Casten Questions Chairman Powell About What Actions the Fed is Taking to Combat the Systemic Climate-Related Risks in Our Financial System
Washington, DC – Today, U.S. Representative Sean Casten (D-IL-06) questioned Federal Reserve (Fed) Chairman Jerome Powell in the House Committee on Financial Services (FSC) about the systemic risks climate change poses to the U.S. and global financial sector and what, if any, action the Fed is taking to mitigate that risk.
It is estimated that global economic losses from the effects of climate change will total nearly $23 billion. Without factoring in the debt securing that property and insurance against the climate risks, additional estimates project that $900 billion of U.S. property is at risk of total loss because of rising sea levels.
During the hearing, Chair Powell acknowledged that the Fed is not taking into account the impact of climate change on the financial system.
To watch Casten's questions to Chair Powell, click the image above or click here.
Casten: "There are some serious systemic risks to the economy if we leave those unaddressed. I just want to understand a little bit – how you and the Fed are thinking about those risks. Number one, given that the assets exposed to climate change exceed the entire subprime mortgage market prior to the global financial crisis, how- if at all- is the Fed thinking about climate change as a systemic risk to the economy"?
Powell: "Climate change, again, a very important issue, one that is really the province of elected representatives to set the overall direction of society and how we will respond to climate change and its challenges. Nonetheless, we have a job to do, and that is to think about the potential implications for the financial system, for the economy. I think we're at the very early stages of filling in what exactly that means. In terms of things like particular assets, these are longer terms considerations. We're essentially mainly concerned with business cycle issues, that's what we're focused on, is issues for the medium term. Climate change is a much longer-cycle kind of a thing."
Casten: "Well if I may, a part of the concern I have is that the actors in this space do not have planning horizons that match to the reality that you and we do, right. There are people signing 30-year mortgages for properties at Miami Beach. They may plan on reselling that mortgage a number of times but somebody is going to be left holding the paper with that sea level rise coming… Have you looked at the transitional risks in thinking about how that starts moving around and dislocating the economy"?
Powell: "Those are the things that we're at the beginning stages of looking into. As you obviously know, there's a lot going on in the financial markets. There's a lot of disclosure happening and the expectations around disclosure are changing significantly for publicly held companies- that will have an effect. But that's not really what we do."
In order to combat this emerging financial threat that the Fed has failed adequately to address at this point, Casten introduced H.R. 5194 Climate Change Financial Risk Act with U.S. Senator Brian Schatz (D-HI) in November. The bill would direct the Federal Reserve to conduct stress tests on large financial institutions to measure their resilience to climate-related financial risks in order to ensure these institutions are better prepared for the future effects of climate change like sea-level rise.
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