The Federal Reserve this week released a summary of the exploratory pilot climate scenario analysis exercise that it conducted with six of the nation’s largest banks. Among other things, the banks estimated the effects of a hurricane in the Northeast region on commercial and residential real estate portfolios. The goal of the exercise was to learn about large banks’ climate risk-management practices and challenges, and to enhance the ability of large banks and supervisors to identify and manage climate-related financial risks, according to the Fed.
One conclusion from the pilot was that additional investment and analysis could improve the six banks’ climate risk-management capabilities. At the same time, the Fed noted that the degree of uncertainty around the timing and magnitude of climate-related risks is high, making it difficult for participants to determine how to best account for and manage such risks on a business-as-usual basis.
