Six US banks to participate in Fed’s climate scenario analysis pilot

The US Federal Reserve Board has announced that six of the country’s largest banks will participate in a pilot climate scenario analysis study. According to the Fed, the aim of the research is to “enhance the ability of supervisors and firms to measure and manage climate-related financial risks”. The Fed Board will provide details of the variables that will be used to develop scenarios prior to the exercise launch in May 2023. These scenarios will then by applied by the six banks with a view to ascertain the impact on their portfolio and business models. In contrast to stress tests, these scenario analysis outcomes are not expected to have capital consequences. According to the Fed: “By considering a range of possible future climate pathways and associated economic and financial developments, scenario analysis can assist firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience.” Participating banks are JP Morgan Chase, Wells Fargo, Citigroup, Goldman Sachs, Bank of America and Morgan Stanley.