A massive banking collapse is coming — and the cause isn't speculation this time. It's climate change.
Uninsurable homes mean worthless mortgages, and worthless mortgages mean broken banks. Unless governments act now with public banking and sustainable cost accounting, society itself is at risk.
This is the audio version:
This is the transcript:
Like it or not, there is a massive banking collapse ahead of us unless urgent action is taken.
What's the reason? Climate change is the reason.
There is no way around a banking collapse worldwide unless we begin to take climate change seriously, very soon.
Why? Because banks lend on the basis of security that they demand, which is charged on properties. And vast numbers of properties are not going to be suitable for the purposes of providing that security sometime very soon in the future, because they're going to become uninsurable. And as a consequence, banking is going to collapse.
Let's just explain this.
Banks don't take risks. I know they like to pretend they do in their advertising. They try to pretend they're entrepreneurs, and they're the friends of business, and they'll go out of their way to help you to meet whatever demand you might have. But the truth is, banks hate risk. So when they lend, they try to lend with what is called security. And that means that they take a mortgage over a property to guarantee that the loan that they've made to you is going to be repaid by them having the legal right to claim ownership of a property that is currently yours, and to then sell it if, for any reason, you default on payment to them. That's how they lend.
You might call a mortgage a loan. But as far as the bank is concerned, it's a legal charge over your home, which means that they can sell that home if you don't keep up with the repayments. And it's this structure, lending on security backed up by mortgages, that makes the banking system around the world work.
And that's not just for homeowners either. It's also for businesses. They, in the vast majority of cases, are lent to by banks on the basis that there is an asset that the bank can claim, whether that be property in most cases - occasionally something else - or the personal guarantee of the owner of a business, very often also backed up by a mortgage on their home.
So this is how banking is. Let's not pretend otherwise. Over 85% of all loans in banking in the UK are backed up by a mortgage.
How does the role of insurance come into this then? Well, in theory, of course, you don't need to insure a property, which is going to be used for security. Except, well, the bank insists that you do because it wants it to be there, of course. Because if it isn't there for sale in a condition that is saleable, they've got no guarantee that they'll be able to recover their money if you don't pay them.
In other words, insurance is critical to reducing the bank's risk once more. And they therefore insist that you will insure a property if you borrow on the security of the property in question. You will be familiar with this if you have a mortgage. The bank will require evidence that you have the property insured. Very often, they'll insist you buy their insurance to prove that's the case.
But the point is that all over the world, more and more properties are becoming uninsurable. We've seen this because of flood. Because of fire. Because of earthquake. Because of excessive heating, and because of drought. All of those are creating massive risks for the insurability of properties. And without insurance property is worthless for banking purposes.
And it's climate change that is in every one of those cases, making insurance impossible in areas where it used to be easy to obtain.
Just think about it. Fire in Los Angeles has made buying new homes in that city with a mortgage virtually impossible.
Sydney in Australia is seeing an increased number of wildfires, as are other cities in that continent.
Southern Europe, Greece, France, Spain are all seeing fires breaking out all over the place, and they are threatening the security of properties and so of insurability.
Flooding is becoming more commonplace, including in the UK, and areas that were previously unknown for flood risk are now facing real problems. In particular, central London has a massive flood risk issue if the Thames barrier is not enlarged, and very soon. And it will take a very long time for any such enlargement to take place because there is now a very serious risk that it could be overwhelmed by floodwater sometime soon.
That would wipe out Docklands. It would wipe out the centre of London. It would wipe out, according to bankers I've spoken to, the vast majority of the security available to them for the commercial property lending that they make.
And we're even seeing this problem in places we would never have imagined before in the UK.
There've been wildfires in Scotland.
There's been a wildfire in North Yorkshire this summer.
And that's putting real people's homes at risk of being uninsurable for a new threat.
We've already had flood, and many people in areas that you wouldn't imagine - the Trent Valley, for example; the Severn Valley, for example - have faced this problem. But now we have fire risk too, and so far the government hasn't reacted, although it has on flood risk.
We then have to look at the new issue. And that's heat and drought, and the problems are just escalating.
The issue is uninsurable properties in ever larger numbers will mean fewer and fewer mortgages being available in the future.
But it also means that existing loans will become unserviceable in effect, because there won't be any insurance on them, and the risk in bank balance sheets will go up.
And then the problem is that when bankers realise that every bank's balance sheet has vast numbers of assets on it, which may be of no value at all, they all stop lending to each other.
That is exactly what happened in 2008. In 2008 in the USA. Banks stopped lending to each other because they had no idea what the real value of the mortgages on other banks' balance sheets was, and therefore, they stopped inter-bank lending.
