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Fed announces climate risk pilot with six banks


Officials said Thursday that the Federal Reserve Board will work with six major U.S. banks on a pilot program to analyze climate risk.

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo will all take part in the pilot, which is part of the Federal Reserve’s effort to figure out the financial risk that comes with natural disasters and climate change. The exercise will have no effect on capital, and while the data from what it finds will be published, no bank will be named.

The analysis, which will start in 2023, will be different from the “stress tests” that the central bank uses to see if financial institutions have enough money to lend during big recessions.

Fed announces climate risk

“On the other hand, the climate scenario analysis exercise is just for fun and doesn’t have any big effects.” Scenario analysis can help firms and regulators understand how climate-related financial risks may show up and differ from what has happened in the past, “the Fed board said in its announcement.

The Fed’s Vice Chairman of Supervision, Michael Barr, had already announced the pilot exercise on September 7. In a speech at the Brookings Institution, Barr said, “The Federal Reserve is trying to figure out how climate change might affect individual banks and the financial system.” The Federal Reserve’s role in this area is important but limited. It focuses on our role as regulators and on making sure the financial system is safe and stable. “

Even though most international financial institutions agree that this kind of analysis is important, it has angered congressional Republicans, who say that the Fed is going above and beyond its job.

This year, the Biden administration took away Sarah Bloom Raskin’s nomination to be vice chairwoman for banking supervision at the Federal Reserve Board of Governors. This was because Sen. Joe Manchin (D-W.Va.) didn’t agree with her views on climate policy and didn’t want to support her.


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