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Federal Reserve Chairman Lael Brainard gave the clearest signal on Thursday that America’s central bank will begin to seriously consider the big banks. exposure to climate-related financial risks.
Ms. Brainard says the Fed is thriving climatic scenarios for use in bank security checks, often referred to as stress tests. It also approved the use of supervisory guidance (Fed’s recommendations to banks) to encourage financial institutions to reduce their risks.
“I anticipate providing supervisory guidance to major banking institutions in their efforts to appropriately measure, monitor and manage key climate-related risks, led by a number of other countries,” Brainard said in a prepared statement. For the Fed research conference.
Ms Brainard said the Fed is assessing climate-related risks from a broader perspective and trying to understand what melting glaciers and rapidly spreading wildfires could mean for the financial system as a whole.
“We are developing scenario analysis to model the potential financial risks involved. climate change and assess the resilience of individual financial institutions and the financial system to these risks.”
Developing climate scenarios brings the Fed more in line with its global counterparts, including the European Central Bank and the Bank of England, which are examining what climate-related risks could mean for the banking sector. In addition, the Fed and its leader, Jerome H. Powell, faced backlash for slowly moving towards a more concerted climate move.
Mr. Powell also suggested that the Fed would test banks’ exposure to climate problems, although his statements to lawmakers last week were not as precise or detailed as Ms Brainard’s. He explained that the Fed’s goal is to enable regulated banks to manage the risks posed by threats such as climate change.
“Scenario analysis will be one of the main tools for doing exactly that,” said Mr. Powell.
The central bank supervises the nation’s largest banks, including institutions such as Goldman Sachs and Bank of America.
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