In a recent American Banker article, “
Banks and regulators may be more aware of the risks than she realizes, however. They carefully review the available evidence on climate science in order to understand the risks that may be present.
The Intergovernmental Panel on Climate Change, or IPCC, is the United Nations body responsible for assessing the state of scientific knowledge concerning climate change. Its recent report “
Banks and regulators will typically measure the climate risks of banks by performing stress tests that assume climate risks are worse than they are today, usually by assuming that future climate conditions will hold. For example, the Fed’s climate scenario exercise that Ozane referred to required banks to undergo a highly complex and thorough climate scenario exercise. The results of the exercise yielded important insights into the climate risks faced by banks. The exercise revealed that extreme weather events 30 years from now would produce relatively small risks for the banks tested, giving comfort that a banking system that is resilient to climate risks will be able to perform its necessary lending function following an extreme weather event.
Ozane is certainly right to focus attention on the suffering that extreme weather events inflict on underserved communities. There, she should see the nation’s banks as an ally. When banks lend after a weather disaster, homes can be rebuilt to current building standards, reducing the risk of future damage in extreme weather events. Rebuilding to current building standards also lowers insurance costs. The research article “
Climate change poses great risks to our civilization, and those risks should be studied and reduced through responsible legislation and voluntary private sector efforts. Those risks, however, at this point do not appear to include significantly worsening weather events that are causing losses to banks. Direct regulation of the cause of climate change is appropriate; identifying false risks to the banking system is not.