The news: The six major US banks that agreed to conduct climate-related scenario analysis with the Fed are kicking off their journey with a long to-do list, per American Banker.
The specifics: In October 2022, the Fed announced a pilot stress test exercise in partnership with Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, and Wells Fargo that would begin in early 2023. With the new year, the pilot is kicking off with an extensive list of scenarios that each bank is expected to examine.
Physical risks: All banks must project the impact of a severe hurricane hitting the Northeastern US, and each bank also must model a second natural disaster of its choosing. The analysis will cover a one-year period.
Transition risks: All participant banks must also assess risks associated with commercial, government, and consumer responses to climate change within their commercial and real estate portfolios over a 10-year period.
The results: The banks are required to complete the analysis and turn over results to the Fed by July 31. The Fed will use the rest of the year to review the analysis and follow up with participants.
Our take: These detailed plans raise questions about the pilot and how banks will respond to a request for such complex analysis that will only be used for informational purposes.
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