Climate Change Cited For First Time as Threat to U.S. Economy in Congressional Report

Climate change was highlighted as an emerging threat to the U.S. economy for the first time in the annual report to Congress by the country's top financial regulators. The Financial Stability Oversight Council cited several ways in which the issue could impact the economy, including possible loan losses after natural disasters like floods and fires that have become more and more frequent.

"Increased frequency and severity of acute physical risk events and longer-term chronic phenomena associated with climate change are expected to lead to increased economic and financial costs," the report said.

The council gave several recommendations to combat the climate-related financial risks, including making strides to acquire more data that helps them assess the perils and creating an inter-agency group to monitor the threats.

This is the first annual report of Joe Biden's presidency from the governmental organization charged with assessing risks to the financial system and detailing them to Congress. Biden's administration has established climate change as a top priority since he took office, a stark contrast to his predecessor's decision to withdraw the U.S. from the Paris climate agreement.

The council is also chaired by Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen, and the heads of other regulatory agencies including the Securities and Exchange Commission, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

The council was created by Congress in 2010 to address gaps in coordination among financial regulators that were exposed by the 2008 financial crisis.

Yellen, speaking before the panel approved the report Friday, said the turmoil that enveloped financial markets after COVID-19 hit in March 2020 had been dealt with quickly by the Federal Reserve and other agencies. She said the response showed that the "financial system is far more shock resistant" than it was when the 2008 crisis struck.

While there have been improvements, Yellen said the council still found risks to financial stability were elevated compared with the period before the pandemic.

Another emerging threat listed in the council report is cybersecurity. The council argued that more needs to be done to protect banks and other financial institutions from ransomware, malware attacks and data breaches.

The report also noted just how much remains unknown right now. Among the concerns were the now rapid-spreading omicron variant of the virus, a recent but persistent spike in inflation, and concerns that financial turmoil in China could adversely affect the U.S. and global economy.

"Global economic activity in the COVID-19 era has been unusually volatile, with periods of economic shutdowns followed by rapid growth amid reopening," the report said.

The Associated Press contributed to this report.