WASHINGTON — In their annual report to Congress, federal regulators have warned for the first time in an annual report to Congress on Friday that climate change is an “emerging threat” to the U.S. financial system.
The Financial Stability Oversight Council (FSOC), of which NCUA is a member, said costs associated with an increased number of hurricanes, wildfires and floods caused by global warming could lead to cascading damage throughout broad swaths of the economy.
The FSOC offered what was described by the New York Times as a “grim assessment of how the fallout from rising temperatures could spread, hurting property values and saddling insurers, banks and pensions that are associated with the sector with heavy losses.”
The report comes in the wake of an analysis of climate risk that the FSOC released in October, 2021.
“Increased frequency and severity of acute physical risk events and longer-term chronic phenomena associated with climate change are expected to lead to increased economic and financial costs,” the FSOC’s report to Congress states.
No Policy Prescriptions Made
The report, however, stops short of making any policy prescriptions that many have been calling for, including tougher rules requiring financial institutions to assess their ability to withstand climate-related losses, new capital requirements or curbs on extending financing to fossil fuel companies, the Times noted.
Instead, the report recommends financial institutions improve their data collection for evaluating climate-related financial risks and calls for more uniform disclosure requirements to help investors make better informed decisions.
In its annual report, the panel also issued a warning about a risk in the nearer term, of higher than expected inflation, suggesting that it would lead to higher interest rates and losses at some financial institutions.
“The advent of higher inflation also raises the question of whether longer-term inflation expectations of households and businesses will rise or become unanchored,” the report said.