(Reuters) – Researchers at the New York Federal Reserve Bank have developed an approach to measuring banks’ exposures to climate-related risks, a possible early step toward assessing whether financial institutions have enough capital on hand to withstand them.

This Friday’s publication of the paper that describes this new method may signal an initial step in the development of an “environmental stress test” for U.S. bank accounts. This approach is already being used globally by central banks, but it has been heavily criticised by Republican legislators in the United States who claim that such monitoring goes far beyond what the central bank can do.

Jerome Powell, Fed Chair has stated that he believes banks should be resilient to climate change.

Friday’s paper, “Climate Stress Testing”, describes for the first-time how the Fed can assess banks’ vulnerability to shocks in order to help the nation reduce heat-trapping CO2 dioxide.

The researchers stated, “Banks providing finance to fossil fuel businesses are likely to be hurt when default risk increases in their loan portfolios as countries transition to lower carbon environments.” The financial system is at risk if it suffers substantial losses due to a sudden increase in transition or physical risks.

They developed an economic assessment of climate risk and discovered that it was economically substantial for certain banks with large exposures to fossil fuels.

Using Citigroup (NYSE:) as an example, the researchers said the expected amount of capital that the bank would have needed to raise under the climate stress scenario to restore a prudential capital ratio increased by $73 billion in 2020, at a time when oil prices were falling as the pandemic reduced energy demand.

Citigroup spokeswoman, however, declined to comment.

They found that bank risk measures in large banks across the U.S., U.K., Japan, Canada, and France tend to fluctuate over time, but not in tandem.

Researchers did not include the effects of climate-related weather phenomena, but they suggested that it could be an option to incorporate such risks.

U.S. bank regulators including the Fed are already pushing for more transparency about how climate risks might affect assets.