Risk.net: “US Banks Seek to Open Vendors’ Black Box on Green Data”

RFF Fellow Penny Liao comments on the Federal Reserve’s new climate scenario analysis model, which is used to help banks and regulators assess their climate risks.

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June 25, 2024

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Yanjun Liao, an economist at the nonprofit research institution Resources for the Future, believes this could be accounted for by the design limitations of the exercise, which did not require the modeling of indirect impacts or future changes to insurance rates or insurance availability. That could mean losses are underestimated if some properties in banks’ portfolios become uninsurable. “I think that is probably truer for the residential than the commercial sector, so this could represent a lower bound of the potential impact,” says Liao...

The problems with physical risk models are not limited to their use in banking. Catastrophe models, are a mainstay of insurance sector risk management. Yet many insurers don’t have insight into their workings, says Liao.

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