The system ground to a halt. It followed here almost immediately, and we have, as I've already noted, got this problem in the UK. But it's in Germany. It's in France. It's in Greece. It's in Australia. It's in all sorts of countries around the world.
The failure we face is not particular or individual to any one area or to any one bank.
The failure that we face is systemic.
And bankers, I know from conversations I've had with some of them, have been suggesting, "Don't worry. We'll be able to dump all our risky properties onto somebody else well before the crisis hits because there are some stupid bankers out there who'll take anything."
But that's just naive. It's even stupid. The fact is that this risk of insolvency will hit simultaneously. Everybody will suddenly realise, and there will be some trigger event. The fire in Los Angeles hasn't been it so far, but it's the warning sign. It's the John the Baptist, to the coming of Christ, if you like - a bit of this patched metaphor, but one that works in this case - that says this is real and it's going to happen.
And when banks collapse, what we get is a liquidity collapse. In other words, there's no money moving in the marketplace.
And when payment systems collapse as a consequence, and they could, then supply chains fail.
And when supply chains fail, there will be no money to pay your supermarket. And you have, in all likelihood, got no more than nine meals in your whole house available to be cooked now.
You will be in crisis when this happens. Without banks, daily life will grind to a halt. No payments, no mortgages, no credit, no food supply, everything at risk.
No reward for work because somebody won't be able to pay you.
This is how close to the wind we are already sailing, when we know that the entire underpinning of the balance sheets of every bank on which we are dependent to keep our payment system working is at risk.
Society has put itself in jeopardy, and at the moment, everybody is pretending with their heads in the sand - which might just be another of these climate risks - that everything will work out all right.
I promise you it isn't going to. There is no way on earth that banks are going to be able to pass the parcel.
The central bankers are still doing that. They're pretending that this risk doesn't exist when they're undertaking their risk analysis of these entities. But the fact is, the problem is growing exponentially. All over the world, it's growing exponentially, which means it's getting faster and faster in other words.
So, doing the type of risk analysis the banks are doing, which by and large looks backwards and by and large looks at past risk, as an indicator of future risk, is absurd. It's just getting worse. Denial is not a strategy. It's negligence. Climate risk cannot be ignored in banking.
So what must be done? We must recognise that uninsurability is now a core systemic risk in banking. And it's ceased to be peripheral. It's now at the forefront of everyone's concern. We must work out who is most at risk, and for that purpose, I suggest that we use sustainable cost accounting, my method of accounting for companies at risk of the impact of climate change, and how we appraise the consequences.
We have to plan for alternative forms of banking before the current system collapses at the same time, because governments must be ready to replace failed banks. If they haven't got that contingency in place, we're in deep trouble.
And for that reason, we have to create public banking for public need and not private profit.
I said this very loudly and clearly in 2008. I said at that time that we had made a massive error of judgment by allowing banks' payment systems on which we all rely and which are therefore core state infrastructure on which we are utterly dependent to be in private hands, when without them, the state would fail to function.
But nothing has been done since 2008 to put matters right.
We cannot survive climate change unless we change our banking system, is my point.
We need to change our models of lending.
We need to change our models of insurance.
We need to recognise that the current system is broken.
And we need to build resilient financial systems now with public backing to ensure that society itself will not collapse when our banks do.
But unless we take action, that is an almost certain outcome because they cannot survive in a world where properties are uninsurable, and more and more of them are moving into that category.
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
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I was not reading your blog in 2008, but this summer I did some reading in the archives. You’ve convinced me that the majority of bankers are bonkers, or at least blind and complacent. They think they’ll be all right. They’ll get out at the right time. They rely on the government bailing out the sector as it did in 2008.
They are not risk takers. We are told it takes a long time to settle a house insurance claim, often unsatisfactorily for the home owner. Please tell us more, with examples if there are any, of banking set up for the public good, so we can campaign for this
Noted, and thanks
I have no doubts about to your concerns. Property is the economy basically at the moment (and car loans are huge too).
And it makes the the march to crypto even more sinister.
Agree with the totality.
“Unless governments act now with public banking and sustainable cost accounting, society itself is at risk”.
That would require understanding of the problem & understanding of how “the political economy functions”.
Thursday last: Brussels. Conf (on power networks). Claude Termes a speaker, ex-MEP (Green), ex-Energy Minister (Luxy). (we know each other – nodding terms).
One of the good guys.
