Guidance For The Fed’s Climate Change Guidance

Guidance For The Fed’s Climate Change Guidance

UNITED STATES - MARCH 13: Nominees to be members of the Federal Reserve's Board of Governors from ... [+] left, Stanley Fischer, Jerome H. Powell, and Lael Brainard, appear before a Senate Banking, Housing and Urban Affairs Committee hearing in Dirksen Building. (Photo By Tom Williams/CQ Roll Call) Federal Reserve Governor Lael Brainard's latest speech indicates that the Fed will soon start using climate change scenario analysis as part of its stress testing for banks, and that the Fed will likely issue supervisory guidance for banks to follow when accounting for climate change risks. For starters, the Fed is going to rely on guidance rather going through the public notice and comment process for rules. Guidance, of course, is not legally binding. But it does give banks the choice of following their regulators' advice or ignoring it. In other words, there's no legal requirement to follow the Fed's guidance, and banks only have to follow it if they want to stay in business. Still, even if the Fed does go through the full rulemaking process, forcing banks to account for climate change – either as part of formal stress testing, capital requirements, or even lending restrictions – will be no