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Big banks complete climate analysis for Fed as Powell tries to avoid becoming a climate policymaker
The Federal Reserve released the results of an assessment of the extent to which large U.S. banks would be affected by climate change, an exercise that created new political tensions for the central bank.
JPMorgan Chase (JPM), Bank of America (TAS), Citigroup (W)Wells Fargo (Wordfast), Goldman Sachs (GS) and Morgan Stanley (IN) found that 20% to 50% of its commercial and residential real estate loans in the Northeast would be impacted by the most severe climate shock – defined as not having insurance coverage for a once-in-200-year event including hurricanes, floods and forest fires.
The impact would be a change in the estimated probability of default on these loans.
Banks were tasked with determining how heat waves, wildfires, higher average temperatures, a hurricane in the Northeast and another hazard of their choosing would affect their residential and commercial real estate loan portfolios.
Pedestrians approach the headquarters of JPMorgan Chase in New York. (AP Photo/Peter Morgan, File) (ASSOCIATED PRESS)
But they struggled to model climate risks to assess the impact on loan portfolios, noting significant challenges in collecting data and measuring climate-related risks.
The goal was for the Fed to better understand banks’ risk management approaches to this issue so that it could manage the risks that the climate poses to the broader financial system.
The climate analysis was exploratory and did not entail any sanctions on banks, unlike a separate annual stress test conducted by the Fed designed to determine whether banks can withstand severe economic shocks.
However, the test itself created new political complications for the central bank and Chairman Jay Powell, who has taken pains in public speeches to make clear that the Fed would avoid making climate policy.
“Policies to address climate change are the responsibility of elected officials and the agencies they have charged with this responsibility,” he said during a speech last month at Stanford University. “The Fed has received no such charge.”
Federal Reserve Bank President Jerome Powell speaks at Stanford University last month. (Justin Sullivan/Getty Images) (Justin Sullivan via Getty Images)
“We are not, nor do we intend to be, climate policy makers,” he said during his speech, promising to avoid “mission drift.”
That hasn’t stopped lawmakers and other policymakers from criticizing Powell on this issue.
His climate comments came about two weeks after Senators Elizabeth Warren and Sheldon Whitehouse sent a letter to Powell arguing that the Fed’s high interest rates were holding back clean energy development.
Senator Whitehouse told Yahoo Finance last month that other central banks around the world are closely considering climate change because “if left unchecked, climate change will pose ‘systemic risks’ to our financial system and the broader economy.” .
The story continues
And Republicans have also repeatedly criticized Powell for considering rules that would test banks’ ability to withstand climate-related scenarios, arguing that is outside the scope of the Fed’s authority.
Not everyone at the Fed agrees with the approach.
Last May, Fed Governor Chris Waller said he did not believe climate change poses a serious risk to the US financial system, even as the central bank tested banks’ resilience under different climate scenarios.
Fed Governor Christopher Waller. (Sarah Silbiger/Getty Images) (Sarah Silbiger via Getty Images)
“Climate change is real, but I do not believe it poses a serious risk to the safety and soundness of big banks or to the financial stability of the United States,” Waller said in a speech in Madrid, Spain.
“I see no need for special treatment of climate-related risks in our monitoring and financial stability policies,” he added.
But Powell maintains that the central bank has a limited role when it comes to supervising banks.
“The public expects the institutions we regulate and supervise to understand and be able to manage the material risks they face, which, over time, are likely to include climate-related financial risks,” Powell said on April 3.
“We will remain alert to the risk that there will be pressure to expand this role over time.”
Banks used different approaches to develop the physical and transition risk scenarios required by the Fed and to translate these scenarios into climate-adjusted credit risk parameters.
They also noted the need to monitor changes across the insurance sector, including changes in insurance costs over time and the impacts of these changes on consumers and businesses in specific markets and segments.
Banks’ estimates of climate-adjusted credit risk parameters, such as the probability of default, showed significant differences in impact across sectors, regions and counterparties.
The exercise was exploratory in nature and has no capital consequences.
Based on lessons learned from the exercise, the Fed said it will continue to collaborate with participating banks regarding their ability to measure and manage climate-related financial risks.
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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