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USA - A First: US Federal Reserve Report Includes Climate Change Risks

The Federal Reserve’s November 2020 “Financial Stability Report,” which usually examines how economic and market forces could impact banks, insurance companies, and other firms, has addressed the implications of climate change for financial stability for the very first time.

The Fed and climate change

The US central banking system, known as The Fed, doesn’t yet get specific from a regulatory standpoint, but the fact that it’s acknowledging the real economic impact of climate change is significant. The two-page climate change section (pages 58-59) in the report, which is included in the larger section, “Near-Term Risks to the Financial System,” and is styled in a sidebar-style box, contains the excerpt:

Climate change adds a layer of economic uncertainty and risk that we have only begun to incorporate into our analysis of financial stability.

The Federal Reserve is evaluating and investing in ways to deepen its understanding of the full scope of implications of climate change for markets, financial exposures, and interconnections between markets and financial institutions. It will monitor and assess the financial system for vulnerabilities related to climate change through its financial stability framework. Moreover, Federal Reserve supervisors expect banks to have systems in place that appropriately identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks.

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