The United States Federal Reserve Board has joined other banking authorities to put up a proposal on how big banks should manage financial risks tied to climate change, prompting swift opposition from one member and misgivings from another.
Per the suggested rules, banks with assets of more than $100 billion are expected to include financial risks associated with climate change in their strategic planning. The Fed Board of Governors voted 6-1 to approve the release of the plan for public discussion.
The proposal brings the Federal Reserve into an agreement with the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), which have separately proposed their own plans. It represents the latest effort by American policymakers to prepare for potential financial risks from climate change.
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Globally, trillions of dollars worth of assets could be destroyed by the possible effects of climate change, including rising sea levels, increased floods and fires, and government policies shifting away from the carbon-intensive industry.
According to the Fed’s plan, banks would have to incorporate climate-related financial risks into their audits and other risk management processes as well as standard stress testing with climate-related scenario analysis. It suggested that banks evaluate and take into account whether they should add climate-related risks to their liquidity buffers.
Politics have been a factor in the discussion of the threats that climate change poses to the financial sector. In his dissent opposing Friday’s proposal, Fed Governor Christopher Waller questioned whether it seriously endangered the soundness of major banks or the stability of the American financial system.
The proposal will be open for public feedback for two months.
Story was adapted from Reuters.
