Pilot Climate Scenario Analysis Exercise

  • Source: federalreserve.gov


Treliant’s Credit Solutions practice comprises former senior financial services risk executives and regulators who combine their extensive experience, qualifications, and know-how to assist financial institutions navigate today’s volatile market environment. We provide financial institutions consulting support on credit risk management and governance, portfolio management, climate scenario analysis, loan workouts, advice on portfolio risk-mitigation strategies. We also provide loan review services for financial institutions.


On January 17, 2023 the Federal Reserve Board provided additional details on how its pilot climate scenario analysis exercise will be conducted and the information on risk management practices that will be gathered over the course of the exercise and completed by July 31, 2023.

The six largest United States banks (Bank of America, JPMorgan Chase & Co., Citibank, Goldman Sachs, Morgan Stanley, and Wells Fargo) will analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios. To support the climate scenario analysis exercise’s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks, the Federal Reserve Board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.

The pilot climate scenario analysis exercise includes physical risk scenarios with different levels of severity affecting residential and commercial real estate portfolios in the Northeastern United States and directs each bank to consider the impact of additional physical risk shocks for their real estate portfolios in another region of the country. For transition risks, banks will consider the impact on corporate loans and commercial real estate portfolios using a scenario based on current policies and one based on reaching net zero greenhouse gas emissions by 2050. These scenarios are not forecasts or policy prescriptions, but can be used to build understanding of climate-related financial risks.

Climate scenario analysis is distinct and separate from bank stress tests. The pilot climate scenario analysis exercise is exploratory in nature and does not have capital consequences.