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“We can’t just look back and learn from the lessons of last year,” Yellen said at the meeting. “We must also look to the future, in the face of emerging risks. Climate change is obviously the most important. “
Yellen’s decision to put climate change at the top of the group’s agenda underscored the growing attention financial regulators are giving to the economic impacts of global warming and sea-level rise. The SEC is considering further news. climate disclosure rules for public enterprises. The Fed is stepping up its review of banks’ exposure to climate-related risks.
“We know storms will hit us with more frequency and intensity,” Yellen said. “We know that warming temperatures could disrupt food and water supplies, causing unrest around the world. Our financial system must be prepared for the market and credit risks associated with these climate-related events. “
At the meeting, the heads of independent U.S. financial regulators, some of whom are still headed by people appointed by President Donald Trump, highlighted the steps each of them is taking to better understand how financial assets and institutions in different regions could be affected by inclement weather. events. They recognized how losses in these areas could spill over into financial markets, although modeling these results is complex.
Federal Housing Finance Agency director Mark Calabria, a libertarian regulator who oversees mortgage giants Fannie Mae and Freddie Mac, said his agency had just hired two environmental economists who would start work shortly.
Federal Reserve Chairman Jerome Powell, also appointed by Trump, chaired the formation of two internal committees on climate risk – one on issues relevant to bank examiners and the other on potential risks posed to the stability of the whole financial system, the type is the most interesting for FSOC.
“We are committed to a strong and open dialogue as the work evolves,” said Powell. “One of our goals is to integrate climate change into our regular financial stability framework. An added benefit of this adjustment is the ability to brief the public on this essential work. “
Beyond climate change, Yellen is also focusing on the weaknesses of the financial system highlighted at the onset of the coronavirus pandemic, when major debt markets experienced extreme stress.
Yellen said she is re-establishing an Obama-era task force on the board that will look specifically at hedge funds and also look at ways to make the funding markets that are the lifeblood of the financial sector more resilient.
“Without the swift actions of the Federal Reserve, Treasury, Congress and others, these tensions could have led to an even greater economic contraction,” she said. “Indeed, we are currently digging a deep hole, but we have to keep in mind that the hole could easily have been even deeper.”
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