Christopher Waller, governor of the US Federal Reserve, expressed his views on the need for special attention to how banks are preparing for climate change risks. During a Fed Listens event in Washington, D.C., on September 23, 2022, he highlighted the potential impact of catastrophic events like hurricanes and floods on the US economy.
Although he acknowledged the risks associated with climate change, Waller questioned whether it was necessary for the Federal Reserve to conduct special tests for banks’ readiness. In a speech given in Madrid, he stated, “I don’t see a need for special treatment for climate-related risks in our financial stability monitoring and policies. Based on what I’ve seen so far, I believe that placing an outsized focus on climate-related risks is not needed, and the Federal Reserve should focus on more near-term and material risks in keeping with our mandate.”
Despite his stance, the Federal Reserve has already mandated the country’s six largest banks to present plans outlining their response to climate-related events. Although different from the stress tests conducted by the Fed, these exercises share similarities as they examine how banks would handle financial and economic crises.
Waller emphasized that while climate change is a real issue, he does not believe it poses a serious risk to the safety and stability of large banks or the overall financial stability of the United States. He argued that events like forest fires and other climate-related disasters may be devastating to local communities but are not significant enough to pose a disproportionate risk to the national economy.
Furthermore, he pointed out that both households and businesses, including banks, have demonstrated their adaptability to changes. The performance of banks, he asserted, is generally unaffected by disasters that occur in their respective regions.
The Federal Reserve has been deliberating the importance of climate risks for the past three years, with the topic being first addressed in a financial stability report in 2020.
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