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Fed to kick off climate scenario analysis in 2023 with six large banks

09/29/2022 | 10:38am EST
Federal Reserve Board Building in Washington

WASHINGTON (Reuters) - The Federal Reserve announced Thursday that six of the nation's largest banks would participate in a pilot climate scenario analysis exercise in 2023.

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo will undergo the exercise, which the Fed said will not have capital or supervisory consequences. The Fed plans to publish aggregate findings from the exercise but no firm-specific information.

The exercise, which had been expected, will kick off the Fed's efforts to gauge the level and management of risks for banks when it comes to climate change, after European regulators already mounted similar efforts.

The potential effects of climate change - namely through rising sea levels, worsening floods and fires, and government policies transitioning away from carbon-heavy industry - could destroy trillions of dollars of assets around the globe.

In its announcement, the Fed emphasized the pilot exercise will be strictly for information-gathering purposes, calling it "exploratory in nature." The central bank specifically distinguished the upcoming exercise from its annual "stress tests" of bank finances, in which the Fed tests large banks' strength against hypothetical recessions and the results directly inform how much capital each firm must hold.

Fed Vice Chair for Supervision Michael Barr said earlier this month the central bank has an "important, but narrow" mandate to police climate risks for banks.

The Fed will provide "climate scenario narratives," which banks will use to analyze the impact on their portfolios and business strategies. The Fed will then review those findings with the firms to help them build up their ability to manage climate-related risks.

(Reporting by Pete Schroeder; Editing by Chizu Nomiyama)

By Pete Schroeder


ę Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.22% 0.6713 Delayed Quote.-7.62%
BANK OF AMERICA CORPORATION -0.61% 32.83 Delayed Quote.-25.83%
BRITISH POUND / US DOLLAR (GBP/USD) 0.34% 1.21743 Delayed Quote.-9.88%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) 0.05% 0.73294 Delayed Quote.-6.97%
CITIGROUP INC. 0.17% 45.1025 Delayed Quote.-25.52%
EURO / US DOLLAR (EUR/USD) 0.27% 1.04971 Delayed Quote.-7.68%
INDIAN RUPEE / US DOLLAR (INR/USD) 0.22% 0.01216 Delayed Quote.-9.07%
MORGAN STANLEY -0.33% 87.29 Delayed Quote.-8.51%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.54% 0.63578 Delayed Quote.-7.52%
WELLS FARGO & COMPANY -1.00% 42.975 Delayed Quote.-9.55%
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