Fed Provides Detail on Pilot Climate Program
January 23, 2023
On January 17, the Federal Reserve provided the scenarios that will be used in the bank climate exercise announced last year.
What this means: The six biggest U.S. banks will analyze the impact of various scenarios for climate-related physical and transition risks on specific assets in their portfolios.
Physical risk scenarios include:
- Different levels of severity affecting residential and commercial real estate portfolios in the Northeastern United States; and
- Additional physical risk shocks for real estate portfolios in another region of the country.
Transition risk scenarios include:
- Impact on corporate loans and commercial real estate portfolios using scenarios based on current policies; and
- A portfolio analysis based on reaching net zero greenhouse gas emissions by 2050.
What this doesn’t mean: In contrast to other regulators, including the Securities and Exchange Commission, the Fed has been conveying a conservative view of its role in setting climate-related policy. It emphasized that results of the scenario analyses will not impact bank capital requirements.
Additionally, Fed Vice-Chair of Supervision, Michael Barr, stated: