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Bank Regulators Present a Dire Warning of Financial Risks From Climate Change

“Even large, affluent cities do not currently have the financial capacity in place to fund all of their plans,” wrote John Cleveland, executive director of the Boston Green Ribbon Commission, a group working to shield that city from climate change.

The papers propose a series of changes that could alter the behavior of financial institutions and local governments, pushing them to better prepare for climate change. Many of the steps would impose new restrictions or incentives on banks.

One recommendation is for regulators to penalize banks that lend money in areas that have been hit by disasters, yet have not taken steps to protect themselves against similar future disasters. Banks could also be rewarded by regulators for financing projects that leave communities less vulnerable to flooding or other hazards.

Another proposal is for lenders to create a common standard for measuring flood risk, and use it to set mortgage rates.

A spokesman for the San Francisco Fed, Tom Flannigan, said the Fed “does not advocate on any policy positions,” but instead seeks to “share expert opinions and research while supporting the thoughtful exchange of ideas on subjects like climate change that we recognize to be important in our district.”

Still, change is necessary, according to Jesse M. Keenan, the editor of the papers. He argued that the private sector must assume a greater role in preparing for the effects of climate change.

“The private sector has always adapted,” Mr. Keenan, a faculty member at Harvard University, wrote in the introduction to the research. “One either adapts to new markets, products or services, or they go out of business.”

For more news on climate and the environment, follow @NYTClimate on Twitter.

Jeanna Smialek contributed reporting from Washington.

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