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> "Climate" Frauds.

Biden and Globo FUD Snubbed Hard By Globo Finance...


Fed's Waller Drops Bombshell: 'Climate Change Risks Not Material To US'

This will not go down well with the climate alarmists and ESG grifters...

No lesser mortal than Fed Governor Christopher Waller has dared to
proclaim that climate change does not pose such "significantly unique
or material" financial stability risks that the Federal Reserve should
treat it separately in its supervision of the financial system.

    "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," Waller said in remarks prepared for
delivery to an economic conference in Spain.

    "Risks are risks ... 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."

His comments echo Chair Powell's more conservative attitude towards
The Fed's responsibility for climate issues than its counterparts in
Europe, who previously said that the U.S. central bank was not a
climate policymaker and would not steer capital or investment away
from the fossil fuel industry, for example.

So presumably this means The Fed does not believe the world will end
within a decade in a devastating flood and fireball?

Read Waller's full (carefully and diplomatically worded) statement below:

    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.

    Much of how we think about and monitor financial stability at the
Federal Reserve is informed by our understanding of how shocks can
propagate across financial markets and affect the economy. Economists
have studied the role of debt in the macroeconomy dating all the way
back to Irving Fisher in the 1930s, and in the past 40 years it has
been well established that financial disruptions can reduce the
efficiency of credit allocation and have real effects on the broader
economy. When borrowers' financial conditions deteriorate, lenders
tend to charge higher rates on loans. That, in turn, can lead to less
overall lending and negatively affect the broader economy. And in the
wake of the 2007-09 financial crisis, we've learned more about the
important roles credit growth and asset price growth play in
"boom-bust" cycles.

    Fundamentally, financial stress emerges when someone is owed
something and doesn't get paid back or becomes worried they won't be
paid back. If I take out a loan from you and can't repay it, you take
a loss. Similarly, if I take out a mortgage from a bank and I can't
repay it, the bank could take a loss. And if the bank hasn't built
sufficient ability to absorb those losses, it may not be able to pay
its depositors back. These dynamics can have knock-on effects on asset
prices. For example, when people default on their home mortgage loans,
banks foreclose and seek to sell the homes, often at steep discounts.
Those foreclosure sales can have contagion effects on nearby house
prices. When a lot of households and businesses take such losses
around the same time, it can have real effects on the economy as
consumption and investment spending take a hit and overall trust in
financial institutions wanes. The same process works when market
participants fear they won't be paid back or be able to sell their
assets. Those fears themselves can drive instability.

    The implication is that risks to financial stability have a couple
of features. First, the risks must have relatively near-term effects,
such that the risk manifesting could result in outstanding contracts
being breached. Second, the risks must be material enough to create
losses large enough to affect the real economy.

    These insights about vulnerabilities across the financial system
inform how we think about monitoring financial stability at the
Federal Reserve. We identify risks and prioritize resources around
those that are most threatening to the U.S. financial system. We
distinguish between shocks, which are inherently difficult to predict,
and vulnerabilities of the financial system, which can be monitored
through the ebb and flow of the economic cycle. If you think about it,
there is a huge set of shocks that could hit at any given time. Some
of those shocks do hit, but most do not. Our approach promotes general
resiliency, recognizing that we can't predict, prioritize, and tailor
specific policy around each and every shock that could occur.

    Instead, we focus on monitoring broad groups of vulnerabilities,
such as overvalued assets, liquidity risk in the financial system, and
the amount of debt held by households and businesses, including banks.
This approach implies that we are somewhat agnostic to the particular
sources of shocks that may hit the economy at any point in time. Risks
are risks, and from a policymaking perspective, the source of a
particular shock isn't as important as building a financial system
that is resilient to the range of risks we face. For example, it is
plausible that shocks could stem from things ranging from increasing
dependence on computer systems and digital technologies to a shrinking
labor force to geopolitical risk. Our focus on fundamental
vulnerabilities like asset overvaluation, excessive leverage, and
liquidity risk in part reflects our humility about our ability to
identify the probabilities of each and every potential shock to our
system in real time.

    Let me provide a tangible example from our capital stress test for
the largest banks. We use that stress test to ensure banks have
sufficient capital to withstand the types of severe credit-driven
recessions we've experienced in the United States since World War II.
We use a design framework for the hypothetical scenarios that results
in sharp declines in asset prices coupled with a steep rise in the
unemployment rate, but we don't detail the specific shocks that cause
the recession because it isn't necessary. What is important is that
banks have enough capital to absorb losses associated with those
highly adverse conditions. And the losses implied by a scenario like
that are huge: last year's scenario resulted in hypothetical losses of
more than $600 billion for the largest banks. This resulted in a
decline in their aggregate common equity capital ratio from 12.4
percent to 9.7 percent, which is still more than double the minimum
requirement.

    That brings us back to my original question: Are the financial
risks stemming from climate change somehow different or more material
such that we should give them special treatment? Or should our focus
remain on monitoring and mitigating general financial system
vulnerabilities, which can be affected by climate change over the
long-term just like any number of other sources of risk? Before I
answer, let me offer some definitions to make sure we're all talking
about the same things.

