Banks could stop lending to flood-prone communities.
Towns could lose the tax money they need to build sea walls and other protections.
These are a few of the warnings published on Thursday by the Federal Reserve Bank of San Francisco regarding the financial risks of climate change. The collection of 18 papers by outside experts amounts to one of the most specific and dire accountings of the dangers posed to businesses and communities in the United States — a threat so significant that the nation’s central bank seems increasingly compelled to address it.
The Federal Reserve has been slow to talk about climate risks compared with central banks in other countries. That could be partly because the topic is more politically polarized in the United States than many other places, so talking about it exposes the Fed — which is meant to be politically independent — to accusations that it is straying into partisan territory. Already, the central bank is a frequent target of President Trump, who has criticized its interest-rate decisions for hindering economic growth.
Yet the Fed has recently started speaking up on global warming and the dangers it poses to the financial system.
In a letter to Senator Brian Schatz this year, Chair Jerome H. Powell wrote that the Fed takes “severe weather events” into account in its role as a financial supervisor. Meanwhile, the San Francisco branch of the Federal Reserve — responsible for banking oversight across a major swathe of the American West — has been more blunt, writing this past March that volatility related to climate change has become “increasingly relevant” as a consideration for the central bank.
With Thursday’s actions, the San Francisco Fed has taken a further step. The research, conducted by 38 academics and practitioners from around the country and published with the knowledge of the Fed’s board of governors, presents in precise language a dire picture of the risks of a changing climate, and warns that local governments don’t have the means to deal with them.
“The associated risks and effects of climate change are relevant considerations for the Federal Reserve,” Ian Galloway, director of the San Francisco Fed’s Center for Community Development Investments, said by email.
The new research calls on lenders and other businesses involved in community development “to take a leadership role in preparing vulnerable regions most at risk for a ‘new abnormal,’” Mr. Galloway wrote in a foreword to the papers, which appeared in the journal Community Development Innovation Review.
As the research makes clear, that new abnormal is already here.
Climate change has begun to affect the real estate market, according to a paper by Asaf Bernstein, an economist at the University of Colorado in Boulder, and two co-authors. His research shows that properties likely to be under water if seas rise one foot now sell for 15 percent less than comparable properties with no flood threat.
That decline in property values is likely to ripple through the financial system, scaring banks and other lenders away from those areas, according to a paper by Michael Berman, a former chairman of the Mortgage Bankers Association, which represents lenders.
It could also lead to a practice Mr. Berman described as “blue-lining,” where banks would avoid lending to flood-prone areas — a reference to the practice known as redlining, in which banks discriminate against African-American neighborhoods by not lending there.
“At some point in the next 20 to 30 years, absent substantial new approaches to reducing and managing flood risk, there may be a threat to the availability of the 30-year mortgage in various vulnerable and highly exposed areas,” wrote Mr. Berman, who is president and chief executive of M & T Realty Capital Corporation, a major mortgage lender.
The result, Mr. Berman said, would be to further imperil the financial health of places, particularly poorer ones, already struggling with flooding. “There is a real possibility that real estate values in communities will be decreasing due to increased flood risk just as the real estate tax base is being relied on for funding of new flood mitigation infrastructure,” he wrote.
Coastal cities are already unable to pay for the types of projects that could protect them from the growing effects of climate change, the authors of another paper wrote.
“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.”