Democratic Senators Want the Fed to Better Prepare Banks for Climate Change--Update
November 21 2019 - 6:12PM
Dow Jones News
By Michael S. Derby
A group of Democratic senators, half of whom currently running
for president, are supporting a new bill that would direct the
Federal Reserve to formally factor climate-change risks into its
oversight of large financial firms.
Sen. Brian Schatz, (D., Hawaii) announced on Wednesday that he
was joining with nine other Democrat senators on the legislation --
including presidential hopefuls Sens. Elizabeth Warren (D., Mass.),
Michael Bennet (D., Colo.), Cory Booker (D., N.J.), Amy Klobuchar
(D., Minn.) and Kamala Harris (D., -Calif.). Rep. Sean Casten (D.,
Ill.) has introduced a companion bill in the House of
Representatives.
The bill, if passed, directs the Fed to more formally
incorporate climate-change-related risks into its regulatory regime
for the financial sector. It would order the Fed to specifically
"stress test" firms with more than $250 billion in total assets to
ensure they can withstand the trouble that climate change can bring
to the economy and the financial system.
The bill also would direct the Fed to create an advisory panel
of climate scientists and economists to create scenarios for the
stress testing. Affected firms would also be required to come up
with plans for various climate-related contingencies, including
fire and rising seawater.
The Federal Reserve hasn't cropped up as much of a topic in the
Democratic presidential race, but the sponsorship of the bill
offers some hints about how at least some of the candidates view
the central bank and its role in the economy.
"While our federal regulators are legally obligated to manage
and reduce risks in the financial system, they have been ignoring
the growing financial risks of climate change," Mr. Schatz said in
a statement announcing the legislation.
Ms. Harris said in a statement that "there is no dispute we are
facing a climate crisis and that it will impact every aspect of our
society." She added, "it is vital that we assess the financial
risks of climate change so that we can protect the financial health
of future generations."
The outlook for the bill is unclear. While Democrats are the
majority in the House, Republicans control the Senate. The GOP has
been taking the opposite side from Democrats on climate change.
President Trump is removing the U.S. from the Paris climate
agreement that aims to mitigate rising temperatures caused by the
burning of fossil fuels.
While the Fed's official mission is to promote stable price
inflation and maximum sustainable job growth, climate change moved
onto the central bank's radar this year. The Federal Reserve Bank
of San Francisco held earlier this month a first-ever conference on
climate change and central bank policy.
Mary Daly, who leads the San Francisco Fed, told conference
attendees that "climate change is an economic issue we can't afford
to ignore." She added, "there's little doubt that we need to
recognize, examine, and prepare for these risks in order to fulfill
our core responsibilities."
Fed Chairman Jerome Powell, however, has been more cautious. "I
would say climate change is an important issue, but -- but not
principally for -- for the Fed," he told Congress on Nov. 13. "It's
really an issue that's, that's assigned to lots of other government
agencies, not so much to the Fed."
Mr. Schatz has repeated challenged Fed officials about their
response to climate change when central-bank leaders have testified
before the Senate. Mr. Powell wrote to Sen. Schatz last April that
the Fed was working to ensure banks that it regulates are ready to
deal with "severe weather events" that come from climate
change.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
November 21, 2019 17:57 ET (22:57 GMT)
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