In this report, we assess the comprehensive policy paper on green financial policy released yesterday by the Bank for International Settlements (BIS). In it, the global central bank charts a careful and sometimes confusing course between the EU, which is increasingly setting risk-based capital rules and adjusting other financial policies to offset climate change, and the U.S., now perhaps the most robust opponent of climate-change policies and thus a nation in which the FRB and financial regulators have eschewed direct action in this contentious arena. Despite expressing an array of concerns about perverse market and adverse political consequences, the BIS report urges central banks to move far beyond the generic risk-management approach Fed officials have recently described to Congress (see Client Report FEDERALRESERVE52). Democrats strongly oppose this hands-off approach, with Elizabeth Warren just yesterday demanding climate-change stress testing and legislation pending in both the House and Senate to require it.
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