Concerns with A New Trend
Floor Speech
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Mr. BARR. Mr. Speaker, I rise today to express concern with a trend that could harm our financial system, crush jobs, and have lasting negative impacts on American competitiveness and economic exceptionalism.
Many on the other side of the aisle are calling for financial regulators to inject climate risk scenarios into bank supervision, and a new administration will likely prioritize weaponizing financial regulation to achieve unrelated climate goals.
Radical climate activists are incapable of passing the Green New Deal through Congress because most Americans understand it will destroy jobs, increase energy costs, and destabilize our economy at a time of immense fragility and volatility, so they will undoubtedly turn to financial regulation and supervision as a backdoor to implement their climate agenda.
Earlier this year, a group of Democrat Senators put these ideas to paper in a partisan report, calling on all Federal financial regulators to infuse ill-defined climate scenarios into their supervision of banks and to discourage financial firms from lending to industries that ``amplify climate risk,'' such as coal or oil and natural gas. Lost on these Senators is the impact that this would have on American jobs and cost of living amid a pandemic or the fact that financial supervision should rely on risk-based metrics rather than pie-in-the-sky sustainability goals.
This week, the Federal Reserve announced that it joined the Network for Greening the Financial System, a consortium of central banks intent on weaving climate risk into bank supervision. To those of us closely tracking this issue, the decision by the Fed raises many red flags.
I take no issue with the Fed participating in multilateral deliberative bodies. My concern comes from some of the ideas being discussed by other members of the NGFS and whether the Fed plans to import them.
The NGFS has made a series of recommendations that are particularly troubling. First, it suggests supervisors elevate their regulated entities based on sustainability metrics in their portfolios. Unfortunately, there is no clear definition of what ``sustainability'' means, but you can bet that the climate activists will push it all the way to the brink.
We do not need European regulators to tell our banks how sustainable their portfolios should be. Portfolio strength should be measured objectively, based on credit risk, not on poorly defined sustainability goals.
Second, the NGFS urges regulators to integrate climate risks into financial stability monitoring. Unfortunately, climate stress scenarios are plagued with methodological challenges. Material impacts from changing weather patterns occur over the course of decades; whereas, current stress tests look at a period of nine quarters. It would be difficult for a bank to accurately forecast stresses over that length of time, and regulators can't account for a bank's dynamic operational and risk management practices over that period.
Further, there is a lack of historical data on the relationship between changing weather patterns and financial stress, and the available data may have gaps or a disqualifying level of subjectivity.
Last week, I led a group of 47 House Republicans in a letter to Federal Reserve Chairman Powell and Vice Chair Quarles requesting that they proceed cautiously in their deliberations on whether to incorporate climate change scenarios into financial stress tests. The letter highlights many of the methodological challenges I just raised and encourages them to consider the negative impact this would have on U.S. industry and American jobs.
As we mentioned in our letter, it is important that the Fed commit to not accepting any international climate standards that are not appropriately tailored to the U.S. financial system or that would adversely impact U.S. competitiveness. We expect U.S. regulators to make similar commitments when adopting other international standards, such as the Basel Accords and insurance standards from the International Association of Insurance Supervisors. This should be no different.
Mr. Speaker, this effort to pressure financial regulators to inject climate scenarios into bank stress tests is not about predicting financial stress. It is about causing financial stress, causing financial stress for an entire segment of the U.S. economy: the energy sector.
Far from promoting financial stability, this dangerous movement, right at a time of a global pandemic, to politicize access to capital would undermine economic stability by denying American families and businesses access to affordable and reliable energy.
Mr. Speaker, I call on the Federal Reserve to keep this in mind, to keep in mind the millions of jobs that are on the line, as Congress exercises oversight over the Federal Reserve's mandate to maximize employment.
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