Bloomberg, Bob Litterman, Nathan Hager discussed on Balance of Power


Equity sell off continues Nathan Hager the labor shortage appears to be getting worse Bloomberg daybreak For many this ongoing death ceiling debate is nothing more than political fodder Wake up with those The news this morning is in Washington On Bloomberg radio the Bloomberg business app and Bloomberg radio dot com This is bounce power on Bloomberg television radio I'm David Westin Washington is moving toward using bank regulation is one of the tools on climate change Something that bob litterman wrote extensively about when he was chair of the CFTC's climate related Mark risk subcommittee He is now chair of the risk committee at kapo's capital and we welcome now to Bloomberg So thank you so much for being with us Bob you've written literally the paper on this It's a long paper I read at least the executive summer of it Yesterday we saw from Janet Yellen that the F sock has now declared climate change as I understand it a systemic risk That's something you recommended in your paper So now that they've done it what comes next Well now it has to be implemented by all the different regulatory agencies in the U.S. We also have to coordinate with regulators globally to make sure that what we do here in the U.S. is consistent with what's going on globally I would say that the Europeans in terms of their approaches have been ahead of the U.S. so they set up for instance the network for greening the financial system the U.S. Federal Reserve has now joined that the SEC is moving forward with rulemaking the CFTC has set up a risk committee And so a lot of the recommendations in the report have already moving forward And of course one of the recommendations we made in the report is that the financial stability oversight council the F sock which really has the responsibility under dad Frank to identify and address emerging risks to the financial system they have said yes indeed this is an emerging risk to the financial system not just in the U.S. but globally it is a systemic risk and it has to be addressed So I think it's terrific They're moving in the right direction And I was very pleased to see this So Bobby is concrete as you can with me It helped me understand this If I'm running a bank a big bank or a small bank and it might be different for the two And the F stock follows through on this the Raiders follow throwing this How does it change my life Is it a matter of reporting what I understand to be the possible climate risks of the loans that I'm making Well look there's a lot of changes that are being made by all kinds of corporations banks included and they're going to be having to disclose more information as risks are growing Climate related risk that is There's transition risks As you know there's also the physical risks from climate change that are just starting to be felt by various different corporations in different ways The banks if you look at the way they're behaving today versus the way they were behaving 5 years ago it's been a complete change There's more research being done on the impacts of climate What does it mean for different types of corporations So they're creating all kinds of research for investors to understand this transition They also have the risks in their own loan portfolios and so on that they're starting to understand and monitor better And then the reporting is something where they need leadership from the SEC and other financial regulators particularly with respect to scenarios So one of the real key differences with respect to climate risk relative to the financial risks that banks and other financial institutions have been dealing with for decades the difference is that we haven't had any experience with climate change in the past We've had a lot of experience with the types of risks that financial institutions face including credit crises and so on But we are just experiencing more and more impacts from climate change whether it's the heat waves and the wildfires or the flooding and bankruptcies We just a couple of years ago had PG&E which was really the first climate related major bankruptcy And there'll be more of those presumably going forward And so banks and other financial institutions are going to have to monitor this better and report on it better There has always been a requirement that these financial institutions disclose material risks The question for climate related risks is what is material And the kinds of analysis that have been done historically in financial institutions to ask what's material usually focus on relatively short term events And does a bank or other financial institution have enough capital to withstand an event with respect to climate related risks It's not one event that we're worried about It's increasing events of many different types affecting many different types of institutions And so we're going to have to look over longer horizons And we're going to have to do different kinds of analysis And so the banks themselves are going to be working with regulators to understand what types of scenarios and what types of reporting do we need to do going forward One last one on that just to that very point because it's over a longer time horizon It's a lot more factors to be considered That's one thing for one of the big money center banks I mean they are dealing with a lot of these things that day in and day out Should we have the same regulation applies to the small local or regional banks Because they might not have the resources to really figure out the climate No I don't think that makes sense And I think that regulators understand that And they will be starting with the major institutions on be working with them They want to have input and they want to have a dialog with those institutions The other thing I would say is it's very likely that the regulators will have different types of requirements for different industries or at least work with those industries to understand what are going to be the significant impacts on that industry What's going to affect banks is going to be very different than what effects autos or what affects utilities or oil and gas companies So there's a lot of work to be done and I'm sure that the disclosures will improve over time The other thing I would say is that there's an awful lot of work being done by private companies and academics and others to try and understand what types of information will be useful and it's not disclosed information for the purpose of disclosing information It's for making important risk related decisions And so the information has to be comparable It has to be you have to be able to aggregate it and so on So there's a lot of work to be done And it certainly will start with the major institutions at the not the smaller one Sure sounds like there's a lot worth it on Thank you so much for getting us started on that work that's bob litterman He's kept us capital founding partner It was a breaking news now The Supreme Court of the United States has now agreed to hear oral arguments in the Texas abortion case You remember and this first time up they declined to deal with it because they were a procedural issues with it It's gone back down to the federal district court The Court of Appeals it's in effect right now in Texas but now the Supreme Court is going to take it up on the merits This is balance of.

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