Climate shocks could quickly ripple through the euro zone economy as financial interlinkages amplified dangers and losses, a study by the European Central Bank and the EU's risk watchdog, the European Systemic Risk Board, said on Tuesday.
The ECB, which supervises the biggest banks in the 19-country euro zone, has for years argued that climate change is a top risk and has pushed lenders to acknowledge and reduce their exposures, but with little success so far.
"In a disorderly transition scenario, marked by an immediate and substantial increase in carbon prices, respective market losses of insurers and investment funds could potentially amount to 3% and 25% stress-tested assets in the near term," the report said. Beyond the corporate sector, households also appeared to be vulnerable, with almost half of outstanding home loans having been to made to borrowers who have high ratios of energy costs to income, the report added.
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