Climate change (and climate-related financial risks of physical and transition risks) will likely be a source of shocks to the financial system in the years ahead, and the FSOC and its members aim to monitor the financial stability implications of such shocks. Climate-related financial risks can be grouped into two broad categories: physical risks and transition risks.
The identification of physical and transition risks and responding to these emerging threats to financial stability is important as these stresses manifest as traditional risks to financial institutions such as credit risk, liquidity risk, market risk, and operational risk, which has been the long been the focus of prudential supervision and regulation by FSOC members.
