Fed Plans Climate-risk Pilot for US Banks

Six large US banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks, the Federal Reserve Board has announced.

The pilot exercise — which tests the resilience of financial institutions under different hypothetical climate scenarios — will carry no capital or supervisory implications.

The participating banks are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

At the launch in early 2023, the US central bank will publish details of the climate, economic, and financial variables that make up the climate scenario narratives.

It anticipates publishing insights at an aggregate level, reflecting what has been learned about climate risk management practices and how insights from scenario analysis will help identify potential risks and promote risk management practices.

“The Federal Reserve is finally sending a strong signal to banks to start taking climate risk seriously and prepare for the clean energy transition,” said Adele Shraiman, Campaign Representative for environmental organisation Sierra Club’s Fossil-Free Finance campaign.

“This is a promising first step in the urgent effort to rein in Wall Street’s dangerous and reckless behaviour and protect our financial system from a climate-driven economic crash.”

Read more articles like this on Regulation Asia’s sister publication, ESG Investor.

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