FSOC labels climate a priority risk

December 23, 2021|Written by David Clarke|Federal Reserve

A panel of top US regulators has confirmed that climate change is an ‘emerging threat’ to the US financial system.

The Financial Stability Oversight Council (FSOC) made the statement in its annual report last week, marking the first time in the decade since its creation that the group has identified climate change as a priority area for concern. The FSOC was established in the aftermath of the financial crisis to monitor and respond to threats to US financial stability.

The report echoes the FSOC’s recent report on climate-related financial risk in acknowledging the risks posed by more frequent severe weather events, and by government policies to transition to net-zero emissions.

“The economic effects associated with a transition may be transmitted through the financial sector and the economy in ways that could challenge the resilience of financial institutions or [the sector at large],” say the authors. “If these changes occur in a disorderly way owing to substantial delays in action or abrupt changes in policy, their impact is likely to be more sudden and disruptive.”

The report also calls on regulators to improve the standards of climate disclosures and integrate climate considerations into supervisory guidance. But it does not include any new policy solutions, or give any firm timelines for action. Climate advocates have criticised the lack of specifics in regulators’ plans, and warned that the Treasury and other agencies must address climate risks “even if they may not manifest until after the usual time horizon that regulators focus on”.

The FSOC annual report – including its warnings on climate – has unanimous backing from its member institutions, including the Federal Deposit Insurance Corporation (FDIC). The FDIC chair Jelena McWilliams declined to support October’s climate risk report, and is currently under pressure from some members of FDIC’s board over her running of the organisation.

This page was last updated December 23, 2021

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