Federal Reserve plans climate scenario exercise with six U.S. banks

In an effort to improve its ability to measure climate-related financial risks, the U.S. Federal Reserve Board will undertake a climate scenario exercise with six major U.S. banks.

The Fed said that, in early 2023, it will launch a pilot exercise with six big banks — Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo — to assess the impact of different hypothetical climate scenarios on the banks’ businesses.

“Over the course of the pilot, participating firms will analyze the impact of the scenarios on specific portfolios and business strategies,” it said in a release.

The Fed will review the results of the banks’ analysis and work with them on ways to enhance their resilience to climate-related risks.

The exercise is designed to bolster the ability of both the regulators and the banks to measure and manage their climate risks, and the Fed said that it won’t have any capital or supervisory implications for the banks.

“By considering a range of possible future climate pathways and associated economic and financial developments, scenario analysis can assist firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience,” it said.

Aggregate results from the exercise will be published by the central bank, but no bank-specific information will be disclosed.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.