Christopher J Waller: Climate change and financial stability

Speech by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at the IE University-Bank of Spain-Federal Reserve Bank of Saint Louis Conference "Current Challenges in Economics & Finance", Madrid, 11 May 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
15 May 2023

Thank you for inviting me to speak today.

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. 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. My job is to make sure that the financial system is resilient to a range of risks. And I believe risks posed by climate change are not sufficiently unique or material to merit special treatment relative to others. Nevertheless, I think it's important to continue doing high-quality academic research regarding the role that climate plays in economic outcomes, such as the work presented at today's conference.

In what follows, I want to be careful not to conflate my views on climate change itself with my views on how we should deal with financial risks associated with climate change. I believe the scientific community has rigorously established that our climate is changing. But my role is not to be a climate policymaker. Consistent with the Fed's mandates, I must focus on financial risks, and the questions I'm exploring today are about whether the financial risks associated with climate change are different enough from other financial stability risks to merit special treatment. But before getting to those questions, I'd like to briefly explain how we think about financial stability at the Federal Reserve.

Financial stability is at the core of the Federal Reserve and our mission. The Federal Reserve was created in 1913, following the Banking Panic of 1907, with the goal of promoting financial stability and avoiding banking panics. Responsibilities have evolved over the years. In the aftermath of the 2007-09 financial crisis, Congress assigned the Fed additional responsibilities related to promoting financial stability, and the Board of Governors significantly increased the resources dedicated to that purpose. Events in recent years, including the pandemic, emerging geopolitical risks, and recent stress in the banking sector have only highlighted the important role central banks have in understanding and addressing financial stability risks. The Federal Reserve's goal in financial stability is to help ensure that financial institutions and financial markets remain able to provide critical services to households and businesses so that they can continue to support a well-functioning economy through the business cycle.