The nation’s six largest banks will participate in a pilot climate scenario analysis, the Federal Reserve announced Thursday.
The pilot exercise — featuring participation from JPMorgan Chase, Bank of America, Citi, Wells Fargo, Goldman Sachs and Morgan Stanley — will launch in early 2023 and is expected to conclude around the end of the year, the Fed said. It is designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks.
At the start of the exercise, the Federal Reserve Board will publish details of the climate, economic and financial variables that make up the climate scenario narratives, the regulator said.
“Scenario analysis — in which the resilience of financial institutions is assessed under different hypothetical climate scenarios — is an emerging tool to assess climate-related financial risks,” the Fed said in a statement.
The Fed said it plans to publish the insights gained from the pilot at an aggregate level, but will not release firm-specific information.
The participating banks will analyze the impact of the scenarios on specific portfolios and business strategies, the Fed said.
“The Board will then review firm analysis and engage with those firms to build capacity to manage climate-related financial risks,” the regulator said.
The Fed described the climate scenario analysis as “exploratory in nature” and separate from bank stress tests. The exercise, the Fed added, will not have capital or supervisory implications.
The new exercise comes amid reports that Federal Reserve officials have pressured banks to share data and details on efforts to assess their exposure to the impacts of climate change.
"Right now, there really isn't any data about the scale and magnitude, or really, system-wide risks," Todd Phillips, a director at think tank the Center for American Progress, told Reuters in November.
The Fed said it plans to release additional details in the coming months on how the exercise will be conducted and the type of scenarios it plans to use.