Six Major Banks Join Fed Pilot Program to Improve Climate Risk Analysis

Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo have agreed to participate in a Federal Reserve Board pilot program that is intended to improve the ability to measure and manage climate-related financial risks.

Under the program, the banks will conduct climate scenario analysis that will assess the resilience of financial institutions under different hypothetical climate scenarios. The Federal Reserve Board described the program as an “emerging tool” to assess climate-related financial risks and said there will be no capital or supervisory implications from the pilot.

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The exercise is slated to launch in early 2023 and be completed by the end of next year. The Fed said that it will publish details of the climate, economic, and financial variables that will make up the climate scenario narratives at the beginning of the exercise.

During the pilot, the banks will analyze the impact of various climate-related scenarios on specific portfolios and business strategies. The Fed will then review the analysis and engage with the banks to determine ways to manage climate-related financial risks. It said it expects to publish insights gained from the program to reflect what has been learned about climate risk management practices and how that will help identify potential risks and promote risk management practices. However, it said that no firm-specific information will be released.

The board noted that climate scenario analysis differs from bank stress tests in that stress tests assess whether banks have enough capital to lend to households and businesses during a severe recession, while climate scenario analysis is exploratory in nature and does not have capital consequences.

“By considering a range of possible future climate pathways and associated economic and financial developments, scenario analysis can assist firms and supervisors in understanding how climate-related financial risks may manifest and differ from historical experience,” the Fed said in a statement. It added that it will provide further details on how the pilot exercise will be conducted and the scenarios that will be used.

In a speech last month at the Brookings Institution in Washington, D.C., Michael Barr, the board’s vice chair for supervision, said the Federal Reserve is working to understand how climate change may pose risks to individual banks and to the financial system.

“Banks are increasingly focused on the risks that climate change brings to their balance sheets,” he said. “The Federal Reserve’s mandate in this area is important, but narrow, focused on our supervisory responsibilities and our role in promoting a safe and stable financial system.”

He said that the Federal Reserve intends to work with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to provide guidance to large banks on how they are expected to identify, measure, monitor, and manage the financial risks of climate change.

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Tags: Bank of America, Citigroup, climate scenario analysis, climate-related financial risk, Federal Reserve Board, Goldman Sachs, JPMorgan Chase & Co., Michael Barr, Morgan Stanley, pilot, Wells Fargo

Cryptocurrency hasn’t been a profitable investment for reality TV star Kim Kardashian. At least promoting it hasn’t been, as she owes the Securities and Exchange Commission $1.26 million for being paid $250,000 to promote a digital token on her Instagram account.

Kardashian settled charges filed by the SEC for touting to her 225 million Instagram followers a crypto asset security offered and sold by EthereumMax without saying that she was being paid for the promotion. Without admitting or denying the SEC’s findings, Kardashian agreed to pay approximately $260,000 in disgorgement for her promotional payment plus interest, as well as a $1 million penalty. Kardashian also agreed to not promote any crypto asset securities for three years, and to cooperate with the SEC’s ongoing investigation.

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“Kardashian fully cooperated with the SEC from the very beginning, and she remains willing to do whatever she can to assist the SEC in this matter,” Kardashian’s lawyer Michael Rhodes said in a statement released to media outlets. “She wanted to get this matter behind her to avoid a protracted dispute. The agreement she reached with the SEC allows her to do that so that she can move forward with her many different business pursuits.”

Kardashian is the latest celebrity to be charged by the SEC and pay fines for touting a digital asset without disclosing their compensation. Boxer Floyd Mayweather Jr., music producer DJ Khaled, and actor Steven Seagal have all settled charges with the SEC in recent years. However, Kardashian is forking over far more than the others – more than twice as much as Mayweather, over four times as much as Seagal, and more than 10 times as much as DJ Khaled.

“This case is a reminder that, when celebrities or influencers endorse investment opportunities, including crypto asset securities, it doesn’t mean that those investment products are right for all investors,” SEC Chair Gary Gensler said in a statement. “Ms. Kardashian’s case also serves as a reminder to celebrities and others that the law requires them to disclose to the public when and how much they are paid to promote investing in securities.”

According to the SEC’s cease-and-desist order, Kardashian promoted EthereumMax’s offering on Instagram with a post asking “Are you guys into crypto?” along with an introductory video stating that she had a “big announcement.” The post contained a link to the EthereumMax website, which provided instructions on how to purchase EMAX tokens.

“Kardashian did not disclose that she had been paid by EthereumMax or the amount of compensation she received from EthereumMax for making this post,” said the SEC’s order.

The SEC also noted in its cease-and-desist order that Kardashian’s crypto promotion occurred well after the regulator warned in a July 2017 investigative report that those who offer and sell securities must comply with the federal securities laws. The order also cited a statement issued later that year in which the SEC said that any “celebrity or other individual who promotes a virtual token or coin that is a security must disclose the nature, scope, and amount of compensation received in exchange for the promotion.” The SEC added that a failure to do so “is a violation of the anti-touting provisions of the federal securities laws.”

It is unclear whether Kardashian had read the 18-page SEC report or statement issued by the regulator four years earlier.