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Fed sets up panels to examine risks that climate change poses to the financial system

Fed sets up panels to examine risks that climate change poses to the financial system

The Federal Reserve has taken another step forward in efforts to ensure that the financial system is protected against climate risks.

As the central bank turns its attention increasingly toward the matter, the Fed has created a Financial Stability Climate Committee and a Supervision Climate Committee.

The panels will focus on “the potential for complex interactions across the financial system,” Fed Governor Lael Brainard said in remarks Tuesday.

“Climate change and the transition to a sustainable economy also pose risks to the stability of the broader financial system. So a second core pillar of our framework seeks to address the macrofinancial risks of climate change,” Brainard added.

The Supervision Climate Committee will focus on identifying risks and putting together a program to address them. The Financial Stability Climate Committee will address “macroprudential risks” for how climate could pose systemic risks to the institutions the Fed supervises.

While taking on the climate issue represents a broadening of the Fed’s role in supervising banks and other financial institutions, officials have stressed the potentially damaging impact weather-related events can have on the system.

The central bank had begun asking large institutions to assess the potential impact of climate and how they are prepared to weather significant events. Brainard was the first Fed official to start talking about the issue, saying in late 2019 that she wanted her colleagues to begin considering how climate events could impact monetary policy.

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