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EXCLUSIVE Fed privately presses big banks on risks from climate change

EXCLUSIVE Fed privately presses big banks on risks from climate change

The U.S. Federal Reserve has asked lenders to start providing information on the measures they are taking to mitigate climate change-related risks to their balance sheets, according to four people with knowledge of the matter.

The previously unreported supervisory discussions highlight how U.S. watchdogs are moving to execute President Joe Biden's agenda to incorporate climate risk into the financial regulatory system, with potentially major ramifications for Wall Street.

While European regulators are this year rolling-out climate-change "stress tests" for lenders, the Fed lags its peers. read more

Fed officials have previously said they are considering a new scenario analysis to help them understand how climate change may affect trillions of dollars' worth of bank assets, but have not said how or when they would start to apply such tests. read more

In private discussions, however, Fed supervisors have begun pressing large lenders to detail the measures they are taking to understand how their loan books would perform under certain climate change scenarios, the four people said.

Fed officials have not dictated the parameters for the analysis but have made it clear they expect lenders to conduct the internal risk-management exercises and hand over the data, the people said.

That analysis includes testing the geographical exposure of bank assets to physical risks such as flooding, drought and wildfires, as well as testing exposures to different sectors, such as how oil and gas loans may perform versus renewable energy loans.

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