The Federal Reserve released a statement detailing that some of the largest U.S. banks have participated in a new exercise.
The Climate Scenario Analysis Exercise (CSA) involved several leading companies in the banking world and sought to assess their climate risk management practices.
Banks join climate movement
Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo participated.
“This exercise highlighted data gaps and modeling challenges that arise in estimating the financial impact of highly complex and uncertain risks over a variety of time periods,” the Fed said.
As a result, stress tests were conducted requiring these banks to identify, estimate, monitor and manage their climate-related financial risk strategies.
According to the study, “large banking organizations and the broader financial system are exposed to climate change through macroeconomic and microeconomic transmission channels associated with physical and transition risk factors.”
Physical risks relate to the damage that can be done to property and people from a variety of sources. These range from natural disasters such as wildfires, floods, and heat waves to negative impacts on people and places such as sea level rise and ocean acidification.
Transition risks include stresses placed on institutions and sectors, such as policy changes and the transition to a low-carbon economy.
This exercise was used to identify and test the resilience of these national bank icons' measures to address climate-related financial risks.
The Fed said the exercise was “exploratory in nature and would not have any capital consequences.” Building on the lessons learned from this exercise, the Board will continue to engage with participating banks on their ability to measure and manage climate-related financial risks. ”
The Fed's movements have been in the news recently, and the US economy in early 2024 has been a hot topic. The government has been keen to curb inflation since the coronavirus pandemic. Therefore, the institution has not made any changes to the interest rate.
Regulators dismissed concerns about interest rate hikes, sending stocks on Wall Street soaring in a rough week of trading and brightening the economic picture.
Image: Ideograms.
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