Climate change should not be treated any differently than other risks to the stability of the U.S. financial system as rising temperatures do not pose "a serious risk to the safety and soundness of large banks or the financial stability of the United States," Fed Governor Christopher Waller says.
As the Fed looks into developing principles for America's largest banks to manage climate-related risks, Fed's Governor Waller told a conference that he believed "risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others."
Waller dissented in December 2022 when the Federal Reserve proposed principles for managing climate-related financial risks for large U.S. banking organizations.
At the conference in Spain last week, Waller said, "Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States."
"Risks are risks. There is no need for us to focus on one set of risks in a way that crowds out our focus on others," Waller added.
"My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others."
The Fed governor said that he believes "the scientific community has rigorously established that our climate is changing."
"But my role is not to be a climate policymaker."
Waller's role is to focus on financial risks, while risks associated with climate change – either physical or transition risks – should not be given any special treatment, the Fed governor noted. Related: U.S. Gasoline Prices Are Set For A Significant Decline
"Based on what I've seen so far, I believe that placing an outsized focus on climate-related risks is not needed, and the Federal Reserve should focus on more near-term and material risks in keeping with our mandate," Waller said.
In December last year, the Fed proposed principles that would apply to banking organizations with more than $100 billion in total assets and address both the physical risks and transition risks associated with climate change.
However, Federal Reserve Chairman Jerome Powell reiterated in January this year that the Fed is not and will not be a "climate policymaker."
The Fed's principles would apply to banking organizations with more than $100 billion in total assets, address both the physical risks and transition risks associated with climate change, and cover six areas: governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis.
The Fed also launched a pilot climate scenario analysis exercise, which is distinct and separate from bank stress tests. Under the exercise, the six largest U.S. banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios.
"The Fed has narrow, but important, responsibilities regarding climate-related financial risks – to ensure that banks understand and manage their material risks, including the financial risks from climate change," Vice Chair for Supervision Michael S. Barr said in January at the launch of the exercise.
The Fed will not steer the banking system to a greener economy with supervisory and monetary policy tools, Chairman Powell said in a January speech on the mandate and independence of central banks.
"The public reasonably expects supervisors to require that banks understand, and appropriately manage, their material risks, including the financial risks of climate change," Powell said at a symposium in Stockholm, Sweden.
"But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals," he added.
"We are not, and will not be, a "climate policymaker."
By Tsvetana Paraskova for Oilprice.com
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