The Federal Reserve has applied to be part of a group of government banks that collaborate on managing the financial risks from climate change, a top official said Tuesday.
Fed Vice Chairman for Supervision Randal Quarles told the Senate Banking Committee that the central bank has sought membership on the Network for Greening the Financial System (NGFS).
“We have requested membership. I expect that it will be granted,” Quarles said. “I suspect we could probably join before the spring.”
According to its website, the NGFS seeks to help the world meet the goals of the Paris climate agreement and “enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development.”
The NGFS currently has 75 members including New York’s Department of Financial Services as well as the central banks of countries including Canada, the United Kingdom, Russia and China.
The application is one of a few recent moves by the Fed acknowledging the potential for climate change to cause financial risks.
Federal Reserve Chairman Jerome Powell said last week that “the public will expect and has every right to expect that in our oversight of the financial system, we will account for all material risks and try to protect the economy and the public from those risks.”
“Climate change is one of those risks,” he added.
And in a report on financial stability released Monday, the Fed noted that climate change can pose risks.
“Acute hazards, such as storms, floods, droughts, or wildfires, can quickly alter, or reveal new information about, future economic conditions or the value of real or financial assets,” the report said. “Moreover, in the presence of rapid shifts in public perceptions of risk, chronic hazards (like a slow rise in sea levels) have the potential to produce similar abrupt repricing events.”
In the report, the central bank said it “is evaluating and investing in ways to deepen its understanding of the full scope of implications of climate change” and expects banks to have systems in place to “identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks.”