Banking and Finance Law Daily Wrap Up, FINANCIAL STABILITY—Public Citizen criticizes Fed’s ‘retreat’ on climate change, (Feb 19, 2025)
Organizations Mentioned:Public Citizen
Advocacy group Public Citizen says the Fed’s recent actions on efforts to address climate change have “put the economy at risk.”
Advocacy group Public Citizen has published a blog post criticizing the Federal Reserve Board and Fed Chair Jerome Powell for recent actions the Fed has taken retreating from its previous positions on the risks posed by climate change. The post was written by Elyse Schupak, policy advocate with Public Citizen’s Climate Program.
Chair Powell recently appeared before Congress for his first set of oversight hearings since the start of the new administration. In his testimony Powell defended the Fed's role addressing climate-related financial risks, as well as the Fed’s recent actions like withdrawing from the Central Banks and Supervisors Network for Greening the Financial System (NGFS), which was created to facilitate information sharing and best practices for mitigating climate-related financial risks.
On Jan. 17, 2025, the Federal Reserve announced that, four years after it joined, it is leaving the NGFS, the network of central bankers from around the world responsible for developing and implementing environment and climate risk management in the financial sector. Chair Jerome Powell voted in favor of the action, along with Vice Chair Phillip Jefferson, and Governors Michelle Bowman, Lisa Cook and Christopher Waller. There were no votes against the action, and Vice Chair for Supervision Michael Barr and Governor Adriana Kugler abstained (see Banking and Finance Law Daily, Jan. 21, 2025). The Fed’s brief announcement noted that the Fed has “appreciated the engagement with the NGFS and its members,” and said the work of the NGFS has increasingly broadened in scope, covering a wider range of issues that are outside the Fed’s statutory mandate.
Additionally, Public Citizen states that, since the start of the Trump administration, regional Fed banks have pulled back on climate-related economic research. The New York Fed recently dropped out of cosponsoring a conference addressing the economic and financial stability impacts of climate migration, natural disasters, and other climate change related topics and the San Francisco Fed has halted its annual seminar on climate economics.
Schupak criticized the Fed’s actions, saying that the Fed’s participation in NGFS and ability to conduct research on climate impacts to the economy should not be influenced by politics. “The Federal Reserve is not a part of the Trump administration; it is an independent agency outside of the executive branch. But the Trump administration’s climate change denial has clearly had a chilling effect on Federal Reserve activities.”
Climate risks to the U.S. economy and financial system have never been greater, Schupak stresses. The recent wildfires in California produced economic losses that could top $250 billion. Hurricane Helene devastated parts of North Carolina previously considered climate safe havens, and less than half of the nearly $50 billion in losses from the hurricane were insured.
These losses are straining insurers in both states, according to the blog post. Following the California fires, State Farm, the largest homeowners’ insurance company in California, asked state regulators to approve a 22 percent average rate increase, on top of the already high and growing cost of insuring against disasters. Schupak also writes that California’s FAIR plan, the state’s property insurer of last resort, has been approved to assess private insurers and California taxpayers for the additional $1 billion it needs to meet its post-fire liabilities—the largest assessment in the FAIR plan’s history.
Schupak describes Powell’s testimony during the Senate hearing, where he said that if you “fast forward 10 or 15 years, there will be regions of the country where you can’t get a mortgage, there won’t be ATMs, banks won’t have branches and things like that.” Powell warned that banks won’t stay there and keep making loans “in the face of evidence of disasters, or that insurance companies will write policies.”
Schupak says that Powell’s approach to evaluate the effect of climate risks is “flawed.” She writes that “Powell assumes that if these banks can get climate-risky assets off their balance sheets before they go bad, while also halting an extension of mortgage credit to climate-vulnerable communities, these lenders will be safe and the Federal Reserve’s job will be done.” However, Schupak argues that these effects will “filter up to the economic aggregates” the Fed targets and will have implications for monetary policy decisions. “Institutions connected to Federal Reserve-supervised banks, including insurers, GSEs, and investment funds, will face material distress that could also heighten instability. Climate driven financial and economic instability will increase risks for the financial institutions the Federal Reserve supervises, whether or not these institutions hold climate risky mortgages on their balance sheets.
Companies: Public Citizen
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