New York Fed Researchers Develop Climate Stress Test for Banks
Researchers at the New York Federal Reserve Bank have developed an approach to measuring banks' exposures to climate-related risks, a possible early step toward assessing whether financial institutions have enough capital on hand to withstand them.
The publication Friday of a paper describing the new methodology may mark an early step toward an eventual "climate stress test" for U.S. banks. It's an approach already used by other global central banks but that has drawn intense criticism from U.S. Republican lawmakers who say that monitoring for such risk goes beyond the central bank's remit.
The paper, titled simply "Climate Stress Testing," outlines for the first time exactly how the Fed could go about checking the vulnerability of banks and the financial system broadly to shocks as the nation moves to limit emissions of heat-trapping carbon dioxide.