U.S. Supplement to The Green Central Banking Scorecard
President Joe Biden’s recent executive order has renewed the United States’ commitment to aligning financial flows with the Paris Agreement. Positive Money’s Green Central Banking Scorecard gives the U.S. a D−, lagging peer jurisdictions with similar commitments.
The Federal Reserve System (Federal Reserve), consisting of 12 regional banks overseen by a Board of Governors, is the U.S. central bank. It shares authority to regulate banks with a number of other federal and state regulators. The Federal Reserve specifically oversees bank holding companies, as well as non-bank financial companies that have been designated for enhanced supervision as systemically important financial institutions.
This supplement reviews the Federal Reserve’s role in U.S. monetary and financial systems and the opportunities it has to align the financial system with U.S. climate commitments. The Federal Reserve’s mission and preferred approach do differ in certain respects from those of other central banks. To provide additional context, this supplement reviews the Federal Reserve’s role and existing authorities for each of the monetary and financial policy areas discussed in the scorecard. The review shows that the Federal Reserve can use most of the policy tools discussed, though it does not have direct credit allocation authority and does not use monetary tools like asset purchases, collateral frameworks, and reserve requirements in the same fashion as many other central banks.
To date, the Federal Reserve’s only actions have been discussing climate risk in several speeches, including it in both the November 2020 Financial Stability Report and Supervision and Regulation Report, and creating a Supervision Climate Committee. This inaction in the face of a building crisis amply justifies the low marks on the scorecard.