According to a climate scenario analysis by the Federal Reserve, American banks are set to experience challenges in predicting the impact of climate change on their loan books due data and modelling difficulties.
The report’s aim was to predict how banks would be able to manage the risks of climate change, such as natural disasters and changing policies, and discovered that many lenders would need to rely on third-party providers to fill in gaps of data.
The analysis exercise was conducted in 2023, with participating banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.
Climate-related financial risk could cost trillions of dollars in assets and threaten the stability of banks.
According to Reuters, Federal Reserve chair Jerome Powell stated that policy would not be used to set climate targets but to manage risks to the banking system.