Money Talks: Climate Change Increases Banks’ Financial Risks
A collection of 18 papers published by the Federal Reserve Bank of San Francisco indicates that climate risks may cause home values to fall significantly; banks to stop lending to flood-prone communities; and towns to lose tax money needed to build seawalls and other protections. One recommendation is for regulators to penalize banks that lend money in areas that have been hit by disasters, yet have not taken steps to protect themselves against similar future disasters. Banks could also be rewarded by regulators for financing projects that leave communities less vulnerable to flooding or other hazards.
Federal Reserve Chair Jerome H. Powell wrote that the Fed takes “severe weather events” into account in its role as a financial supervisor. The San Francisco branch of the Federal Reserve, responsible for banking oversight across a major swath of the American West, wrote in March that volatility related to climate change has become “increasingly relevant” as a consideration for the central bank.