The Fed Models the Weather Although It Can’t Even Stress Test Treasuries
Under guise that it’s just a stress test model and not a policy setting model, the Fed announced details on its Pilot Climate Scenario Risk Analysis Program on January 17.
As described in the instruction document released today, the six largest U.S. banks will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. To support the exercise’s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks, the Board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.
“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,” Vice Chair for Supervision Michael S. Barr said. “The exercise we are launching today will advance the ability of supervisors and banks to analyze and manage emerging climate-related financial risks.”
The Fed cannot even model US Treasuries. Its stress-free test would have failed to identify the imploded Silicon Valley Bank as a problem
Yet, for political reasons, the Fed is now attempting to stress test the weather.
To get the desired results, the Fed study gave St. Vincent, Rwanda, and Equatorial Guinea the same weight as China and the United States.
I suggest the Fed should throw this nonsense in the garbage and stress test commercial real estate, interest rates, accelerated QT, and things that it has clearly neglected.
https://www.zerohedge.com/markets/fed-models-weather-although-it-cant-even-stress-test-treasuries
All I can say is this insanity has to stop.