US Federal Reserve Governor Christopher Waller said there was no need for central bankers to pay particular attention to climate change risks to the financial system as there was no apparent threat to financial stability.
“Climate change is real, but I don’t think it poses a serious risk to the safety and soundness of large banks or to the financial stability of the United States,” Waller told a conference in Madrid. “Risks are risks. There is no need for us to focus on one type of risk that shifts our focus to others.”
“My job is to ensure that the financial system is resilient to a range of risks,” he added. “And I believe that the risks posed by climate change are not unique or significant enough to merit special treatment compared to others.”
The Fed Governor did not address the US economy or the monetary policy outlook in his prepared remarks.
Waller, who was appointed by former President Donald Trump, disagreed in December 2022 of the Fed’s proposed guidelines that lenders with combined assets of more than $100 billion could use to safely manage climate-related financial risks. The Fed’s draft policy aims to address potential risks related to credit, liquidity and other areas.
Many central banks in recent years have come to terms with the notion that climate change is posing new levels and types of financial risk to economies. A smaller subgroup, including Singapore and South Africa, have adopted clean development as a policy goal. Stress testing, climate risk disclosure and, more controversially, banks greening their portfolios are all general tools at play.
Waller said climate-related events — fires, hurricanes and natural disasters — could have devastating effects on local communities without being meaningful to the overall US economy. While climate change could affect property values in individual cities, there is no evidence of a broader risk, he said.
According to a study from 2021, the US and Canada are among almost half of the banks that do not have climate mandates. Fed Chairman Jerome Powell has generally understood the organization’s role as primary banking supervisor.
“Central banks have expanded their mandates in times of crisis,” analysts at BloombergNEF wrote in March. “If central banks don’t intervene, financial markets could suffer losses that would impact the real economy,” BNEF wrote. “It’s up to them to prevent that, even within their traditional role, which means climate change will slowly move into their mandate.”
Scientists in recent years have begun to warn of unprecedented risks that have rarely or never arisen before, such as “composite events” involving simultaneous or sequential catastrophes. In 2022, for example, American researchers pointed out the increasing risk of extreme rainfall immediately after forest fires in the western United States. By the end of the century, this scenario could increase by 100% in California and 700% in the Pacific Northwest.
Beyond the physical risks, the banking system faces uncertain “transition risks” that result from decarbonizing the economy without their help.
–Assisted by Matthew Boesler.
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