Fed provides additional details on climate scenario exercises

The Federal Reserve today provided additional details on how its upcoming pilot climate scenario analysis exercise will be conducted and the information on risk management practices that will be gathered from the program. The nation’s six largest banks will participate in the exercise, starting this year.

The Fed will collect qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges and lessons learned. The exercise will include physical risk scenarios with different levels of severity affecting residential and commercial real estate portfolios in the northeastern U.S., with each bank also asked to consider the impact of additional physical risk shocks for their real estate portfolios in another region of the country. In addition, the banks will be asked to consider the effect on corporate loans and commercial real estate portfolios using a scenario based on current climate policies and one based on reaching net-zero greenhouse gas emissions by 2050.

The Fed plans to publish insights gained from the pilot at an aggregate level, reflecting what has been learned about climate risk management practices and how insights from scenario analysis will help identify potential risks and promote effective risk management practices. No firm-specific information will be released.