Weekly Roundup: US climate risk and debate on ECB market neutrality

May 14, 2021|Written by GCB News|De Nederlandsche Bank, European Central Bank, Federal Reserve

Calls for U.S. climate risk regulation

The Federal Reserve and other bank regulators should use the bank capital framework to improve the resiliency of the U.S. financial system to climate-related risks, suggests a policy proposal released Monday by the Center for American Progress. The proposal, which also called for mandatory climate risk disclosure rules and the integration of climate risk into fiduciary requirements, focused on addressing climate-related financial risk through higher bank capital requirements for exposed sectors and companies. It follows similar policy proposals made last month in a major report from climate campaigners and civil society groups.

Climate risk to the US financial system was also the subject of a  statement on Tuesday by 16 State Treasurers, managing more than USD $1.2 trillion of assets. The statement, coordinated by the NGO Majority Action, said that climate change will impose systemic, undiversifiable and portfolio-wide risks to long-term and institutional investors. The Treasurers’ call on federal regulators to identify climate change as a systemic risk and to stress test financial organisations accordingly.

ECB market neutrality debate continues

On Thursday, De Nederlandsche Bank (DNB) proposed that the European Central Bank (ECB) abandon the controversial principle of market neutrality and instead use “an alternative benchmark for corporate bond purchases that better reflects the energy transition.” In a report that called on the new Dutch government to boost climate investment, DNB suggested that the ECB follow EU climate benchmarks to align its monetary policy operations with climate objectives. Offering a range of policy options to scale up climate investment, the report contributes to an ongoing ECB discussion about greening its monetary policy.

ECB market neutrality was also a topic of an ECB podcast on Thursday in which ECB board members Frank Elderson and Isabel Schnabel discussed the ECB’s mandate and its options for climate action. Elderson, a lawyer by training, pointed out that the ECB’s secondary mandate requires the Bank to choose green options – as long as the bank’s primary mandate of price stability is not affectedl. Elderson and Schnabel are both leading climate voices within the ECB, and Elderson also acts as Chair of the Network for Greening the Financial System (NGFS).

The Fed asks lenders for details of climate risk

The week ended with informal reports that the U.S. Fed has already asked lenders to provide information on what they are doing to mitigate climate change-related risks to their balance sheets. Based on comments from four unnamed officials, Reuters reported that Fed supervisors have pressed large banks to detail the measures they are taking to identify and manage risks to their loan books under several climate change scenarios. This would indicate at least some movement by the Fed towards implementing the policy proposals made earlier in the week.

This page was last updated May 14, 2021

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