In its most severe scenario there was a sudden change in climate policy alongside rapid progress in renewable energy development, causing a “double shock” for companies and a severe recession.Even then, banks’ capital ratios fell by about four percentage points.That is sizeable, but still less than what the banks experienced in this year’s regular stress tests by the European Banking Authority, which they were deemed to pass.To what extent are these stress tests realistic?Mark Campanale of Carbon Tracker is sceptical, pointing out that most firms are using out-of-date models.If auditors were ever to stress companies’ assets against a much lower oil price, the associated write-downs could trigger a collapse in investor sentiment of the sort regulators fear, he claims.Nor do the stress tests include a full-blown Minsky crisis.Yet in other respects they are conservative.Most of the tests used an accelerated time frame―five years in the DNB and BdF cases―in effect assuming that firms are stuck with the balance-sheets they have today.But it seems reasonable to think that banks and insurers will change their business models as the climate transition progresses, curbing the impact on the financial system.The BdF ran a second exercise where firms were allowed to make realistic changes to their business models over 30 years.