Fed official talks risks that climate change poses
Climate change poses risks to the U.S. economy and regulators should assess the impact that it may have on financial stability, Federal Reserve Governor Lael Brainard said, wading into a politically charged topic.
“Climate change is one of the major challenges of our time,” Brainard told a virtual event hosted by the Center for American Progress. “We are already seeing elevated financial losses associated with an increased frequency and intensity of extreme weather events.”
Climate change is a politically tricky topic for the U.S. central bank, which only announced its membership in the Network for Greening the Financial System on Dec. 15, a day after the Electoral College confirmed Presidentelect Joe Biden’s victory.
The body requires members to be signatories of the Paris Accord on climate change, which President Donald Trump left but Biden has committed to rejoin.
Severe weather events, such as hurricanes and wildfires, are increasing due to climate change and are affecting U.S. businesses, investment, home insurance practices and mortgage rates, Brainard said.
Her speech came as the central bank boosts its research into climate change and how it may affect the economy and financial system.
“We are improving our understanding of climate risks and their impact on financial stability through staff research and engagement with other central banks on topics like climate scenario analysis,” Brainard said. “Supervisors are responsible for ensuring that supervised institutions are resilient to all material risks, including those associated with climate change.”
However, she also acknowledged it’s hard to gauge bank exposure to climate risk because of data gaps and problems with methodology.
“Although the transmission channels through which climate risks affect banks are increasingly apparent, quantification of those risks remains challenging,” she said. “Climate change also poses distinct modeling challenges.”
The central bank’s increased work on climate issues has raised concern among some Republicans in Congress.