FRB Announces Major Commercial Banks to Conduct Pilot Climate Scenario Analysis

On September 29, 2022, the Federal Reserve Board (FRB) announced that six of the nation’s largest banks are going to be participating in a pilot climate scenario analysis exercise designed by the FRB to “enhance the ability of supervisors and firms to measure and manage climate-related financial risks.”

These firms include:

• Bank of America

• Citigroup

• Goldman Sachs

• JPMorgan Chase

• Morgan Stanley

• Wells Fargo

Under this scenario analysis, the financial institutions will be “assessed under different hypothetical climate scenarios” to “assess climate-related financial risks,” without any capital or supervisory implications. Analyzed institutions will work with the Board to “build capacity to manage climate-related financial risks.”

Additionally, the Board will publish “details of the climate, economic, and financial variables that make up the climate scenario narratives” as well as “insights gained from the pilot at an aggregate level, reflecting what has been learned about climate risk management practices and how insights from scenario analysis will help identify potential risks and promote risk management practices.”

Importantly, the announcement clarifies that “[c]limate scenario analysis is distinct and separate from bank stress tests.” Stress tests “assess whether large banks have enough capital to continue lending to households and businesses during a severe recession.” while the climate scenario “is exploratory in nature and does not have capital consequences.”  

The pilot exercise is expected to launch in early 2023 and conclude near the year’s end. The Board will provide additional details about the pilot program in the coming months.