Six of America’s largest banks will assess their exposure to climate risks through a pilot program next year, the Federal Reserve Board announced on Thursday, as regulators push to ensure that large financial companies are resilient to emerging threats.
Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo are participating in the climate scenario analysis program, the Fed said, noting that the plan is “designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks.”
The results will not trigger stricter capital or supervisory requirements for the banks, meaning there will not be a firm regulatory bite. The exercise “is exploratory in nature and does not have capital consequences,” the Fed emphasized in its announcement. It added that “scenario analysis can assist firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience.”
The move is significant for a central bank that has often lagged behind its global peers when it comes to talking about and coming up with a plan for policing risks related to climate change. The Bank of England has already run a similar exercise.
In the analysis, financial institutions will be assessed under hypothetical climate scenarios, with the exercise starting early next year and concluding by the end of 2023. The Fed will publish “details of the climate, economic and financial variables” that are being examined at the start of the process, it said.
The banks “will analyze the impact of the scenarios on specific portfolios and business strategies,” and the board will then review those analyses. The Fed plans to publish high-level insights from the pilot program, but will not publish firm-level data.
“Our members recognize the need for sound management of exposures to climate-related financial risks and have incorporated such risks into their risk-management frameworks for the past several years,” said Barbara Hagenbaugh, a spokeswoman for the Financial Services Forum, a trade group that represents the six banks.
Emily Flitter contributed reporting.