Federal Reserve of the United States should increase efforts to determine whether big banks are exposed to financial risks resulting from climate change. Fed Governor Lael Brainard stated Thursday.

Brainard indicated that the Fed (which oversees most of the country’s banks) is working on scenario analysis tools for assessing the financial system’s resilience in light of climate change. The Fed will also provide supervision on climate change for banks to reduce their risk, she said.

The climate change dangers of flooding and droughts worsening, as well as damage from wildfires or floods can all cause significant economic loss and could even lead to the destruction of the economy.

Brainard said, “I believe it will prove useful to provide supervision for large banking institutions as they attempt to appropriately monitor, manage and manage climate-related risks.” said in a virtual speechFor a Boston Fed conference on research.

The Fed is more aligned with the activities of other large central banks such as the European Central Bank, the Bank of England and others by developing climate scenarios.

The Fed began to accept deposits a more active role in climate changeThis included the establishment of two committees within the organization that are focused on the topic and the joining the global Network for Greening the Financial System.

Brainard’s remarks also come as Fed Chairman Jerome Powell, whose term will expire on Feb. 5, 2022, faces mounting resistance to a potential re-nomination by progressive Democrats, who have criticized him on issues like financial regulation and climate change.

Powell indicated earlier this year, that the Fed might require banks to perform their own testing to evaluate how vulnerable they may be to climate change. Powell has also stated that climate change is not a new issue. is not a main considerationFor the central bank in formulating its monetary policy.

Brainard stated that regulators have to do “substantial” work in filling data gaps and assessing banks’ climate-related risk. Brainard said scenario analysis can be applied to assess how financial institutions are able to insure themselves or hedge against climate-related risk.

Reinsurance contracts or agreements between investors can transfer risk to the financial sector, but there will always be some risk,” she stated. Climate-related risk could accumulate in secret ways, which could lead to cascading loss.”