Win McNamee
Treasury Secretary Janet Yellen warned Tuesday that climate change could not only reduce asset values but also shock the country’s financial system.
“As climate change intensifies, natural disasters and rising temperatures may lead to a decline in asset values that could impact the financial system,” he said in his opening remarks at the first meeting of the Climate-Related Risk Advisory Committee. “And a delayed and messy transition to a net-zero economy can lead to system shocks too”.
The CFRAC is an external advisory committee to the Financial Stability Oversight Board, which is headed by Yellen.
The impacts of climate change are already manifesting themselves, he added, with the annual number of billion-dollar disasters increasing by at least five times in the past five years compared to the 1980s, even after adjusting for the inflation.
Yellen noted that some insurers are raising rates or even withdrawing from high-risk areas in response to rising insured losses. “This has potentially devastating consequences for homeowners and their property values,” she said. “Developments like these may spread to other parts of our interconnected financial system.”
The committee will be an important resource for the FSOC’s Climate-Related Financial Risk Committee and the FSOC itself, helping them gather information and improve their understanding of climate-related financial risks, he said. That work will be “critical to improving the resilience of the US financial system to the effects of climate change,” Yellen concluded.
In testimony before a Senate committee on Tuesday, Federal Reserve Chairman Jerome Powell said the central bank has a limited role in assessing the impact of climate change on the safety and soundness of financial institutions. “We’re not looking to be the climate policy makers,” he said.
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