US banks should be forced by the Federal Reserve’s umbrella reserve of the central bank to hold more cash. This allows them to cover themselves against the potential losses due to climate change. Money can also be used to combat it. The important Center for Progressive Research, the Center for American Progress, defends this in a report.
In the document, the think tank stated that the Federal Reserve could quickly come up with a number of precautions. This includes, for example, placing additional capital charges linked to the amount of pollution that banks directly finance. Rigorous stress tests also need to be conducted on large banks, including for climate risks.
Such interventions are expected to face stiff opposition from the banks themselves. In addition, the Fed is a little more cautious in its approach to climate issues than the Democrats of President Joe Biden. In the time of Republican President Donald Trump, the United States, and with it the Federal Reserve, lagged behind other countries in terms of climate policy.
The Federal Reserve has recently increased its efforts in this area. For example, more personnel have been deployed to specifically investigate how climate change is affecting the economy and the financial system. But the Federal Reserve has yet to implement new policies in response to climate change. According to the report, the regulator could not afford this.
President Joe Biden wants to tackle climate change on all fronts. With the publication of the report, the question will arise to what extent policymakers like the Federal Reserve can go in monitoring climate targets.
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