Six major banks in the United States are set to engage in a year-long climate scenario analysis aimed at evaluating their preparedness for hypothetical climate-related risks.
Unlike traditional bank stress tests, which are conducted by the Federal Reserve to determine if banks possess sufficient capital to sustain lending during a severe economic downturn, this climate scenario analysis takes an exploratory approach. Its purpose is to help financial institutions and regulators understand how climate-related financial risks could evolve, potentially differing from past experiences.
The banks involved in this initiative include Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. Throughout this pilot program, the participating institutions will examine the effects of various climate scenarios on their specific portfolios and strategic approaches.
The Federal Reserve plans to release findings from this exercise, shedding light on climate risk management practices and their implications for recognizing potential risks and enhancing risk management strategies. The pilot is expected to commence in early 2023 and conclude by the end of the year.
Additionally, Finextra has announced its upcoming fifth Sustainable Finance Live conference and hackathon, scheduled for November 29. For further details and registration, please visit the event page here.