{"id":252564,"date":"2023-04-12T15:59:20","date_gmt":"2023-04-12T13:59:20","guid":{"rendered":"https:\/\/climatescience.press\/?p=252564"},"modified":"2023-04-12T16:04:12","modified_gmt":"2023-04-12T14:04:12","slug":"fed-models-weather-fails-at-bank-stress-testing-science-matters","status":"publish","type":"post","link":"https:\/\/climatescience.press\/?p=252564","title":{"rendered":"Fed Models Weather, Fails at Bank Stress Testing"},"content":{"rendered":"\n
\"\"<\/figure>\n\n\n\n

<\/p>\n\n\n\n

From Science Matters<\/a><\/p>\n\n\n\n

By Ron Clutz<\/a><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Mish reports on the US Federal Reserve\u2019s latest incompetence at his blog The Fed Models the Weather Although It Can\u2019t Even Stress Test Treasuries. <\/strong><\/a> Excerpt in italics with my bolds. H\/T Tyler Durden<\/p>\n\n\n\n

The Fed has conducted a \u201cpilot climate scenario analysis exercise\u201d.
Let\u2019s take a peek inside this laughable event.<\/mark><\/strong><\/em><\/p>\n\n\n\n

On January 10, Fed Chairman said the Fed \u2018will not be a climate policymaker\u2019. <\/strong><\/em><\/p>\n\n\n\n

Under guise that it\u2019s just a stress test model<\/strong> and not a policy setting model, the Fed announced details on its Pilot Climate Scenario Risk Analysis Program<\/a><\/strong> on January 17.<\/em><\/p>\n\n\n\n

\n

As described in the instruction document released today, the six largest U.S. banks will analyze the impact of scenarios<\/strong> for both physical and transition risks related to climate change on specific assets in their portfolios. To support the exercise\u2019s goals of deepening understanding of climate risk-management practices and building capacity to identify, measure, monitor, and manage climate-related financial risks<\/strong>, the Board will gather qualitative and quantitative information over the course of the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.<\/p>\n\n\n\n

\u201cThe Fed has narrow, but important, responsibilities regarding climate-related financial risks<\/strong> \u2013 to ensure that banks understand and manage their material risks, including the financial risks from climate change,\u201d Vice Chair for Supervision Michael S. Barr said. \u201cThe exercise we are launching today will advance the ability of supervisors and banks to analyze and manage emerging climate-related financial risks.\u201d<\/p>\n<\/blockquote>\n\n\n\n

Climate Results Are In<\/strong><\/p>\n\n\n\n

Please consider the WSJ report The Fed\u2019s Climate Studies Are Full of Hot Air<\/a><\/strong> by David Barker.<\/p>\n\n\n\n

\n

This year the Fed is forcing big banks to produce complex reports on their climate vulnerability in a \u201cpilot project\u201d that is sure to expand and might lead to lending restrictions.<\/strong> A query of the Fed\u2019s listing of recent publications returns hundreds of research papers, press releases and policy statements related to climate change.<\/p>\n\n\n\n

With all this effort, one might hope the Fed would produce high-quality research on climate change. But I took a close look at two Fed studies on the subject and found shockingly poor analysis.<\/strong> These studies on the effect of temperature on U.S. and world economic growth are cited without a hint of skepticism<\/strong> and widely lavished with media attention.<\/p>\n\n\n\n

Recently I published a <\/a>critique<\/a> of a study from the Federal Reserve Board<\/a> claiming that a year of above-normal temperatures<\/strong> in countries around the world makes economic contraction more likely.<\/strong> The original study used sophisticated statistical techniques but failed to report that its primary finding was statistically insignificant. <\/strong>My request to the study\u2019s author for computer code to reproduce the paper\u2019s results went unanswered.<\/p>\n\n\n\n

I managed to write the code from scratch and exactly replicate the results, allowing me to run additional tests that the author didn\u2019t report. The author\u2019s primary result\u2014that temperature has a bigger effect in bad than in good economic times\u2014turned out to be statistically insignificant. Additional analysis showed that there is no reliable effect of temperature on growth at all.<\/strong><\/p>\n\n\n\n

There are two main reasons why the Fed study appeared at first to show a statistically significant effect of temperatures on economic growth. First, each country in the sample had equal weight in the analysis.<\/strong> China<\/strong> had the same weight as St. Vincent<\/strong> though China\u2019s population is 13,000 times as large. Equal weighting means that some small countries with unusual histories of economic growth greatly influenced the results.<\/p>\n\n\n\n

The paper\u2019s results disappeared when countries like Rwanda and Equatorial Guinea<\/strong>\u2014which had economic catastrophes and bonanzas unrelated to climate change<\/strong>\u2014were omitted. Omitting similar countries representing less than 1% of world gross domestic product was enough to eliminate the paper\u2019s result.<\/p>\n\n\n\n

The only thing to learn from the Fed\u2019s research is that climate propaganda is spreading fast,<\/strong> and when it comes to climate, academic economists are no more deserving of trust than are other supposed scientists and experts. The Fed\u2019s time would be better spent on more urgent matters, like improving its botched regulation of the banking system.<\/strong><\/p>\n<\/blockquote>\n\n\n\n

The author, David Barker, has taught economics and finance at the University of Chicago and the University of Iowa and worked as an economist at the Federal Reserve Bank of New York. He has a doctorate in economics from the University of Chicago.<\/em><\/p>\n\n\n\n

Hoot of the Day<\/strong><\/em><\/p>\n\n\n\n

\u2666  The Fed cannot even model US Treasuries.<\/strong> Its stress-free test would have failed to identify the imploded Silicon Valley Bank as a problem<\/strong><\/em><\/p>\n\n\n\n

