As Winter Sweeps the South, Fed Officials Focus on Climate Change
A top Federal Reserve official issued a warning on Thursday morning: Banks and other lenders need to prepare themselves for the realities of the world affected by climate change, and regulators must play an important role in ensuring what they do We do.
Lille Brainard, one of the six Washington-based governors of the central bank, said “climate change is already incurring considerable economic costs and is expected to have a profound impact on the economy at home and abroad.” said In an institute of international finance program.
“Financial institutions that do not put the framework in place to measure, monitor and manage climate-related risks may face external losses on climate-sensitive assets due to environmental changes, a disorganized transition to a low-carbon economy, or By combining the two., “She continued.
He has a serious background for his comments Unusually cold weather Boundary Texas – Leaving millions without electricity and underlining the fact that in some places state and local officials are underestimated for severe weather, which is often expected to happen.
Such disruptions also matter for the financial system. They risk insurers, can disrupt the payment system and otherwise make proper financial bets dice. This is why it is important for the Fed to understand this and plan for them, central bank officials have increasingly said.
Ms Brainard reported on Thursday that financial companies were addressing risk “responding to investors’ demands for a climate-friendly portfolio,” among other changes. But he said that regulators like the Fed should also adapt. She raised the possibility that given the challenges associated with climate monitoring, bank supervisors may need new supervisory tools, including limited data due to longer horizons and a lack of predecessors.
Ms. Brenard said “scenario analysis can be a helpful tool” for assessing the implications of risks under a wide range of landscape risks, although she differed in that such scenarios stem from full stress tests. Will be different.
Publicly weighing on climate risk is new territory for the Fed. Authorities spent years surrounding the subject, which is politically charged in the United States. The central bank only became fully involved A global alliance At the end of last year devoted to research to monitor the financial system against climate risk. The possibility of climate-bonded stress tests has been particularly controversial, and has occurred recently Been criticized From Republican lawmakers.
More than 40 Republican lawmakers said, “We’ve seen banks make politically motivated and public relations-focused decisions to limit credit availability to these industries,” A december letterSpecifically, coal, oil and gas are mentioned. He added that “climate change stress tests can sustain this trend, allowing regulated banks to hedge or divest from these important industries, citing a negative impact on their supervisory tests.”
Jerome H. Powell, Fed chair, and Randall Kay. Quarles, Vice President for Supervision – both by President Donald J. Named his jobs by Trump – suggested in response that the Fed was in the early stages of researching its role in the climate. inspection
He said, “We will note that it has long been a policy of the Federal Reserve not to determine which legitimate industries they can plant and serve, because those business decisions are passed on to each institution.” Should do it, ”he wrote last month.
Mr. Powell and Mr. Quarles echoed lawmakers’ claims that the Fed’s bank stress tests measured bank capital needs in a much shorter timeframe than climate change, although they said the Fed could help banks manage their risks. Was helping, including them. Climate.
The central bank is moving rapidly towards greater activism on the subject. The Climate Committee announced its supervision Last monthMs Brainard said Thursday that banks would work to “develop a suitable program” to monitor climate-related risks. The Fed is also the co-chair of a task force on financial risks related to climate in the Basel Committee on Banking Supervision, a global regulatory group.
Although the central bank is politically independent, President Biden has put Climate in the center In the economic priorities of his administration. Treasury Secretary Janet L.Fighting climate crisis.“
Speaking on the matter, Ms. Brainard, the last remaining governor of the Fed appointed by President Barack Obama, has been a major voice for greater attention to climate issues a conference In 2019. Hence Mary C., president of the Federal Reserve Bank of San Francisco. Daly held that conference.
“It is a fact that the incidence of severe weather is increasing,” Ms. Daly said During a webcast event This week, given that “half the country is in a winter storm, and then in summer they will live in a heat wave.”
He said that the Fed needs to figure out how to deal with potential disruptive risks as they state that it is responsible for the nation’s economic health, working with other regulators to protect the security of the financial system And this is the steward. payment system – Dare financial system in which money is transferred and checks are processed.
“We have to understand what the risks are, and think about how those risks can be mitigated,” Ms. Daly said. “We have a responsibility to look ahead, and ask not just what is happening today, but what the risks are.”