Six of the largest US banks agreed to participate in the Federal Reserve’s pilot climate scenario analysis exercise next year.
Bank of America, Citigroup, Goldman Sachs, JP Morgan, Morgan Stanley and Wells Fargo will take part in an exercise designed to enhance the ability of supervisors and banks “to measure and manage climate-related financial risks”, the Fed said.
The Fed said the climate analysis pilot exercise is exploratory in nature and does not have capital or supervisory consequences. In coming months, the Fed will provide additional details on how the exercise will be conducted and the scenarios that will be used in the pilot.
The pilot exercise will be launched in early 2023 and is expected to conclude by the end of the year. At the beginning of the exercise, the Fed will publish details of the climate, economic and financial variables that make up the climate scenario narratives. Banks taking part will analyze the impact of the scenarios on specific portfolios and business strategies.
The Fed said it will will review the analysis and engage with banks involved to build capacity to manage climate-related financial risks.
The Fed also said it anticipates publishing insights gained from the program on an aggregate level, reflecting what has been learned about climate risk management practices and how insights from scenario analysis will help identify potential risks and promote risk management practices. No firm-specific information will be released.
“By considering a range of possible future climate pathways and associated economic and financial developments, scenario analysis can assist firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience,” the Fed said in a statement.