Weekly roundup: Fed planning climate stress tests and Carney under fire

October 8, 2021|Written by David Clarke|Banco Central do Brasil, Bank of England, European Central Bank, Federal Reserve

Fed’s Brainard says climate stress tests on the way for US banks, Carney under fire over COP26 ‘greenwashing’, G20 central banks urged to green refinancing operations and more from this week in green central banking.

 

Fed’s Brainard says climate scenario analysis on the way for US banks

The governor of the Federal Reserve Lael Brainard said on Thursday that the Fed is developing scenario analysis tools to assess the resilience of financial institutions, and the entire financial system, to the effects of climate change. Speaking at a research conference in Boston, she also signaled the Fed will provide supervisory guidance on climate change to help banks mitigate their exposure.

Her remarks follow the release in September of a climate stress test developed by researchers at the New York Fed. Lail Brainard has been touted as a possible successor to Jerome Powell, whose re-nomination as Fed chair is in doubt amid criticism from progressive lawmakers over his record on financial regulation and climate change.

 

Carney under fire for COP26 ‘greenwashing’

A coalition of 90 climate groups has written to Mark Carney calling on him to tighten the membership criteria of the Glasgow Financial Alliance for Net Zero, a key initiative linked to the upcoming COP26 summit.

In a letter published in the Toronto Star and Financial Times, the signatories accuse him of “greenwashing financial institutions that continue to invest in expanding fossil fuel infrastructure” by granting membership to some of the “world’s top backers of fossil fuels”.

The letter says that for financial institutions to take their role in the climate crisis seriously, they must immediately present comprehensive fossil fuel financing reduction targets and implementation plans, and cease financing new fossil fuel projects or fossil-fuel linked companies.

 

Santander chair calls for coordination on climate stress testing

Central banks must coordinate over climate stress tests to ensure a level playing field for potential capital requirements, Ana Botin, the chair of Santander, said on Wednesday. “If we don’t have an alignment first on stress tests, second on what it means for capital requirements, you will have a lot of unintended consequences,” Botin told a webinar on the COP26 climate summit.

The European Central Bank, Bank of England, Federal Reserve and the Banco Central do Brasil are among the central banks with climate stress tests either planned or underway. Although none has made a firm commitment to adjust their capital requirements based on the exercises, some experts see it as inevitable that this will follow in due course.

 

G20 central banks urged to green refinancing operations

A policy brief by the Council for Economic Policies thinktank has called for the wider use of targeted refinancing operations (TROs) by G20 central banks. It also recommends alignment of TROs with commitments made by G20 governments to address climate change.

The brief explains that TROs provide central bank loans to banks at favorable conditions to fund lending to specific segments of the economy. It warns that some banks participating in TRO programmes are currently supporting loans to firms with a high exposure to climate risk, and suggests that central banks could link the interest rate on TROs to a bank’s climate risk exposure.

“G20 leaders have repeatedly pledged to use all available policy levers to target their objectives. Central banks should not be carved out from this imperative,” said the authors.

This page was last updated October 9, 2021

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