The Federal Reserve joins a worldwide group targeted on combating local weather change

Federal Reserve Chairman Jerome Powell prepares for a House Financial Services Committee hearing on “Monitoring the Treasury and Federal Reserve’s Pandemic Response” at the Rayburn House Office Building in Washington, DC on December 2nd 2020 before.

Jim Lo Scalzo | Reuters

The Federal Reserve has taken a step that increases the risk of climate change to the financial system.

In a statement released Tuesday, the central bank said it had officially joined a global peer group that deals with the impact of climate on finances. The so-called network of central banks and regulators to green the financial system was founded in 2017 and now has 83 members from around the world. The US had been an informal participant for more than a year.

“As we develop our understanding of how best to assess the effects of climate change on the financial system, we look forward to continuing and deepening our discussions with our … colleagues from around the world,” said Jerome H. Powell , Chairman of the Federal Reserve Board made a statement.

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The issue of climate change has become a more prominent issue at the Fed, given the continuing trend of higher average temperatures and environmental shifts such as rising sea levels and more frequent severe weather events.

For example, the Fed first examined climate change in its latest financial stability report, saying in part, “Federal regulators expect banks to have systems that adequately identify, measure, control and monitor all of their systems.” material risks that for many banks are likely to extend to climate risks. “

The translation is: if these hazards are not taken into account, hazards such as storms, floods, droughts or forest fires can suddenly change the value of assets and shock the system.

It is currently uncertain how the Fed’s participation in the global network will affect policy and regulation. While Democrats pushed for membership, last week nearly 50 Republican Congressmen sent a letter to the Fed asking to slow down proposals and avoid banks having to factor climate change into stress tests. (These tests generally provide a way for regulators to assess a bank’s financial health by running what-if scenarios.)

The letter also raised concerns that including aspects of climate change in these measurements could have a terrifying effect on banks’ willingness to lend to industries such as coal, oil and gas.

However, the move was welcomed by the non-profit Ceres Accelerator for Sustainable Capital Markets.

“This news … is a clear indication that the agency recognizes its role in addressing the systemic risk of climate change,” said Steven Rothstein, executive director of the group, in a statement.

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