Fed’s Brainard Says Banks Likely to Need Direction from Regulators on Managing Climate Risks

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Fed governor says ‘climate change could have serious consequences’ on economic activity

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“Ultimately, I hope to be able to provide supervisory guidance for large banking institutions in their efforts to appropriately measure, monitor and manage material climate-related risks,” he said in virtual remarks at a conference on banking supervision hosted by the Boston Fed. would be helpful.” .

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Ms Brainard’s remarks are notable in part because she is seen as a likely candidate to become the Fed’s vice president of bank supervision. Randall Quarles’ term, currently in that position, ends next week. Ms. Brainard is a likely candidate to become Fed chairman when Jerome Powell’s term ends early next year.

“Climate change can have profound consequences for the level, trend growth and variability of economic activity over time,” Ms Brainard said. The “coronavirus pandemic” is a reminder that extreme events can occur with little warning and cause serious losses and market disruption, he said.

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Ms Brainard said the Fed is currently examining ways to incorporate so-called scenario analysis to take into account both the physical risks of climate change and the costs associated with any transition to a lower carbon-footprint economy. Natural disasters or government policy actions to address climate change can both “quickly change perceptions of future risk or reveal new information about the value of assets,” she said.

The Fed last year joined a global group of financial regulators and central banks focused on sharing best practices for managing climate-related risks. Ms Brainard highlighted the uncertainty and limitations surrounding what the central bank can get initially. “We need to be humble about what the first generation of climate landscape analysis is likely to deliver,” she said.

The Fed has created two separate internal committees to monitor the potential threats posed by climate shocks to the economy. One is focused on improving how bank regulators address the risks of the nation’s largest financial institutions as part of the Fed’s role in monitoring those firms, and the other on investigating threats to the broader financial system. is dedicated to.

write to Nick Timiros and [email protected]

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