Democratic Senators Want the Fed to Better Prepare Banks for Climate Change
A group of Democratic senators, half of whom currently running for president, are supporting a new bill that would direct the Federal Reserve to formally factor climate-change risks into its oversight of large financial firms.
Sen. Brian Schatz, (D., Hawaii) announced on Wednesday that he was joining with nine other Democrat senators on the legislation -- including presidential hopefuls Sens. Elizabeth Warren (D., Mass.), Michael Bennet (D., Colo.), Cory Booker (D., N.J.), Amy Klobuchar (D., Minn.) and Kamala Harris (D., -Calif.). Rep. Sean Casten (D., Ill.) has introduced a companion bill in the House of Representatives.
The bill, if passed, directs the Fed to more formally incorporate climate-change-related risks into its regulatory regime for the financial sector. It would order the Fed to specifically "stress test" firms with more than $250 billion in total assets to ensure they can withstand the trouble that climate change can bring to the economy and the financial system.
The bill also would direct the Fed to create an advisory panel of climate scientists and economists to create scenarios for the stress testing. Affected firms would also be required to come up with plans for various climate-related contingencies, including fire and rising seawater.
The Federal Reserve hasn't cropped up as much of a topic in the Democratic presidential race, but the sponsorship of the bill offers some hints about how at least some of the candidates view the central bank and its role in the economy.
"While our federal regulators are legally obligated to manage and reduce risks in the financial system, they have been ignoring the growing financial risks of climate change," Mr. Schatz said in a statement announcing the legislation.
Ms. Harris said in a statement that "there is no dispute we are facing a climate crisis and that it will impact every aspect of our society." She added, "it is vital that we assess the financial risks of climate change so that we can protect the financial health of future generations."
The outlook for the bill is unclear. While Democrats are the majority in the House, Republicans control the Senate. The GOP has been taking the opposite side from Democrats on climate change. President Trump is removing the U.S. from the Paris climate agreement that aims to mitigate rising temperatures caused by the burning of fossil fuels.
While the Fed's official mission is to promote stable price inflation and maximum sustainable job growth, climate change moved onto the central bank's radar this year. The Federal Reserve Bank of San Francisco held earlier this month a first-ever conference on climate change and central bank policy.
Mary Daly, who leads the San Francisco Fed, told conference attendees that "climate change is an economic issue we can't afford to ignore." She added, "there's little doubt that we need to recognize, examine, and prepare for these risks in order to fulfill our core responsibilities."
Fed Chairman Jerome Powell, however, has been more cautious. "I would say climate change is an important issue, but -- but not principally for -- for the Fed," he told Congress on Nov. 13. "It's really an issue that's, that's assigned to lots of other government agencies, not so much to the Fed."
Mr. Schatz has repeated challenged Fed officials about their response to climate change when central-bank leaders have testified before the Senate. Mr. Powell wrote to Sen. Schatz last April that the Fed was working to ensure banks that it regulates are ready to deal with "severe weather events" that come from climate change