Fed announces pilot climate exercise for large banks

The Federal Reserve today said that six of the nation’s largest banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks. The exercise will begin in early 2023 and conclude near the end of the year.

Over the course of the exercise, participating banks will analyze the effects of different climate scenarios on specific portfolios and business strategies, according to the Fed. The climate analysis will be separate from bank stress tests, which are designed to assess whether large banks have enough capital to continue lending to households and businesses during a severe recession. Instead, the exercise is exploratory in nature and does not have capital consequences.

The banks in the pilot are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo. Fed Vice Chairman Michael Barr said during a Sept. 7 speech that the exercises would only apply to large banks. “We are quite a way from even being able to offer even good advice to community banks on the issue of climate change,” he said. The Fed plans to provide additional details at a later date on how the exercise will be conducted and the scenarios to be used.