U.S. Fed to Weave “Inescapable” Climate Change Risk into Bank Oversight

The U.S. central bank signaled intent to measure, analyze, and respond to climate-related risks in its oversight of individual banks and the broader financial system. This includes a sharper understanding of potential effects of climate hazards on bank-held assets and the vulnerability of markets to abrupt shifts in those asset prices with changing risk perceptions. To accomplish the microprudential and macroprudential oversight, the banks will utilize climate scenario analysis and climate stress tests. This comes after the Fed’s decision to join the Network of Central Banks and Supervisors for Greening the Financial System, last year.

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