The Federal Reserve has applied to join a group of central banks focused on managing financial risks from climate change and boosting capital for clean energy.
The United States’s central bank requested to become a member of the Network for Greening the Financial System, and it could officially join by next spring, contingent on the network’s approval, said Federal Reserve Vice Chair for Supervision Randal Quarles during a Senate Banking Committee oversight hearing Tuesday.
Quarles’s comment comes just days after Federal Reserve Chairman Jerome Powell said the bank is working closely with the network’s working groups. Currently, the only U.S. member of the network is the New York State Department of Financial Services, which just last month directed all its regulated banks and financial institutions to integrate climate risks into their planning.
“I do think that the public will expect and has every right to expect that, in our oversight of the financial system, we will account for all material risks and try to protect the economy and the public from those risks,” Powell told reporters last week. “Climate change is one of those risks.”
In recent weeks, the Federal Reserve has sounded the alarm on climate change risks. In its semiannual financial stability report released Monday, the board included a discussion of climate change risks to financial markets for the first time ever.
Climate change “is likely to increase financial shocks and financial system vulnerabilities that could further amplify these shocks,” the report said.
Nonetheless, the Federal Reserve said in the report that it is still deepening its understanding of the full scope of climate risks to markets, and it doesn’t call on banks to take additional measures.
However, that could quickly change under presumptive President-elect Joe Biden, who is expected to pursue new climate disclosure rules and other requirements for banks and companies to take into account how climate change would affect their economic well-being.
Quarles, speaking with Hawaii Democratic Sen. Brian Schatz during Tuesday’s hearing, said the Federal Reserve has the authority to address climate risk without new legislation. Quarles also said the central bank is closely watching how the Bank of England incorporates climate change into its financial stress testing, which explores whether banks can withstand shocks to the economy.
“We all have different views about climate change and about the solution set that should be undertaken, but risk is risk,” said Schatz, who has sponsored legislation to increase climate disclosures and push the Federal Reserve to take stronger action on climate risk.
“The charge for the Fed and other financial regulators is to measure that risk, whether it’s got an ideological argument behind it or not,” the senator added.
