US Banks Must Keep More Money in Cash for Climate Risks

American banks should be forced by the central bank umbrella Federal Reserve to keep more money in cash. This allows them to cover themselves against potential losses as a result of climate change.


The money could also be used to combat it. The essential progressive think tank, Center for American Progress, argues for this in a report.

In the document, the think tank states that the Fed can quickly develop several precautions. This involves, for example, setting up a capital surcharge that is linked to the amount of pollution that banks finance directly. Strict stress tests should also be instituted for large banks, including climate risks.

Such interventions are expected to meet with fierce opposition from the banks themselves. In addition, the Fed is a bit more cautious in its approach to climate issues than President Joe Biden’s Democrats. In the time of Republican President Donald Trump, the United States and the Fed were lagging behind other countries in terms of climate policy.

The Fed has recently increased its efforts in this area. For example, more staff has been deployed to research how climate change can affect the economy and the financial system. But the Fed is not yet implementing new policies in response to climate change. According to the report, the regulator cannot afford this.

President Joe Biden wants to tackle climate change on all fronts. With the report’s publication, the question will arise to what extent policymakers like the Fed can go in monitoring climate goals.

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