Unpacking the US Fed climate scenario exercise
The results were not unexpected, but the exercise still broke new ground and suggests a path forward for US supervision on climate risks
The results are in for the US Fed’s Pilot Climate Scenario Exercise! We put together a short summary deck on the key messages and visuals from the exercise.
Summary slide deck:
Here are some of the main takeaways from the exercise:
Six major banks assessed physical and transition risks across long and short-term scenarios for corporate loans and commercial real estate.
One of the most novel aspects was user-defined physical risk scenarios, which showed significantly more severity than the those provided by the Fed
Commercial real estate saw higher impacts for both transition and physical risks
Overall losses and impacts were relatively modest, suggesting that second order impacts need to be more fully explored and models need to be better parameterized to assess climate-related risks
Data was a challenge for participating institutions, who relied on external providers. Some of the variation in results may be due to methodologies used rather than portfolio risks
Participants felt the exercise showed the value of monitoring climate impacts and taking action on these risks