Treasury May Be Able to Facilitate Climate Stress Tests on Financial Firms -- 2nd Update

WASHINGTON -- The U.S. Treasury may be able to facilitate climate stress tests on U.S. banks and insurers, Treasury Secretary Janet Yellen said Monday, though the tests likely wouldn't impose capital requirements or limit dividend payouts as existing stress tests do.

Ms. Yellen, speaking at the New York Times DealBook conference, said the tests would be carried out by the Federal Reserve and other financial regulators and not the Treasury. But she said the Treasury, which helps shape regulatory policy toward U.S. financial firms, may be able to facilitate the tests.

"I think it's not envisioned that this would have the same status in terms of limiting payouts and capital requirements," she said, referring to the annual bank stress tests the Federal Reserve already conducts. "But I think they would be very revealing both to regulators and to the firms themselves in terms of managing their own risks."

Ms. Yellen has said she intends to create a hub within the Treasury to review the tax policy incentives and financial stability risks related to climate change and will appoint a senior official to lead the review.

Regulators around the world have warned of the dangers climate change poses to the financial system, including the risk of more severe weather events such as flooding or wildfires that threaten physical assets that underpin bank loans. Banks' business may also be altered as countries reduce their reliance on fossil fuels, including more widespread use of electric vehicles and shifts to renewable energy resources.

Asked whether companies could take steps on their own to address such risks or whether regulation is needed, Ms. Yellen said, "It certainly requires policy."

She pointed out that other countries have begun taking steps to implement climate stress tests of financial firms and said she was encouraged that the Fed has indicated it is exploring the possibility as well.

"I think that's something that at Treasury we may be able to discuss and facilitate in the United States," she said.

Write to Kate Davidson at kate.davidson@wsj.com


  (END) Dow Jones Newswires
  02-22-21 1033ET
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