Federal Reserve Now Forces Banks to Stress Test for Climate Change

The six largest U.S. banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. More acknowledgement that the Federal Reserve is becoming nothing more that a political arm of the government. It “might lead to lending restrictions.”  A previous post gave us a heads up

Marxist Fed Reserve Chair Daly of San Francisco, Former High School Drop Out, Oversaw Bank That Failed

The directors of the Fed banks have been in the spotlight in recent years as the central bank has faced criticism that bank directors lacked racial and gender diversity and were too weighted towards the business and banking community. The Fed has been working on expanding who serves in these roles.

Analysis: With record diversity on their boards, Fed bank chiefs see lower chances of policy error

This year, of the 108 spots on the 12 Fed bank boards, 44% are filled by women, and 41% by people of color, a review of the data shows. “I think the probabilities are far higher of achieving that gentle transition, that smoother transition,” San Francisco Fed President Mary Daly told Reuters in an interview.  (What possibly could go wrong?)

We already know what happened to Silicon Vally Bank who was as woke as woke could be.

Two years ago the Federal Reserve was making noises in this direction.

GOP Banking Members Caution Federal Reserve Against Climate Change Regulations

Translation: Banks would best not lend to energy producers or affiliated companies unless Green.

Hoot of the Day.

The Fed cannot even model US Treasuries. Its stress-free test would have failed to identify the imploded Silicon Valley Bank as a problem

Yet, for political reasons, the Fed is now attempting to stress test the weather.

Under guise that it’s just a stress test model and not a policy setting model, the Fed announced details on its Pilot Climate Scenario Risk Analysis Program on January 17.

As described in the instruction document released today, the six largest U.S. banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. To support the exercise’s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks, the Board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.

“The Fed has narrow, but important, responsibilities regarding climate-related financial risks – to ensure that banks understand and manage their material risks, including the financial risks from climate change,” Vice Chair for Supervision Michael S. Barr said. “The exercise we are launching today will advance the ability of supervisors and banks to analyze and manage emerging climate-related financial risks.”

But of course it might lead to lending restrictions.

WSJ report The Fed’s Climate Studies Are Full of Hot Air by David Barker.

This year the Fed is forcing big banks to produce complex reports on their climate vulnerability in a “pilot project” that is sure to expand and might lead to lending restrictions. A query of the Fed’s listing of recent publications returns hundreds of research papers, press releases and policy statements related to climate change.

With all this effort, one might hope the Fed would produce high-quality research on climate change. But I took a close look at two Fed studies on the subject and found shockingly poor analysis. These studies on the effect of temperature on U.S. and world economic growth are cited without a hint of skepticism and widely lavished with media attention.

Recently I published a critique of a study from the Federal Reserve Board claiming that a year of above-normal temperatures in countries around the world makes economic contraction more likely. The original study used sophisticated statistical techniques but failed to report that its primary finding was statistically insignificant. My request to the study’s author for computer code to reproduce the paper’s results went unanswered.

….

The only thing to learn from the Fed’s research is that climate propaganda is spreading fast, and when it comes to climate, academic economists are no more deserving of trust than are other supposed scientists and experts. The Fed’s time would be better spent on more urgent matters, like improving its botched regulation of the banking system.

Read more at Zero Hedge