Two regional Federal Reserve Bank Presidents have said that the Federal Reserve system’s response to the climate crisis is confined to researching and identifying climate-related risk. Speaking at an online event organised by the Official Monetary and Financial Institutions Forum (OMFIF), Philadelphia Fed President Patrick Harker and Atlanta Fed President Raphael Bostic said that objective research and fact-based evidence was key to countering US political objections surrounding climate change.
The US Federal reserve system consists of 12 regional Federal Reserve banks, each responsible for supervising the banks in its district and for implementing national monetary policy.
“What we need is our political system to be moving in this direction, and we’re starting to see this happen,” President Harker told OMFIF Chief Economist and Director of Research Danae Kyriakopoulou. “I think it’s pretty obvious where we’re going,” he said, referring to the movement to a net zero economy. “Let’s figure out together, including the public sector, how to make this transition.”
Harker also said that the Philadelphia Fed was responsible for building and managing the Fed system’s stress test models for large financial institutions, and was beginning to consider how to integrate climate-related risks into these stress tests. However, he also warned that this work was only in its very early stages.
Under Board Chair Jerome Powell, a Trump appointee, the Fed has been slow to act on climate change. It was the last major central bank to join the Network on Greening the Financial System (NGFS) and only recognised climate change as a potential threat to financial stability late last year. A recent ranking of G20 countries on climate action put the US in tied 13th place, behind Mexico and Canada and far behind China, Brazil and the EU.
President Bostic, who sits on the Federal Open Market Committee responsible for US monetary policy, was clear that the Fed’s approach to climate change would be market-led. “In the United States we’re not going to mandate anything,” he said, “I think the marketplace is going to drive those changes.”
Last month US President Joe Biden issued a comprehensive Executive Order directing federal government agencies and financial regulators to develop strategies for assessing and disclosing climate-related financial risk. Biden has also supported the G7 call for “movement towards” climate-related financial disclosures based on the Task Force on Climate-related Financial Disclosures (TCFD) framework.
The U.S. Securities and Exchange Commission (SEC) has also completed a consultation on expanding environmental, social and governance disclosure requirements for financial institutions and public companies. The updated disclosure requirements are expected to be published in October.
This page was last updated June 28, 2021
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