What could possibly go wrong with the Federal Reserve mucking around like this
The Federal Reserve is starting a climate experiment
The US Federal Reserve is running its very first climate change experiment.
The central bank this month announced details about how it will conduct a “pilot climate scenario analysis exercise” involving the six largest US banks: Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.
The Fed basically wants major banks to game out how they’ll handle climate change-related shocks. For example, what would happen to their real estate holdings in the northeastern United States under a future hurricane when sea levels are higher? These scenarios are grouped together in the exercise as “physical risks.”
Then there are “transition risks”: How will financial institutions cope with a wholesale shift away from fossil fuels toward cleaner energy? What will happen to their investments in coal mines or gas plants? How will loans fare when customers turn away from businesses with a large impact on the climate?
These are immensely consequential questions, not just for the banks, but for everyone. How banks manage, or fail to manage, climate risks will affect things like home loans, business lending, retirement accounts, and insurance — things that will touch every sector of the economy. The Fed has set a deadline to receive these reports from banks by the beginning of August.
Oh, good, banks have to waste a lot of time with silly reports as the Fed involves climate cult business.
“The Fed has narrow, but important, responsibilities regarding climate-related financial risks — to ensure that banks understand and manage their material risks, including the financial risks from climate change,” the Fed’s vice chair for supervision, Michael Barr, said in a statement last week.
The only risk is banks being forced to change their business practices for the whims of climate cultists in government positions of power.
Well, they only have 100 years to get ready for that one. They better get on it.
Does a bank really need to prepare for such events? I think any non-banker can come up with some basic preparations that would help and could be fleshed out in a weekend.
1. Go to a cashless system. No ATMs needed. No trucking bank notes around. No making sure vendors have enough cash on hand or can handle nightly deposits.
2. Print more paper money and have it stored in warehouses to replace currency that is lost or destroyed. This is not the same thing as increasing the money supply.
3. Replace paper money with plastic banknotes. Plastic banknotes have longer lifespans, suffer reduced wear and tear, not subject to mold, don’t transmit germs as easily, and are mostly immune to global warming.
4. Establish data center back up in remote locations. I think they are already doing this and have been since Y2K.
5. Start divesting real estate holding in hurricane-prone areas now. Further divest holding any properties along the shore. Don’t loan money or invest in such properties in the future. Establish banking policy that if you build within 50 miles of the Atlantic coast, you are on your own.
But mostly, they are going to find that their future real estate holding are going to suffer in exactly the same way they currently are when a hurricane hits.
Anecdote: I was talking to the CEO if USAA insurance a long time ago. He mentioned (all CEOs were “He” back then) that if USAA had not diversified into banking a few years earlier, hurricane Andrew would have wiped them out. Their claims in Florida would have exceeded their reserves because there are a lot of retired military living in Florida. So it’s not as if banks are going to be totally taken by surprise that hurricanes happen in Florida.