\u2666  Yet, for political reasons<\/strong>, the Fed is now attempting to stress test the weather.<\/strong><\/em><\/p>\n\n\n\n

\u2666  To get the desired results,<\/strong> the Fed study gave St. Vincent, Rwanda, and Equatorial Guinea the same weight as China and the United States. <\/strong><\/em><\/p>\n\n\n\n

\u2666  <\/strong>The Fed should<\/strong> throw this nonsense in the garbage and stress test<\/strong> commercial real estate, interest rates, accelerated QT, and things that it has clearly neglected. <\/strong><\/em><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

See Also Financial Systems Have Little Risk from Climate<\/strong><\/a><\/p>\n\n\n\n

Mish:  One of my readers accurately commented, that \u201cModeling the impact of bad climate policy would be more useful.\u201d<\/strong>  Of course that presumes the Fed has any idea just how bad, and inflationary, our climate policy is.<\/em><\/p>\n\n\n

\n
\"\"<\/figure>\n<\/div>\n\n\n

Postscript on Cycle of Democracies:<\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The Fed has conducted a \u201cpilot climate scenario analysis exercise\u201d.
\nLet\u2019s take a peek inside this laughable event.<\/p>\n","protected":false},"author":121246920,"featured_media":210489,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","_crdt_document":"","advanced_seo_description":"","jetpack_seo_html_title":"","jetpack_seo_noindex":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"jetpack_post_was_ever_published":false},"categories":[1],"tags":[691818360,691818361,691818356,691818357,691818359,691818358],"class_list":{"0":"post-252564","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","6":"hentry","7":"category-uncategorized","8":"tag-bank-stress-testing","9":"tag-banking-system","10":"tag-climate-policymaker","11":"tag-climate-scenario","12":"tag-economic-catastrophes","13":"tag-u-s-banks","15":"fallback-thumbnail"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/07\/00IMAGE-numerical-weather-modeling-050216-1120x534-landscape.jpg?fit=1275%2C717&ssl=1","jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/paxLW1-13HC","jetpack-related-posts":[{"id":240342,"url":"https:\/\/climatescience.press\/?p=240342","url_meta":{"origin":252564,"position":0},"title":"Fed\u2019s Powell Speaks on Climate with Forked Tongue","author":"uwe.roland.gross","date":"18\/01\/2023","format":false,"excerpt":"\u201cWe are not, and will not be a \u2018climate policymaker.\u2019\u201d","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/01\/0a0dc4ee72fe304aab5c3f05abde50750.jpg?fit=1047%2C1047&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/01\/0a0dc4ee72fe304aab5c3f05abde50750.jpg?fit=1047%2C1047&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/01\/0a0dc4ee72fe304aab5c3f05abde50750.jpg?fit=1047%2C1047&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2023\/01\/0a0dc4ee72fe304aab5c3f05abde50750.jpg?fit=1047%2C1047&ssl=1&resize=700%2C400 2x"},"classes":[]},{"id":202181,"url":"https:\/\/climatescience.press\/?p=202181","url_meta":{"origin":252564,"position":1},"title":"Bank of England Uses False Data, Debunked Scenarios to Overstate Climate Costs","author":"uwe.roland.gross","date":"30\/05\/2022","format":false,"excerpt":"Guest Post by Benny Peiser, Ph.D. Editor\u2019s Note: Banks and large stock portfolio investment management companies have been much in the news lately for their use of Environment, and Social, Governance (ESG) scores as a guide for their banking and investment recommendations, requirements, and decisions. The ESG movement is, at\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/00pound-gbf0a2c22c_1920.jpg?fit=1200%2C800&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/00pound-gbf0a2c22c_1920.jpg?fit=1200%2C800&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/00pound-gbf0a2c22c_1920.jpg?fit=1200%2C800&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/00pound-gbf0a2c22c_1920.jpg?fit=1200%2C800&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/00pound-gbf0a2c22c_1920.jpg?fit=1200%2C800&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":201520,"url":"https:\/\/climatescience.press\/?p=201520","url_meta":{"origin":252564,"position":2},"title":"Bank of England used false data and discredited scenarios to exaggerate climate costs","author":"uwe.roland.gross","date":"26\/05\/2022","format":false,"excerpt":"London, 26 May \u2013 Net Zero Watch has called on the Bank of England to withdraw its latest climate stress test report as critics expose the bank\u2019s use of false data and discredited scenarios. https:\/\/twitter.com\/RogerPielkeJr\/status\/1529145613945688064?s=20&t=DVuSQ4KyxOq76oEtO70DFg Experts have\u00a0criticised\u00a0the Bank of England\u2019s (BOE) climate stress test for adopting discredited projections of a\u2026","rel":"","context":"Similar post","block_context":{"text":"Similar post","link":""},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/0Screenshot-2022-05-25-at-17.04.22.png?fit=1200%2C633&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/0Screenshot-2022-05-25-at-17.04.22.png?fit=1200%2C633&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/0Screenshot-2022-05-25-at-17.04.22.png?fit=1200%2C633&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/0Screenshot-2022-05-25-at-17.04.22.png?fit=1200%2C633&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/climatescience.press\/wp-content\/uploads\/2022\/05\/0Screenshot-2022-05-25-at-17.04.22.png?fit=1200%2C633&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":289124,"url":"https:\/\/climatescience.press\/?p=289124","url_meta":{"origin":252564,"position":3},"title":"Lord Frost calls for Bank of England climate role to go","author":"uwe.roland.gross","date":"29\/11\/2023","format":false,"excerpt":"From Net Zero Watch The former chief Brexit negotiator Lord Frost has welcomed a Parliamentary report that called for the Bank of England to lose its remit to fight climate change. 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