From the Document: "Potential risks to the financial system from climate change have attracted growing attention in government, academia, and media, raising questions about the roles of central banks and bank regulators in addressing such risks. The U.S. central bank, the Federal Reserve (Fed), has responsibilities involving financial stability, monetary policy, and banking supervision. Climate change--defined in a November 9, 2020, Fed report as 'the trend toward higher average global temperatures and accompanying environmental shifts such as rising sea levels and more severe weather events'--may impact each of these. This could occur either through physical risks, such as greater storms and wildfires, or through 'transition risk,' meaning the risk that changed government policies or market perceptions might lead to sudden asset price drops, such as for carbon-emitting industries. The Fed report on financial stability warned that sudden hazards can bring about direct losses that could negatively impact banks' investments. It asserted that even slowly developing hazards such as rising sea levels could lead to sudden price drops for bank investments if abrupt changes in public perceptions about such risks emerges. This Insight focuses on the central bank's role in banking supervision and climate change risks and on what the Fed and other banking regulators have done to address such risks."
CRS Insight, IN11545
Congressional Research Service: https://crsreports.congress.gov/