First Street’s Post

The Federal Reserve Board recently released findings of their Climate Scenario Analysis (CSA) pilot study. Examining how six of the nations largest banks use climate scenarios to explore resiliency of their business models to climate related financial risks. The findings are an important bellwether for how prepared (or not) large banks are for the future. One interesting finding is that, "...[Banks] assumed that historical relationships between model inputs and outputs continue to hold as the climate and the structure of the economy evolve." This indicates a pressing need for more robust future-looking relationship modeling instead of relying purely on historical relationships

The SEC Targets Financed Emissions: Banks, Borrowers and Climate Change. As climate change becomes an increasing risk to financial stability, financial institutions are exploring ways to integrate this segment of risk management into their operations. Read our latest blog: tinyurl.com/5yrmedzd

Climate scenario analysis has become a central focus for banks, as they are increasingly required to understand and assess both short- and long-term financial risks associated with climate change.   ISDA has published a new paper that follows the development of a conceptual framework published by ISDA in 2023 to identify the main building blocks needed to develop climate risk scenarios for the trading book.   During the second half of 2023, ISDA tested the framework in collaboration with more than 30 member banks and developed three climate scenarios (physical, transition and combined). The output of this initiative includes a detailed set of scenario parameters covering a range of market risk factors, including country and sector specific parameters.   Read the paper here https://lnkd.in/e83V8rHv

European banks are building out their risk models to better prepare for the fallout from climate change, with some even examining the short-term liquidity implications of a hotter planet, according to a joint survey conducted by the Association for Financial Markets in Europe and Oliver Wyman.

Join us in exploring the advancements in climate scenario analysis for banks and financial institutions. Over the past five years, we have witnessed significant progress, from TCFD disclosures to PRA and ECB climate stress tests. In this three-part series, we delve into the key areas where enhancements are expected in end-to-end climate risk scenario analysis models for banks and other financial institutions. Together, let's build a resilient and sustainable future. #ClimateScenarioAnalysis #FinancialInstitutions #Enhancements

Join us in exploring the advancements in climate scenario analysis for banks and financial institutions. Over the past five years, we have witnessed significant progress, from TCFD disclosures to PRA and ECB climate stress tests. In this three-part series, we delve into the key areas where enhancements are expected in end-to-end climate risk scenario analysis models for banks and other financial institutions. Together, let's build a resilient and sustainable future. #ClimateScenarioAnalysis #FinancialInstitutions #Enhancements

Join us in exploring the advancements in climate scenario analysis for banks and financial institutions. Over the past five years, we have witnessed significant progress, from TCFD disclosures to PRA and ECB climate stress tests. In this three-part series, we delve into the key areas where enhancements are expected in end-to-end climate risk scenario analysis models for banks and other financial institutions. Together, let's build a resilient and sustainable future. #ClimateScenarioAnalysis #FinancialInstitutions #Enhancements

Join us in exploring the advancements in climate scenario analysis for banks and financial institutions. Over the past five years, we have witnessed significant progress, from TCFD disclosures to PRA and ECB climate stress tests. In this three-part series, we delve into the key areas where enhancements are expected in end-to-end climate risk scenario analysis models for banks and other financial institutions. Together, let's build a resilient and sustainable future. #ClimateScenarioAnalysis #FinancialInstitutions #Enhancements

Join us in exploring the advancements in climate scenario analysis for banks and financial institutions. Over the past five years, we have witnessed significant progress, from TCFD disclosures to PRA and ECB climate stress tests. In this three-part series, we delve into the key areas where enhancements are expected in end-to-end climate risk scenario analysis models for banks and other financial institutions. Together, let's build a resilient and sustainable future. #ClimateScenarioAnalysis #FinancialInstitutions #Enhancements

Exciting insights emerged from the Federal Reserve's recent pilot climate scenario analysis (CSA) exercise, conducted in collaboration with the US major banking institutions. Participants delved into various climate scenarios, assessing the resilience of their business models across short- and long-term horizons. Diverse approaches were observed in constructing detailed risk scenarios and translating them into climate-adjusted credit risk parameters. Despite leveraging existing credit risk models, participants faced significant challenges in estimating climate-related financial risks, citing issues such as data inconsistency and modeling complexities. Many had to rely on external vendors to bridge data gaps effectively. Moreover, participants stressed the importance of better understanding and monitoring indirect impacts and chronic risks, such as disruptions to local economies and sea-level rise, for effective climate-related financial risk management. These insights underscore the pressing need for collaborative efforts and innovative solutions as we navigate the complexities of climate change in the financial sector. #ClimateRiskManagement