The Federal Reserve Board released a summary of an exploratory pilot climate scenario analysis exercise that it conducted with six of the nation's largest banks, with the megabanks reporting challenges in conducting the climate analysis.

Background: The Fed conducted a pilot climate scenario analysis exercise in 2023 on large banks’ ability to identify and manage climate-related financial risks. It said the pilot was exploratory and does not have consequences for bank capital or supervisory implications.

Fed Summary: The Fed said:

  • The banks took a wide range of approaches to consider the resiliency of their business models to various climate scenarios.

  • Participants reported significant data and modeling challenges in estimating climate-related financial risks.

  • Participants suggested that climate-related risks are highly uncertain and challenging to measure.

  • Additional investment and analysis could improve participants’ risk-management capabilities.

  • Highly uncertain risks are challenging to measure and thus hard to incorporate into risk-management frameworks.

ICBA View: In a statement to Congress last month, ICBA said the Securities and Exchange Commission’s final rule requiring climate-related investor disclosures and related agency efforts are an emerging threat to community banks and their customers.