WASHINGTON–The Federal Reserve has released details around how it plans to conduct a pilot climate scenario analysis exercise with the six largest U.S. banks.
The details were included as part of an instruction document for the participating institutions: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase & Co., Morgan Stanley. and Wells Fargo.
“These six banking organizations will submit completed data templates, supporting documentation, and responses to qualitative questions to the Federal Reserve Board by July 31, 2023,” the booklet notes.
The exercise is expected to conclude around year-end.
‘Deepened Understanding’
“To support the exercise’s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks, the board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned,” the Fed said in a statement.
According to the Fed, the pilot exercise includes physical risk scenarios with different levels of severity affecting residential and commercial real estate portfolios in the Northeastern United States, and that it directs each bank to consider the impact of additional physical risk shocks for their real estate portfolios in another region of the country.
Transition Risks
When it comes to transition risks, banks will consider the impact on corporate loans and commercial real estate portfolios using a scenario based on current policies and one based on reaching net zero greenhouse gas emissions by 2050, according to the Fed.
The central bank stressed those scenarios are not forecasts or policy prescriptions but can be used to build understanding of climate-related financial risks.
“The board anticipates publishing insights gained from the pilot at an aggregate level, reflecting what has been learned about climate risk management practices and how insights from scenario analysis will help identify potential risks and promote effective risk management practices,” the Fed stated.
Not Related to Stress Tests
The Fed added that no firm-specific information will be released.
The Federal Reserve also clarified that the climate scenario analysis is “distinct and separate” from the bank stress tests, it conducts, which it said are designed to assess whether large banks have enough capital to continue lending to households and businesses during a severe recession.
Still Free in ’23! The Freshest CU Headlines. Right to Your Inbox.
The biggest, best and freshest news reporting in credit unions remains free in ’23! Each morning CUToday.info delivers its daily update offering the latest headlines and breaking news right to your email, with the easy-to-read headlines format allowing you to click on the stories that interest you most in order to learn more.
If you haven’t yet signed up for the new email solution on which CUToday.info has partnered with ResponseGenius, you can do so here. Signing up requires less than one minute of your time—and it’s free!
Please note that after signing up you may need to go to your Spam/Junk folder and mark the morning headlines email as safe. CUToday.info does not provide its list of readers and emails to outside parties, and we will not be contacting you to sell you an extended warranty or sending you any links so you may cash in on an inheritance you didn’t know was coming.
And did we mention it’s free?