ECB climate stress test flags €70bn risk to eurozone banks

European Central Bank's initial forecast understated losses as it did not take account of indirect effects of the downturn

The ECB's correction comes as the eurozone is set to struggle with drought, rising energy prices, and a possible halt to gas supplies. File picture: Alex Kraus/Bloomberg

A sudden jump in carbon prices coupled with floods and droughts this year would lead to losses of at least €70bn for the eurozone's largest banks, the European Central Bank said.

The ECB said the estimate in its first climate stress test significantly understated actual losses for the 41 banks in the sample because it focused only on credit and market risk and did not take account of indirect effects such as an economic downturn.