    Climate-related financial risks are generally separated into two
groups: physical risks and transition risks. Physical risks include
the potential higher frequency and severity of acute events, such as
fires, heatwaves, and hurricanes, as well as slower moving events like
rising sea levels. Transition risks refer to those risks associated
with an economy and society in transition to one that produces less
greenhouse gases. These can owe to government policy changes, changes
in consumer preferences, and technology transitions. The question is
not whether these risks could result in losses for individuals or
companies. The question is whether these risks are unique enough to
merit special treatment in our financial stability framework.

    Let's start with physical risks. Unfortunately, like every year,
it is possible we will experience forest fires, hurricanes, and other
natural disasters in the coming months. These events, of course, are
devastating to local communities. But they are not material enough to
pose an outsized risk to the overall U.S. economy.

    Broadly speaking, physical risks could affect the financial system
through two related channels. First, physical risks can have a direct
impact on property values. Hurricanes, fires, and rising sea levels
can all drive down the values of properties. That in turn could put
stress on financial institutions that lend against those properties,
which could lead them to curb their lending, and suppress economic
growth. The losses that individual property owners can realize might
be devastating, but evidence I've seen so far suggests that these
sorts of events don't have much of an effect on bank performance. That
may be in part attributable to banks and other investors effectively
pricing physical risks from climate change into loan contracts. For
example, recently researchers have found that heat stress—a climate
physical risk that is likely to affect the economy—has been priced
into bond spreads and stock returns since around 2013. In addition,
while it is difficult to isolate the effects of weather events on the
broader economy, there is evidence to suggest severe weather events
like hurricanes do not likely have an outsized effect on growth rates
in countries like the United States.

    Over time, it is possible some of these physical risks could
contribute to an exodus of people from certain cities or regions. For
example, some worry that rising sea levels could significantly change
coastal regions. While the cause may be different, the experience of
broad property value declines is not a new one. We have had entire
American cities that have experienced significant declines in
population and property values over time. Take, for example, Detroit.
In 1950, Detroit was the fifth largest city in the United States, but
now it isn't even in the top 20, after losing two-thirds of its
population. I'm thrilled to see that Detroit has made a comeback in
recent years, but the relocation of the automobile industry took a
serious toll on the city and its people. Yet the decline in Detroit's
population, and commensurate decline in property values, did not pose
a financial stability risk to the United States. What makes the
potential future risk of a population decline in coastal cities
different?

    Second, and a more compelling concern, is the notion that property
value declines could occur more-or-less instantaneously and on a large
scale when, say, property insurers leave a region en masse. That sort
of rapid decline in property values, which serve as collateral on
loans, could certainly result in losses for banks and other financial
intermediaries. But there is a growing body of literature that
suggests economic agents are already adjusting behavior to account for
risks associated with climate change. That should mitigate the risk of
these potential "Minsky moments." For the sake of argument though,
suppose a great repricing does occur; would those losses be big enough
to spill over into the broader financial system? Just as a point of
comparison, let's turn back to the stress tests I mentioned earlier.
Each year the Federal Reserve stresses the largest banks against a
hypothetical severe macroeconomic scenario. The stress tests don't
cover all risks, of course, but that scenario typically assumes broad
real estate price declines of more than 25 percent across the United
States. In last year's stress test, the largest banks were able to
absorb nearly $100 billion in losses on loans collateralized by real
estate, in addition to another half a trillion dollars of losses on
other positions.

    What about transition risks? Transition risks are generally
neither near-term nor likely to be material given their slow-moving
nature and the ability of economic agents to price transition costs
into contracts. There seems to be a consensus that orderly transitions
will not pose a risk to financial stability. In that case, changes
would be gradual and predictable. Households and businesses are
generally well prepared to adjust to slow-moving and predicable
changes. As are banks. For example, if banks know that certain
industries will gradually become less profitable or assets pledged as
collateral will become stranded, they will account for that in their
loan pricing, loan duration, and risk assessments. And, because assets
held by banks in the United States reprice in less than five years on
average, there is ample time to adjust to all but the most abrupt of
transitions.

    But what if the transition is disorderly? One argument is that
uncertainty associated with a disorderly transition will make it
difficult for households and businesses to plan. It is certainly
plausible that there could be swings in policy, and those swings could
lead to changes in earnings expectations for companies, property
values, and the value of commodities. But policy development is often
disorderly and subject to the uncertainty of changing economic
realities. In the United States, we have a long history of sweeping
policy changes ranging from revisions to the tax code to things like
changes in healthcare coverage and environmental policies. While these
policy changes can certainly affect the composition of industries, the
connection to broader financial stability is far less clear. And when
policies are found to have large and damaging consequences,
policymakers always have, and frequently make use of, the option to
adjust course to limit those disruptions.

    There are also concerns that technology development associated
with climate change will be disorderly. Much technology development is
disorderly. That is why innovators are often referred to as
"disruptors." So, what makes climate-related innovations more
disruptive or less predictable than other innovations? Like the
innovations of the automobile and the cell phone, I'd expect those
stemming from the development of cleaner fuels and more efficient
machines to be welfare-increasing on net.

    So where does that leave us? I don't see a need for special
treatment for climate-related risks in our financial stability
monitoring and policies. As policymakers, we must balance the broad
set of risks we face, and we have a responsibility to prioritize using
evidence and analysis. Based on what I've seen so far, I believe that
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.

And cue the outrage mob...