He knows Draghi & expressed surprise that Draghi commented on matters to do with energy/electricity (of which he knows zero) – whilst Termes said that he knows almost nothing on matters fiscal/monetray (which he leaves to Draghi aka Goldman Sachs). & thus we get to the heart of the matter – politicos (& Turmes is a smart politco) have either failed to educate themseleves wrt matters of money (the case with Termes) or are too lazy. We know that Reeves knows little/nothing about the political economy (the reason why she is in the post) – govs can’t act if they have no understanding (or the banks are patting them on the head saying there there it will all be ok). The understanding thus lies with those that don’t want things to change – they hope to keep the show on the road – until they can’t.
I am sad to say, much to agree with
The problem is that it’s entirely rational for an individual bank to keep lending. Chuck Prince (head of Citibank), famously said in 2007, “while the music plays we have to dance”.
If a bank declines to lend against residential property it would go out of business very quickly as its income would plummet immediately…. but its costs would not. Unless forced to address the issue by regulation it will not be addressed.
I would also note that we would never buy a house on a one year loan on the hope that we could refinance it in 12 months time; mortgages are typically 25 years. But we are quite happy to buy insurance on an annual basis…. I wonder what premium I would be quoted for a 25 year insurance contract? There would be no sensible price.
So, we need to change the way banks are allowed to operate…
Indeed we do.
We also need to separate the money transfer business from the lending business.
Glad we agree on that
Thank-you Richard for spelling this out. It shows exactly how unchecked climate change will inevitably undermine the current political and economic system . I notice from an article in the Guardian last week that the super rich are investing now in super comfortable mobile homes. I guess they have worked out too that property is no longer a safe investment in a world of climate change, as you cannot be certain where is safe from floods, fires and heat domes so the rich try to respond by buying something you can move about. An indication of how some people are thinking perhaps, but not a viable strategy for preserving the social order. The only way to do that is to reduce emissions FAST. I hope therefore that your predictions here are given wide publicity. The slogan should be perhaps ” Go Green, to save capitalism.” or something. I am though, becoming increasingly pessimistic about our ability to act fast enough to prevent social break down and its dire consequences, as most people seem to be in denial about what we now face. Maybe if they are told their mortgages are at risk they might wake up. Who knows?
We have to live in hope
“… the super rich are investing now in super comfortable mobile homes. I guess they have worked out too that property is no longer a safe investment in a world of climate change…”.
Will the starving hordes of the dispossessed and homeless allow the super rich to keep their mobile homes?
I really appreciate your expertise here. I’m sure you have read the Linkedin Post by Günther Thallinger (board member of Allianz global) about uninsurability causing a financial crisis. The financial system is all linked and a failure in one section can cascade into other sections. Could you please do another blog post about how the crisis can spread between to other areas of the financial sector. You likened this to 2008, does that mean that after the crash the financial system will go back to normal? I don’t recall supermarket supply chains failing in 2008, how does this time differ from 2008?
Noted
Now on my list.
Much to think about. How are the banks in California. New Orleans, Australia, Canada, Greece etc coping?
For others to research, but the problem is not universal as yet.
Here I am in California. I would like very much to pursue this research; if you have data, citations, it would make my work go a bit more smoothly. Thank you.
As you may know, major insurers – Allstate, State Farm, and Chubb – have reduced or stopped writing new policies in California, leading to a growing reliance on the California FAIR Plan, the state’s last-resort insurer. Other insurers – American National, AmGUARD, and Falls Lake – have also stopped or scaled back operations. Causes include wildfire, flood, cost of rebuilding, regulatory requirement to get state approval before raising rates.
Insurance companies are leaving Louisiana primarily due to devastating hurricane seasons in 2020 and 2021 that led to massive claims payouts and the financial collapse of multiple insurers. These events, coupled with increasingly frequent and severe weather events and high rebuilding costs, created an unsustainable risk for insurers. Louisiana’s prior regulations, including the “three-year rule” that limited policy cancellations, also contributed to the problem by making it difficult for insurers to exit unprofitable policies and the market.
Texas: https://www.planforfreedom.com/insurance-companies-pulling-out-of-texas-a-growing-concern/.
Florida: https://www.thezebra.com/resources/home/florida-insurance-crisis/
Just a 5 minute review.
The discusion has started in earnest down under.
https://www.abc.net.au/news/2025-09-19/climate-change-impact-on-housing-warning-queensland/105786926
Noted
Oh! and I haven’t even put the kettle on for my first cuppa yet. Before I go and dig a hole somewhere to bury my savings – may I ask if Credit Unions are a good alternative? I opened an account with a local one this year. Also have a bit more from an inheritance in an ethical building society ( I own no propert,y but until recently had a dream to join a cohousing group and pay my portion – likely not to happen now ) and use the ‘normal’ bank as little as possible just to buy stuff, pay bills, but not to save with. Happy to give much more away to folk struggling to live basic lives – but don’t want to be unwise with any small pot I keep. Thanks.
