FRB Governor Emphasizes Importance of Climate Change Resilience for Financial System

Federal Reserve Board ("FRB") Governor Lael Brainard emphasized the importance of preparing the U.S. financial system to deal with the challenges of climate change.

At an event titled "The Financial System & Climate Change: A Regulatory Imperative," Ms. Brainard asserted that climate change has already resulted in financial losses citing the increase of insured weather-related catastrophe losses over the past decade and the resulting impact on coverage availability for mortgages in vulnerable areas.

Ms. Brainard highlighted the following:

• Financial Stability. Ms. Brainard stated that, because the accuracy of risk models depends on the timing and magnitude of climate change, initiatives such as the Task Force on Climate-Related Financial Disclosures (or "TFCD"), and models such as climate risk scenario analysis, are critical to understanding climate risk and "accurately pricing that risk."
• Measuring, Modeling and Managing Climate Risk in the Banking System. Ms. Brainard echoed the challenges described by Federal Reserve Bank of New York Executive Vice President Kevin Stiroh relating to the lack of granular data in the quantification of climate change-related risks (see previous coverage here). To this effect, the FRB will be participating in a Network for Greening the Financial System on "Bridging the Data Gaps."
• Climate Change and Community Reinvestment. Ms. Brainard stated that the FRB's modernization of the Community Reinvestment Act is a proactive step towards "working to equitably mitigate the risks of climate change" in low- and moderate-income communities.