Waller of the Federal Reserve: climate change is not a big risk

Federal Reserve Governor Christopher Waller said there is no need for central bankers to pay special attention to risks to the financial system from climate change because there is no clear risk to the stability of the finance.

“Climate change is real, but I don’t believe it poses a serious risk to the safety and soundness of the big banks or the financial stability of the United States,” Waller said at a conference. in Madrid. “Risks are risks. We should not focus on one set of risks in such a way that we cannot focus on others.”

“My job is to ensure that the financial system is resilient to various risks,” he added. “And I believe that the risks posed by climate change are not sufficiently unique or material to merit special attention relative to others.”

The Fed governor did not discuss the US economy or the outlook for monetary policy in his prepared remarks.

Waller, who was appointed by former President Donald Trump, opposed in December 2022 from the Fed’s proposed guidelines that lenders with more than $100 billion in total assets can be used to safely face climate-related financial risks. The Fed draft guidance seeks to address possible risks tied to credit, liquidity and other areas.

Many central banks in recent years have agreed to the idea that climate change exposes national economies to new types of financial risk, both in terms of level and type. A small subset, including Singapore and South Africa, have taken clean development as a policy objective. Stress tests, climate risk disclosures and, more controversially, banks greening their portfolios are in play as general tools.

Waller said climate-related events — fires, hurricanes and natural disasters — can harm local communities immaterial to the overall U.S. economy. While climate change will affect property values ​​in individual cities, there is no evidence of a broader risk, he said.

The US and Canada are among the less than half of banks that do not have climate mandates, according to a study in 2021. Fed Chair Jerome Powell generally reads the role of the organization as the main management of the bank.

“Central banks expand their mandates in times of crisis,” BloombergNEF analysts wrote in March. “If central banks do not intervene, financial markets may suffer losses that affect the real economy,” BNEF wrote. “It’s up to them to prevent that, even under their traditional role, meaning climate change will slowly bleed into their mandate.”

Scientists in recent years have begun to warn about unprecedented risks that rarely or never happened before, such as “compound events” that lead to simultaneous or consecutive disasters. American researchers in 2022, for example, highlight the increased risk of heavy rains after wildfires in the Western US. By the end of the century, this scenario could increase by 100% in California and by 700% in the Pacific Northwest.

Beyond physical risks, the banking system faces uncertain “transition risks” resulting from decarbonizing the economy without their help.

–With assistance from Matthew Boesler.

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