Featured Product

    FED Committees to Address Micro- and Macro-Prudential Climate Risks

    March 23, 2021

    FED recently created the Supervision Climate Committee, or SCC, for micro-prudential policy work and the Financial Stability Climate Committee, or FSCC, for macro-prudential policy work to address climate-related risks. The FED Governor Lael Brainard made this announcement at a conference in Boston, Massachusetts. While discussing the financial stability implications of climate change, the Governor highlighted that, in certain situations, micro-prudential and macro-prudential goals do not fully align, which is why it is important to consider the implications for the safety and soundness of individual firms as well as for the broader financial system. However, given the importance of consistent, comparable, and reliable disclosures to both financial stability and prudential objectives, mandatory disclosures are ultimately likely to be important, she said.

    From a micro-prudential perspective, the Supervision and Regulation Report of FED discusses how the effects of climate change can manifest in the financial system via traditional channels like credit, market, operational, legal, and reputational risks, which affect the safety and soundness of individual firms. The Supervision Climate Committee has the mandate to strengthen the capacity to identify and assess financial risks from climate change and to develop an appropriate program to ensure the resilience of supervised firms to those risks. The micro-prudential work of the Supervision Climate Committee, which is intended to ensure the safety and soundness of financial institutions, constitutes one core pillar of the FED framework for addressing the economic and financial consequences of climate change. 

    From a macro-prudential perspective, the Financial Stability Report of FED outlines how climate change could increase financial shocks and financial system vulnerabilities that could further amplify shocks. Addressing macro-financial risks of climate change is the second core pillar of the FED framework to address climate related risks. To complement the work of the the Supervision Climate Committee, FED is establishing a Financial Stability Climate Committee to identify, assess, and address climate-related risks to financial stability. The broad goals of the FSCC are to promote the resilience of the financial system to climate-related financial risks, to ensure coordination with the Financial Stability Oversight Council and its member agencies and to increase the international engagement and influence of FED on this issue. The FSCC will work in close coordination with the Supervision Climate Committee—as well as with the community development, payments, international coordination, and economic research and data areas—to build a coordinated approach to integrating climate-related risks where they affect the FED responsibilities. The overall FED macro-prudential work program is focused on assessing not only potential climate shocks, but also whether climate change might make the financial system more vulnerable in ways that could amplify these shocks and cause broader knock-on effects that could harm households, businesses, and communities.

    To support the work of these committees and the broader work throughout the Federal Reserve System, FED is investing in new research, data, and modeling tools. Also, considering the high uncertainty inherent in estimating climate-related shocks, scenario analysis may be a helpful tool to assess the effects on the financial system under a wide range of assumptions, For climate scenario analysis, FED would anticipate long time horizons, substantial uncertainty, the use of qualitative elements, and reliance on external data and models. To capture the potential for complex interactions across the financial system, such scenario analysis would consider the effects on bank and nonbank financial intermediaries and financial markets broadly. FED is also looking at the scenario analysis work underway by policymakers in foreign jurisdictions, such as by ECB and BoE as well as the scenarios developed by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS). Since climate change is inherently a cross-border and cross-sectoral challenge, FED recognizes the importance of collaboration across jurisdictions and sectors.


    Related Link: FED Update on Climate Risk


    Keywords: Americas, US, Banking, Climate Change Risk, ESG, Macro-Prudential Policy, Micro-Prudential Policy, Climate Stress Testing, Disclosures, International Cooperation, Financial Stability, FED

    Featured Experts
    Related Articles

    ESAs Issue Multiple Regulatory Updates for Financial Sector Entities

    The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.

    November 15, 2022 WebPage Regulatory News

    ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments

    The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.

    November 10, 2022 WebPage Regulatory News

    IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets

    The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.

    November 09, 2022 WebPage Regulatory News

    EBA Finalizes Methodology for Stress Tests, Issues Other Updates

    The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups

    November 09, 2022 WebPage Regulatory News

    OSFI Sets Out Work Priorities and Reporting Updates for Banks

    The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.

    November 07, 2022 WebPage Regulatory News

    APRA Finalizes Changes to Capital Framework, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.

    November 03, 2022 WebPage Regulatory News

    BIS Hub and Central Banks Conduct CBDC and DeFI Pilots

    The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.

    November 03, 2022 WebPage Regulatory News

    ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations

    The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.

    November 02, 2022 WebPage Regulatory News

    ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector

    Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)

    October 31, 2022 WebPage Regulatory News

    EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation

    The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)

    October 26, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8582