Federal Reserve Board releases summary of the exploratory pilot Climate Scenario Analysis (CSA) exercise that it conducted with six of the nation’s largest banks (2024)
Federal Reserve Board releases summary of the exploratory pilot Climate Scenario Analysis (CSA) exercise that it conducted with six of the nation’s largest banks
For release at 4:00 p.m. EDT
The Federal Reserve Board on Thursday released a summary of the exploratory pilot Climate Scenario Analysis (CSA) exercise that it conducted with six of the nation's largest banks.
The summary describes how these banks are using climate scenario analysis to explore the resiliency of their business models to climate-related financial risks. Participating banks took a wide range of approaches in this exercise to consider the possible implications of different physical and transition risk scenarios. The exercise highlighted data gaps and modeling challenges that arise when estimating the financial impacts of highly complex and uncertain risks over various time horizons.
The banks that participated in the exercise were Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.
The exercise was exploratory in nature and does not have capital consequences. Drawing on lessons learned from the exercise, the Board will continue to engage with participating banks regarding their capacity to measure and manage climate-related financial risks.
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The pilot CSA exercise highlighted the complexities and challenges in assessing climate-related financial risks. It underscored the need for better data, enhanced models, and ongoing investments in risk management capabilities to address the uncertainties inherent in climate risk modeling.
The results of the exercise show that climate risks are not of sufficient magnitude to threaten the capital adequacy of banks or the safety and soundness of the financial system.
Scenario analysis is a useful tool for understanding the implications of climate change for your business and to prompt longer term strategic thinking about risks and opportunities. Some companies have developed their own scenarios, others use those prepared by organisations such as the International Energy Agency.
The EIB Climate Risk Country Scores provide a comprehensive assessment of the climate change risks faced by more than 180 countries. The two sets of scores for physical and transition risks aggregate exposures to various risk factors, taking into account the adaptation and mitigation capacity of each country.
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