A Post-COVID Macroprudential Framework for Climate Risk Stress Testing in the Banking Sector

Abstract The COVID-19 pandemic has revealed critical vulnerabilities in the global financial system, prompting the need for a more resilient macroprudential architecture. Concurrently, climate change continues to pose systemic risks that are complex, long-term, and uncertain. This study develops a comprehensive post-COVID macroprudential framework for climate risk stress testing (CRST) in the banking sector, integrating real data from 2019 to 2025 across major European and American banks. By incorporating pandemic-induced shocks and climate transition pathways, the framework simulates dual- risk scenarios to assess bank-level solvency, credit losses, and systemic contagion.The proposed framework utilizes a multi-model approach, combining NGFS climate scenarios, System- GMM, Panel VAR, Credit Portfolio Models (CPM), Climate Value-at-Risk (VaR), DSGE simulation, and Network Contagion Models. Empirical results show that banks with higher carbon exposure and weaker pre-COVID capital buffers experienced amplified losses under compounded stress events. Furthermore, network-based contagion effects reveal significant cross-border vulnerabilities, especially within the European interbank market.The findings underscore the importance of integrating pandemic risks into climate stress testing and call for enhanced macroprudential tools such as climate-specific capital buffers, ESG-aligned disclosure requirements, and countercyclical regulatory interventions. This paper contributes to the growing body of climate-finance literature by offering a practical, data-driven framework to guide policymakers, regulators, and financial institutions in strengthening systemic resilience amid converging global crises.