Third Annual Risk Conference 2025
What it is about
Fernando de Menezes Linardi, of the Financial System Monitoring Department at the Banco Central do Brasil, explained at the Third Annual Risk Conference (September 18, 2025) how Brazil measures its financial institutions' exposure to physical climate risk. The slides are in English.
The 9 slides explain the regulatory framework for social, environmental and climate risks, the exercise assessing exposure to droughts and heavy rainfall by municipality (with scenarios for 2030 and 2050) and its concrete application to the May 2024 floods in southern Brazil, assessed with NASA satellite images.
Objectives
- Explain how the Banco Central do Brasil assesses financial institutions' exposure to physical risk.
- Show the results on exposure to droughts and heavy rainfall.
- Illustrate the method with the case of the 2024 Rio Grande do Sul floods.
Key takeaways
- The exercise covers all regulated institutions (top-down approach) on a static balance sheet, and its first results were published in the Financial Stability Report of November 2022 and March 2023.
- Banks have relatively low exposures to firms and individuals in municipalities with medium or high drought risk; few institutions, small credit unions, are highly exposed (more than 50% of their loan portfolio).
- The May 2024 floods in Rio Grande do Sul affected more than 300 municipalities and 1.5 million people, with 209 dead or missing and federal aid of BRL 112 billion.
- To measure the impact, the flooded areas, identified with NASA satellite images, were cross-referenced with the geo-coordinates of institutions' borrowers' addresses.
- The results show limited exposures and possible impact on capital; proportionally, the biggest losses would be at small institutions concentrated in the most affected municipalities.
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