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:

"The Fed has narrow, but important, responsibilities regarding climate-related financial risks – to ensure that banks understand and manage their material risks, including the financial risks from climate change. The exercise we are launching today will advance the ability of supervisors and banks to analyze and manage emerging climate-related financial risks."

Can we see the results: The Fed will publish “insights gained from the pilot at an aggregate level.” No firm-specific information will be released.


Sairah Burki
Managing Director, Regulatory Affairs
The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2023 CRE Finance Council. All rights reserved.

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