By Katanga Johnson
WASHINGTON (Reuters) - U.S. Democratic Senator Brian Schatz of Hawaii on Wednesday introduced a bill that would direct the Federal Reserve to subject large banks to so-called "stress tests" measuring their resilience to climate-related financial risks.
The proposed Climate Change Financial Risk Act of 2019 underscores growing worries among policymakers over the risks posed to the financial system by the frequency and severity of extreme weather events like floods and wildfires which could hurt productivity, asset valuations and the broader economy.
The law would help bring U.S. financial regulators in line with other global central banks in the United Kingdom and the Netherlands that have recently begun quantifying the potentially systemic risks caused by climate change, Schatz said.
"While our federal regulators are legally obligated to manage and reduce risks in the financial system, they have been ignoring the growing financial risks of climate change", said Schatz in a statement unveiling the proposed legislation.
"This bill will push the Fed to do their job and start taking climate risk seriously."
The Fed currently assesses how banks would fare under a range of adverse hypothetical economic scenarios, such as a jump in unemployment, to ensure they have sufficient capital buffers. Those "stress tests" do not assess specific climate change scenarios such as a 1 or 2 degree Celsius increase in average global temperatures.
Senator Schatz said he wants the central bank to establish an advisory group of climate scientists and economists to help develop these scenarios for the tests.
While Wednesday's proposed legislation has garnered support from nine other Democratic U.S. senators, including presidential hopefuls Elizabeth Warren, Amy Klobuchar and Kamala Harris, it would need support from Republicans, who hold the majority of the chamber, to become law.
U.S. financial regulators are beginning to scrutinize climate-related financial risks more closely.
At its first-ever conference on climate change and economics, the Fed signaled earlier this month that it may incorporate climate change risk into its assessments of financial stability and may even take it into account when setting monetary policy.
Rostin Behnam, a Democratic commissioner at the Commodities Futures Trading Commission, has also formed a special committee tasked with examining climate threats.