Vilma Dingová, Ján Krchňavý, Marián Suchánek and Tomáš Kadrmas
This paper presents the latest climate stress test conducted by the Czech National Bank and demonstrates how climate risk narratives can be translated into a standard top-down stress testing framework tailored to a small open economy. The analysis focuses on the Czech banking sector to assess banks’ capital positions under an adverse climate scenario, using supervisory data as of mid-2024. An important feature of the framework is the introduction of a carbon competitiveness overlay, designed to capture cross-country differences in the effects of carbon pricing arising from differences in emissions intensity, energy mix and industrial structure, reflecting the Czech Republic’s position within the EU decarbonisation process. The adverse scenario is characterised by a delayed and abrupt transition to a low-carbon economy. Climate dimensions are incorporated through sectoral emissions intensity and a deterioration in carbon competitiveness. The framework captures the main transmission channels of climate risk, incorporating both transition and physical risks, with transition risk playing a dominant role in the adverse scenario design. A sharp increase in carbon prices generates significant negative shock and leads to persistent macroeconomic losses. The results indicate that, supported by its strong initial capital position, the Czech banking sector remains resilient even under a sudden and severe materialisation of climate risk, maintaining aggregate capital adequacy despite a substantial drawdown of releasable capital buffers. The paper also highlights the importance of accounting for cross-country heterogeneity, indirect transmission channels and modelling uncertainty in climate stress tests.
JEL Codes: E58, G21, G32, Q54
Keywords: Carbon competitiveness, climate risk, climate stress testing, financial stability, transition risk.
Issued: October 2026
Download: CNB DP No. 1/2026 (pdf, 2.1 MB)