Fed governor claims climate change does not pose serious financial risk

Christopher Waller says climate risk is not 'material enough' to effect overall US economy

Climate change is real but does not pose serious financial risk, Federal Reserve System board of governors member Christopher Waller has said.

Speaking at the IE University-Bank of Spain-Federal Reserve Bank of Saint Louis Conference, ‘Current Challenges in Economics & Finance’, in Madrid last week, Waller said the risks posed by climate change “are not sufficiently unique or material to merit special treatment relative to others” but that he welcomed continued research.

“Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of large banks or the financial stability of the United States,” he said. “Risks are risks. There is no need for us to focus on one set of risks in a way that crowds out our focus on others.”

Commentators expressed concerns that climate risks, which are projected risks in the future if action is not taken, are being underestimated by financial markets, which tend to rely on historical data.

Waller said the Fed considers financial risk as having relatively near-term effects and as creating “losses large enough to affect the real economy”.

Although he acknowledged the financial risks posed by physical climate risk and transition risk, he said “they are not material enough to pose an outsized risk to the overall US economy”.

Waller concluded: “Placing an outsized focus on climate-related risks is not needed, and the Federal Reserve should focus on more near-term and material risks in keeping with our mandate.”

The Fed is considering developing a set of proposed principles for large banking organizations to manage climate-related financial risks, an idea Waller opposed late last year.