Washington, D.C. — On Earth Day, U.S. Senators Patty Murray (D-WA), Brian Schatz (D-HI) and U.S. Representative Sean Casten (D-IL) introduced the Climate Change Financial Risk Act, legislation that directs the Federal Reserve to conduct stress tests on large financial institutions to measure their resilience to climate-related financial risks. Climate change is increasing the frequency and severity of extreme weather events like floods and wildfires. It is also changing long-term climate patterns in ways that will ultimately affect every sector of our economy.
Financial institutions face the risk of direct losses from severe weather events and fundamental changes like drought and sea level rise—for example, lower property values from increased flooding. They also face risks from market instability, an erosion of investor confidence, and changes in carbon-intensive asset values resulting from government policies and consumer preferences. These risks to our financial system are critical for financial institutions to measure and manage, as recognized in the pilot climate scenario analysis exercise that the Federal Reserve conducted in 2023 and the Principles for Climate-Related Financial Risk Management for Large Financial Institutions published by agencies in 2023. The Office of the Comptroller of the Currency announced in March 2025 that it was withdrawing from its participation in these principles. The Climate Change Financial Risk Act will make sure that financial institutions manage climate risks with stress tests that quantify and measure their resilience.
“In Washington state we see firsthand every day how climate change is disrupting our communities, from rising sea levels to increased wildfire risk to unpredictable weather events that create new challenges for our farmers,” said Senator Murray. “Extreme weather causes serious economic losses every year and these kinds of climate-related disruptions are only becoming more and more frequent—so it’s just common sense that our financial institutions should be factoring in those risks regularly to ensure our financial systems remain stable and resilient no matter what. As the Trump administration tries to turn back the clock and erase the climate progress we’ve made, we must continue fighting to protect our communities and economy from the serious threat climate change poses to all of us.”
The Climate Change Financial Risk Act would require the Federal Reserve to create climate change scenarios for financial stress tests, with input from federal scientific agencies and an advisory group of climate scientists and climate economists. The Federal Reserve would then conduct stress tests every two years on the largest financial institutions. The biennial tests will require each covered institution to create and update a resolution plan, which will describe how the institution plans to evolve its capital planning, balance sheet and off-balance sheet exposures, and other business operations to respond to the most recent test results. Federal Reserve objections to a resolution plan would limit the institution’s ability to proceed with capital distributions until it improves its plan. The Federal Reserve will also partner with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to design a survey to assess the ability of a broader set of financial institutions to withstand climate risks.
“Risk is risk—we should not be treating some risks different from others just because they’re hard to quantify. Federal regulators are legally obligated to ensure a stable and efficient financial system, and that means reducing the risk of a climate-driven financial crisis,” said Senator Schatz. “Instead of taking steps to reduce the risks facing communities across the country from increasingly frequent and severe extreme weather and disasters—including significantly higher costs for homeowners insurance—the Trump administration is trying to roll back our progress in the climate fight and gut the programs that will make us safer.”
“Climate change poses a grave and imminent threat to the stability of our financial system. It is essential that our regulators establish parameters so that our financial institutions adequately prepare for and respond to these risks, and that they do so before the next extreme weather crisis strikes,” said Representative Casten. “Our bill will move us toward safeguarding our financial systems—from short-term climate impacts, such as direct uninsured losses from wildfires, hurricanes, and flooding events, as well as from long-term global shifts to a net-zero economy, which may require a reshaping of a bank’s lending and investment activities.”
The Climate Change Financial Risk Act is cosponsored by U.S. Senators Elizabeth Warren (D-MA), Jeff Merkley (D-OR), Chris Van Hollen (D-MD), Sheldon Whitehouse (D-RI), Martin Heinrich (D-NM), and Cory Booker (D-NJ). The House companion legislation, led by Casten, is cosponsored by U.S. Representatives Stephen Lynch (D-MA), Emanuel Cleaver (D-MO), Jared Huffman (D-CA), Kevin Mullin (D-CA), Sarah Elfreth (D-MD), and Salud Carbajal (D-CA).
The Climate Change Financial Risk Act is supported by League of Conservation Voters, Ceres, the Sierra Club, Public Citizen, and Americans for Financial Reform.
Throughout her time in Congress, Senator Murray has fought to tackle the climate crisis and advocated for bold investments to address the effects of climate change. She has been a consistent advocate for climate resilience and readiness, and as Chair of the Senate Appropriations Committee, she secured key funding in the fiscal year 2024 spending bills for climate resilience efforts—from supporting wildfire suppression to investing in Tribal climate programs—and successfully fought off drastic cuts to core environmental and conservation departments and programs pushed by Congressional Republicans. As Assistant Majority leader in the 117th Congress, Senator Murray played a key role in passing the landmark Bipartisan Infrastructure Law and Inflation Reduction Act, both of which made historic and wide-ranging investments to tackle climate change and boost climate resilience.
The text of the bill is available here.
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