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Review Finds Climate Change Does Not Present A Serious Threat To Financial Stability

An extensive review of climate change and the risks to financial stability by Tailrisk Economics found very little evidence that climate change will have a systemic impact on financial systems in advanced countries. Most of the claims that floods, storms fires and sea level rise will generate system level risks are not based on serious analysis and proper stress tests by overseas banks are showing that losses will be very low.

“The Reserve Bank of New Zealand’s recent claims that climate change poses a systemic risk to the financial system is an overreaction” said Ian Harrison principal of Tailrisk Economics “motivated more by attention seeking than the science and sound economics”.

New Zealand is relatively well placed to manage physical climate change risks. The economy is more likely to benefit than lose from climate changes over this century. A recent NIWA study shows that flooding risk will actual fall and while sea level rise may be a challenge in some places, banks are well placed to manage the risks to their balance sheets.

“Our analysis confirms the findings in an internal Reserve Bank report written in 2018.” Harrison noted “But the Reserve Bank deliberately hid their report for months and misled people seeking it under the Official Information Act, to promote its new more catastrophist narrative”

“The Tailrisk review was written before the Reserve Bank released its ‘Climate Changed 2021 & Beyond’ paper, but a quick review found the paper lacked any serious analysis of the of impact of climate change on the financial system.

“The Bank’s role on climate change should be to keep a watching brief and to hose down uninformed inflammatory catastrophist stories about financial system risk, not to create them” Harrison said.

The report is available at http://www.tailrisk.co.nz/documents/ClimatechangeandFinancialStability.pdf

Tailrisk economics is a Wellington economics consultancy. It specialises in the economics of low probability, high impact events including financial crises and natural disasters.

Principal Ian Harrison (B.C.A. Hons. V.U.W., Master of Public Policy SAIS Johns Hopkins) worked at the Reserve Bank of New Zealand focusing on financial stability risks. He has also worked at the World Bank, the International Monetary Fund the Bank for International Settlements and as a private consultant as principal of Tailrisk Economics.

Related Tailrisk documents

The Climate Change Commission’s Final report
A response - August 2021

The National climate change risk assessment
A case of science denial? - June 2021

The Climate Change Commission Advice Report
A review and submission - March 2021

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