Federal Reserve Board expects climate change guidance for big banks

Texas News Today

Federal Reserve Board of Governors, Lyle Brainard, speaks at the annual meeting of the National Association for Business Economics (NABE) on Monday, September 27, 2021 in Arlington, Virginia.

Aldrago | Bloomberg | Getty Images

Federal Reserve Board Governor Lyle Brainard said Thursday that the Federal Reserve Board needs to take steps to assess the exposure of major banks to financial risks related to climate change. ..

Brainard said the Fed, which oversees the nation’s largest bank, is developing a scenario analysis tool to model the economic risks of climate change and assess the resilience of the financial system as a whole. He also suggested that the Fed would provide supervisory guidance on climate change and help banks reduce their exposure.

Damage caused by hurricanes, floods, droughts and wildfires is one of the threats to climate change that can cause massive damage and damage the economy.

Brainard hopes to provide supervisory guidance to large banks in their efforts to properly measure, monitor and manage significant climate-related risks, leading many other countries. Said. Federal Reserve Bank of Boston Research Conference.

The move to develop climate scenarios and provide guidance to banks will bring the Fed in line with other major central banks such as the European Central Bank and the Bank of England. ..

The Federal Reserve has begun to take a more active role in climate change, including setting up two internal committees to focus on this issue and joining the Global Network to Green the Financial System.

Brainard also said that Federal Reserve Board Chairman Jerome Powell, whose term ends on February 5, 2022, is a progressive Democrat who criticizes him for issues such as financial regulation and climate change. It comes as the Fed is facing increased resistance to a possible re-nomination.

Powell said earlier this year that the Fed may require banks to conduct their own tests to assess their vulnerability to climate change. He also argued that climate change was not a major central bank consideration in developing monetary policy.

Brainard said regulators face “substantial work” in addressing data gaps in assessing banks’ climate-related risks. Scenario analysis could also focus on how financial institutions can insure and hedge against climate-related risks, she said.

“Reinsurance agreements and investor agreements may transfer risk across the financial system, but some risk is likely to remain,” she said. “Climate-related risks can accumulate in hidden ways that can lead to chain loss.”

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