Fed demands climate risk analysis from Top 6 banks

In what it called a pilot project to make sure the financial system is ready for the risks posed by global warming, the Federal Reserve on Tuesday instructed the six biggest U.S. banks to gather information on how their businesses would be impacted by “a range of plausible future outcomes” related to climate change and the shift to a lower-carbon economy.

The scenario study “are neither forecasts nor policy prescriptions,” the U.S. central bank stated. It includes estimates of how real estate portfolios would be affected by “physical risk” and how corporate financing might be affected by the shift to a net-zero carbon economy by 2050. They don’t always represent the most likely results in the future.

The investigation is instead intended to “develop awareness of how specific climate-related financial risks could appear” in terms of modifications to the probability of loss, internal risk assessments, and loan defaults.

Bank of America BAC.N, Citigroup C.N, Goldman Sachs Group GS.N, JPMorgan Chase JPM.N, Morgan Stanley MS.N, and Wells Fargo WFC.N must respond by July 31 to the 52-page set of instructions.

The Fed stated that it would not reveal any bank-specific conclusions and would instead provide a summary of the findings near the end of 2023.