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America's biggest banks put to the test in climate risk pilots

America's biggest banks put to the test in climate risk pilots

Six of America's biggest banks are to participate in a year-long climate scenario analysis exercise, testing their ability to cope with hypothetical climate-related risks.

Climate scenario analysis is distinct and separate from bank stress tests. The Federal Reserve Board's stress tests are designed to assess whether large banks have enough capital to continue lending to households and businesses during a severe recession.

The climate scenario analysis exercise, on the other hand, is exploratory in nature and is designed to helps firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience.

The banks under scrutiny are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.

Over the course of the pilot, participating firms will analyse the impact of the scenarios on specific portfolios and business strategies.

The Fed intends to publish results from the exercise, reflecting what has been learned about climate risk management practices and how the insights will help identify potential risks and promote risk management practices.

The pilot exercise will be launched in early 2023 and is expected to conclude around the end of the year.

Finextra recently announced its fifth Sustainable Finance Live conference and hackathon, scheduled to take place on 29 November. For more information and to register for this event, please visit the event page here.


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