The climate emergency is threatening to disrupt the country’s financial system, and the Federal Reserve wants to know by how much. The Fed has set a July deadline for the nation’s six largest banks to show how various climate change scenarios would impact their bottom lines, writes POLITICO’s E&E News reporter Avery Ellfeldt. The climate tests will evaluate the physical risks from hurricanes, wildfires, floods, heat waves and droughts to banks’ operations, investments and real estate portfolios. Also under the microscope is how such events could compromise customers’ ability to repay loans. Banks will be asked, for example, to model how their real estate portfolios would weather hurricanes of various sizes in the Northeast. In 2012, Hurricane Sandy’s 15-foot waves wiped out entire blocks, killing at least 147 people and causing about $80 billion in damages. Total damages from extreme weather events in 2022 reached $165 billion. The banks — JP Morgan Chase & Co., Bank of America Inc., Wells Fargo & Co., Goldman Sachs Group Inc., Morgan Stanley and Citigroup Inc. — will also be asked to model a transition away from fossil fuels to low-carbon electricity. Fed officials have repeatedly made clear the modeling exercises are purely educational and exploratory, with no direct capital consequences for banks. Fed Chair Jerome Powell vowed his agency “will not be a climate policymaker.” That has not stopped conservative lawmakers from lampooning the Fed, accusing it of overstepping its authority. The watchdog group Public Citizen, meanwhile, says the tests are too narrow and will underestimate the risks by using models that rely too heavily on carbon offsets, for example. The six banks either declined to comment or did not respond to requests for comment for Avery’s story. The Fed isn’t the only one concerned about climate risks to the financial system. Regulators across the board are stepping up efforts to understand the hazards faced by banks, insurers and other companies. The Securities and Exchange Commission is finalizing a rule that would ask corporations to disclose their greenhouse gas pollution. And the Treasury Department is preparing to ask major insurers for details about their policies and claims so it can identify geographic areas that might lack coverage as disasters grow more damaging.
| 
