JPMorgan, Citi, Goldman, others join Fed's pilot climate scenario exercise

Sep. 30, 2022 9:49 AM ETWells Fargo & Company (WFC), MS, JPM, GS, C, BACBy: Max Gottlich, SA News Editor41 Comments

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Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Wells Fargo (NYSE:WFC) have participated in the Federal Reserve Board's pilot program on climate change starting in early 2023, according to a recent release.

During the pilot, which is expected to close around the end of 2023, the megabanks will assess the impact of climate-related scenarios on particular portfolios and business strategies as part of the Fed's efforts to measure the level of financial risks regarding climate.

The Fed will then review those findings "and engage with those firms to build capacity to manage climate-related financial risks," it said.

The pilot exercise will be "exploratory in nature and does not have capital consequences," the Fed noted. The central bank, which created a Supervision Climate Committee in May to explore climate risks to the financial system, will publish its findings at the beginning of the exercise.

The Fed pointed out that the exercise is separate from its bank stress tests, which are designed to determine whether large banks' capital levels are big enough to keep lending in the event of a severe downturn. The latest such test in June found that Bank of America (BAC), Citigroup (C) and JPMorgan (JPM) may have to raise their internal target ratios and hold off on stock buybacks to increase their Common Equity Tier 1 ratios.

The move came after the European Central Bank discovered that most euro banks in July didn't adjust for climate risk in their credit models.

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