The most revealing result was that big banks have a high degree of uncertainty around the timing and magnitude of climate-related risks.
The US Federal Reserve just released the results of a pilot climate scenario analysis exercise they conducted in 2023 to learn about big banks and their climate risk-management practices and challenges. The goal was to highlight the measures that large banking organizations and supervisors will increasingly need to take to identify, estimate, monitor, and manage climate-related financial risks.
The Fed’s physical risk module focused on estimating the effect of common and idiosyncratic shocks of varying levels of severity on residential real estate and commercial real estate loan portfolios over a one-year horizon in 2023.
Participants reported that, in order to manage climate-related financial risks, they will need better understanding and monitoring of indirect impacts and chronic risks.Chronic risks occur because of climate influences like sea level rise.
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