Why Measuring Climate Risk Means Financial Stability for US Banks

Ever wondered how a hurricane might impact the financial sector, or why granular data on property locations is essential? Curious about how these findings might influence future governmental policies and corporate risk management strategies?

The Federal Reserve Board (FRB) was too. This year, the FRB asked six major U.S. banks to scrutinize their resilience to physical climate risks. This pilot study aimed to understand the financial stability of the mortgage loan ecosystem in the face of accelerating climate risk, and the results revealed significant data gaps and reliability issues that banks need to address.

The identification of these gaps underscores the need for detailed, data-driven understanding when measuring the evolving impact of climate risk. 

To discuss the link between understanding climate risk and financial stability, Kent David, Director of Hazard Science and Analytics Consulting, and George Gallagher, Director of Climate Risk and Natural Hazard Solutions join Core Conversations host Maiclaire Bolton Smith.

In this episode, the trio discusses how the banks approached climate risk, the challenges of integrating granular data, and the critical importance of understanding insurance market dynamics in this context.

In This Episode:

2:08 – Why is the Federal Reserve Board (FRB) looking at the intersection between climate risk modeling and enterprise risk management?

5:09 – What exactly did the FRB find in their pilot study?

8:15 – Erika Stanley goes over the numbers in the housing market in The Sip.

9:23 – The FRB study found that there was limited data and limited reliability in model output. What does that mean?

13:40 – How will more granular data help improve models? And what exactly qualifies as quality granular data?

16:45 – Why can’t historical climate patterns be used for forecasting models?

18:27 – What are some of these consequences that the different industries might be facing in the wake of accelerating climate risk?

21:58 – Erika Stanley reviews natural catastrophes and extreme weather events across the world.

22:35 – Is it possible to anticipate what may happen long-term with the climate and how it will affect business operations?

Up Next: SEC Climate Disclosure Guidance Timeline Pause: Why Companies Benefit

Links:

• SEC Climate Disclosure Guidance Timeline Pause: Why Companies Benefit
• SEC Final Climate Disclosure Rule
• Hazard HQ Command Central
• Read CoreLogic Intelligence

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