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A Primer on Long-Term Financial Supervision

Report Risk management & supervision Regulators & policymakers

This report explores the materiality of long-term risks, which can create significant financial stability risks to financial markets while being outside the time horizon of financial supervision.

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10+ years after the global financial crisis, financial supervisors are still struggling to integrate “long-term risks” into short-term supervisory mandates. Additionally, financial markets are poorly prepared for ‘break the glass’ type scenarios involving a range of systemic economic risks such as climate change, pandemics, and artificial intelligence. In response, this report outlines our recommendations for ways that financial supervisors can grapple with long-term risks.

Key recommendations:

  1. Financial supervision should involve long-term scenario analysis and stress-tests of systemic risks.
  2. It should entail analyzing the ‘risk exposure’ of current assets based on maturity and amortization profiles.
  3. Finally, it should involve the integration of long-term risks into risk management frameworks.

Independent, non-profit think tank working to align the financial sector with international climate goals.

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© The 2° Investing Initiative

2DII today announced it is transferring stewardship of the Paris Agreement Capital Transition Assessment (PACTA) to RMI, formerly Rocky Mountain Institute. PACTA measures financial portfolios' alignment with various climate scenarios, including those consistent with the Paris Agreement. Under RMI’s stewardship, PACTA will remain a free, independent, open-source methodology and tool, and will continue to provide the financial and supervisory community with forward-looking, science-based scenario analysis to help users make climate-aligned financing decisions. RMI will invest in scaling up PACTA’s usability and applicability in day-to-day investment decisions as well as reporting requirements.

Access the full press release here: https://2degrees-investing.org/2-investing-initiative-transfers-stewardship-of-pacta-to-rmi/In the coming weeks, we will update this website with additional information. For now, please note that all contact information remains unchanged.