January 17, 2023
Federal Reserve Board supplies extra particulars on how its pilot local weather situation evaluation train will probably be performed and the knowledge on threat administration practices that will probably be gathered over the course of the train
For launch at 3:00 p.m. EST
The Federal Reserve Board on Tuesday offered extra particulars on how its pilot local weather situation evaluation train will probably be performed and the knowledge on threat administration practices that will probably be gathered over the course of the train.
As described within the instruction doc launched at present, the six largest U.S. banks will analyze the impression of eventualities for each bodily and transition dangers associated to local weather change on particular belongings of their portfolios. To assist the train’s objectives of deepening understanding of local weather risk-management practices and constructing capability to establish, measure, monitor, and handle climate-related monetary dangers, the Board will collect qualitative and quantitative data over the course of the pilot, together with particulars on governance and threat administration practices, measurement methodologies, threat metrics, information challenges, and classes discovered.
“The Fed has slender, however vital, duties concerning climate-related monetary dangers – to make sure that banks perceive and handle their materials dangers, together with the monetary dangers from local weather change,” Vice Chair for Supervision Michael S. Barr mentioned. “The train we’re launching at present will advance the flexibility of supervisors and banks to research and handle rising climate-related monetary dangers.”
The pilot train contains bodily threat eventualities with completely different ranges of severity affecting residential and business actual property portfolios within the Northeastern United States and directs every financial institution to think about the impression of extra bodily threat shocks for his or her actual property portfolios in one other area of the nation. For transition dangers, banks will think about the impression on company loans and business actual property portfolios utilizing a situation primarily based on present insurance policies and one primarily based on reaching internet zero greenhouse fuel emissions by 2050. These eventualities should not forecasts or coverage prescriptions, however can be utilized to construct understanding of climate-related monetary dangers.
The Board anticipates publishing insights gained from the pilot at an mixture degree, reflecting what has been discovered about local weather threat administration practices and the way insights from situation evaluation will assist establish potential dangers and promote efficient threat administration practices. No firm-specific data will probably be launched.
Local weather situation evaluation is distinct and separate from financial institution stress checks. The Board’s stress checks are designed to evaluate whether or not massive banks have sufficient capital to proceed lending to households and companies throughout a extreme recession. The pilot local weather situation evaluation train, alternatively, is exploratory in nature and doesn’t have capital penalties.
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January 17, 2023