting investments.

Reporting by Huw Jones; Editing by Janet Lawrence