I am sorry – but I cannot comment on such things without falling foul of the law.
This is not advice.
I have been involved in promoting and trying to establish credit unions and alternative savings and loans products. I have watched them merge to survive, and watched them fail (with FCA rescue of assets) in the face of hostile rules imposed by government. I believe the hostile environment (imposed by government) for independent forms of savings and loans institutions such as credit unions continues, deliberately, to privilege the big banks and City finance.
I believe this is by design and I believe it is unjust.
This is not advice.
Climate change felt pretty absent from the last election. Considering it seems to be seen as an expensive luxury and it feels a bit like a toddler running into the sea with no concept of danger. Locally as with much of the rest of the UK I’m sure housing is being built on land at high risk of flooding, whilst chunks of cliffs and people’s gardens fall regularly into the sea. Labour in their infinite wisdom have cancelled the last phase of the Dawlish rail project that would have secured the cliffs in a very vulnerable part of the coast.
But as you rightly state whatever our view on environmental concerns, housing assets will become worthless, and pretty soon as it becomes acknowledged that it is not practical to protect every home. I am however surprised by the lack of action regarding London and the risks from the tidal Thames. This will effect millions of people and include our Houses of Parliament, and a likely serious flood could be catastrophic, both to property and human lives.
We have clear maps of areas that will be under water in 2050, just 25 years in the future. Yet nothing is being done, and Greens are still seen as naive with no understanding of the costs of things. This may be true of some, but the costs of doing nothing are so much more.
Much to agree with
Richard,
In addition to this issue you have also pointed out the likley impact of a falling population on the Stock Exchange.
Now given that some of (allegedly) the nations greatest minds have missed this – or been so scared they jusf freeze or ignore it what else is out there?
Let me think about that. A blog might follow.
A timely reminder Richard.
I think Reeves has talked about deregulating the banks even more – taking off the restrictions imposed after the 2008 debacle.
Despite their risk-averse mortgage lending they were also taking massive risks in their other interbank activities?
How on earth will we get some kind of public banking system when all the debate is going in the wrong direction?
A few weeks back I was reading abouy rising property values of those buying homes with a sea view.
A sea view would cost, on average, £363,181 in the coastal areas of the UK.
That is £88,106 compared to a coastal home that doesn’t have a sea view. A 32% price premium.
In the East Midlands, the Lincolnshire coast, that premium is 68%, with a sea view costing on average £428,330.
https://www.yourmortgage.co.uk/news/want-a-sea-view-that-will-cost-you-363181/
But what about global warming, climate change, and rising sea levels?
A recent report suggests that UK sea levels are rising faster than the global average.
And below is a map of all the places that could be underwater by 2050 if rising sea level trends continue. According to this map, that East Midlands coast with the 68% premium, and average price of £428,330, will be underwater. Madness that people either ignore this, or more likely, they don’t know what’s coming.
https://www.countryliving.com/uk/news/a38142403/uk-areas-underwater-rising-sea-levels/
What do our poiliticians propose?
Well, Richard Tice and Reform, who just might be the next government, suggest that rising sea levels can be dealt with by “a bit of steel and cement”
https://www.lbc.co.uk/article/reform-uks-tice-claims-rising-sea-levels-can-be-dealt-with-by-a-bit-of-steel-and-5HjcwB9_2/
Building a wall! Wonder where they will get the labour to do it? I think the Japaness have a lot of experience building walls to try and stop tsunamis. Doesn’t always work. Can’t build them high enough.
That’s about the size of the madness. Put things off, leave it for someone else to sort out, which by then it will be too late and cost a lot more than now to do.
And Skegness, where Tice is the MP? That will potentially be underwater by 2050.
Climate Denier Richard Tice’s Seat is Second Most Exposed to Global Warming, Says Insurance Giant.
https://www.desmog.com/2024/11/27/climate-denier-richard-tice-reform-uk-seat-boston-skegness-second-most-exposed-global-warming-axa-insurance-giant/
To describe these people as fools, as weal as fools in denial, is just too kind to them.
It is surely testament to human folly that an area such as Lincolnshire which is most at risk from climate related flooding has elected a Climate Change denier as its Mayor. You could not make it up.
Agreed
The PRA consultation is revealing.
