At the Federal Reserve, our mandate in this area is important, but narrow, and we are focused on our supervisory responsibilities and our role in promoting a safe and stable financial system. To that end, the Federal Reserve recently announced a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks.
Scenario analysis-in which the resilience of financial institutions is assessed under different hypothetical climate scenarios-is an emerging tool to assess climate-related financial risks. The pilot climate scenario analysis exercise, which is distinct and separate from bank stress tests, will be exploratory in nature and not have capital consequences.