The Federal Reserve’s top banking regulator revealed on Wednesday that the central bank will begin conducting a climate risk analysis for major Wall Street banks next year.
Michael Barr, the Fed’s vice president of supervision, disclosed the plans in a speech at the Brookings Institution in Washington, D.C., as his first public comments since winning confirmation in a bipartisan vote in July.
In the speech, Barr, one of the designers of the 2010 Dodd-Frank Act that overhauled the financial regulatory system, said the Fed would begin a first-of-its-kind program that will analyze and conceptualize the risks that climate change poses to big banks, such as Goldman Sachs and JPMorgan Chase.
While offering little in the way of details, Barr said the “pilot micro-prudential scenario analysis exercise” would be conducted to “better assess the long-term climate-related financial risks facing the largest institutions.”
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A priority for Democrats has been to better track the effect that financial firms have on the environment and that climate change has on financial firms. It appears that this pilot program would be a step toward the government more closely examining the risks that climate change could present to banks, although it doesn’t go as far as some liberals would like in actually regulating firms on the matter.
During his confirmation hearing, Barr was careful to point out that he sees the central bank’s role in accelerating the transition to a lower carbon economy as “quite limited [and] narrow.”
“I think the Federal Reserve is not able to allocate credit [and] should not be in the business of telling financial institutions to lend to a particular sector or not to lend to a particular sector,” he testified earlier this year.
Barr was nominated only after President Joe Biden’s previous pick for the role, Sarah Bloom Raskin, failed because of past criticism of the fossil fuel industry.
Barr spoke directly about the climate scenario analysis during his testimony and said the only purpose of climate risk analysis by the Fed should be to “understand risks that climate might pose to the financial system and to work with financial institutions on measures to manage those risks.”
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Barr was confirmed to his new role as vice president of supervision in a 66-28 vote.