On the surface it asks good questions.
But fails IMHO because it does not provide a solid, central forecast for the catastrophic climate breakdown for watch we are heading and which is supported by science. Instead it allows banks to make their own assumptions about models and severity.
And then apply their existing risk frameworks to that. Which we know is already failing to price risks.
I’d like to see something significantly more directive. Otherwise what one gets is the sort of ‘tepid’ response from the BSA which effectively sees the problem as nothing more than a it of flooding, and for those lenders directly investing in fossil fuels to solve.
https://www.bankofengland.co.uk/prudential-regulation/publication/2025/april/enhancing-banks-and-insurers-approaches-to-managing-climate-related-risks-consultation-paper
https://www.bsa.org.uk/getmedia/5ab57133-24e7-4678-99ef-7e8446701a29/202507-BSA-response-to-CP10_25-climate-risk-management.pdf
Thanks
Great and worrying article. As Prof Steve Keen noted a few months ago, the insurance industry will become the canary for the climate catastrophe that is upon us. The insurance industry will be ones that will inform the world that climate collapse is happening!
I read this feeling rather smug, working for one of the few banks that is genuinely ethical (and doesn’t do mortgages)!
Then I realised we probably have massive contagion risk from all the others….
You have.
Banking is a system. No bank exists in isolation.
Richard,
What you speak about makes for a great story, and while directionally correct, is pure hyperbole and irresponsibly exaggerated.
I agree that climate change is both real, and a problem, and that the availability of insurance is a risk vector for banks. But to say it is leading to systemic doom is just silly.
Your video is narrative-only analysis. No numbers or nuance. No questioning of the likelihood of the lack of availability of insurance. No mention of the capital buffers that banks have. No analysis of asset-level damage from a given event. No inclusion of levels of LVR or LMI in your work. No mention of the churn in a mortgage book, or the fact that banks are now starting to incorporate climate risk analysis as part of their asset writing processes. No analysis of levels of exposure of the housing stock to each of the different hazards.
The main culprits in the “insurers will leave a market” are in California and Florida, both of which have restrictions on the price levels that insurers are able to charge. And while this doesn’t explain 100% of the risk of uninsurability, it has a large impact.
For reference, analysis is due out in the next 12 months from Australia’s APRA on the path of the insurance market with respect to climate risk. Here’s hoping that’s additive to this conversation.
I do this for a living – analysing the physical climate risk of bank mortgage portfolios. Risk is certainly in all mortgage portfolios, but nowhere near to the apocalyptic levels you’re talking about. That’s not to say that some of the smaller regional banks don’t have particular concentrations. But to be clear, no supermarkets will be harmed due to the movements in the residential insurance market.
And yes the analysis is forward looking – most analysis that I’ve seen is based off different variants of CMIP 5 or 6 models.
Hoping the above isn’t taken as internet trolling, but from what I’ve seen, your analysis is not accurate.
Bankers tell me it is.
I think you are trolling.
If the actual risks from climate breakdown were understood and the models worked, it would be impossible to build and operate an expanded Gatwick airport.
I read also today that nations are gearing up to further expand fossil fuel extraction.
The system is broken.
Agreed
California here. I’d like to follow up on this interesting article, and if you have citations it would make my research glide more smoothly. I thank you in advance for any links you may provide.
In California, Texas, Louisiana, and Florida, the insurance industry has left the states or greatly reduced the number of policies they’re writing. Reasons: Wildfires, flood, drought, heat, cost of rebuilding, state requirements to get approval before raising rates, loss of profitability.
[…] Boxall, who is a regular commentator on this blog, asked yesterday in response to my video on the risk of bank collapse as a result of the uninsurability of […]
The financial sector, let alone the government or corporate CEOs are deliberately burying their heads in the sand about the climate crisis. We are now at concentration of CO 2 of 427 parts per million, the tipping point for climate breakdown is 500 and CO2 emissions are still rising! All the media cav talk about is more economic growth and the expansion of aviation! As the commentators from the US and Australia have pointed out, many insurance companies have gone bust and it is only going to get worse!!!!!!
[…] By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future. […]
All well and good, but when was the last time the banks listened to sage advice?
Just a quick question or five: Does this non-insurability also affect banks’ capital requirements? Do banks’mortgage assets count, or do the requirements have to be satisfied by assets not part of everyday business? If the latter, are those types of assets typically as much at risk? And in either case, is it likely that banks will be confronted with reality by failing their capital requirements before systemic risk becomes overwhelming? Thanks.
The point is these will not be mortgage assets so they impact capital requirements by becoming unsecured loans.