high uncertainty and potential costs associated with climate - related risks. it will be important to systematically assess the resilience of large financial institutions and the broader financial system to climate - related risk scenarios. climate scenario analysis as we are learning from the pandemic, risks emanating from outside the economy can have devastating financial consequences. as part of our prudential and financial stability responsibilities, we are developing scenario analysis to model the possible financial risks associated with climate change and assess the resilience of individual financial institutions and the financial system to these risks. the future financial and economic consequences of climate change will depend on the severity of the physical effects and the nature and speed of the transition to a sustainable economy. so it is important to model the transition risks arising from changes in policies, technology, and consumer and investor behavior and the physical risks of 1 / 6 bis central bankers'speeches damages caused by an increase in the frequency and severity of climate - related events as well as chronic changes, such as rising temperatures and sea levels. from the ipcc ’ s work, we know that the physical risks related to climate change will grow over time, while the transition risks will depend in part on how abruptly policy, technology, and behavioral changes take place. since financial markets are forward looking, a change in expectations regarding climate - related risks could lead to a sharp repricing of assets at any time. acute hazards, such as damaging hurricanes, or climate - related policy changes could quickly alter perceptions of future risk or reveal new information about the value of assets. sudden asset price changes can lead to financial instability when they interact with other vulnerabilities, such as high leverage or correlated exposures. 8 scenario analysis is a useful tool in assessing the links between climate - related risks and economic outcomes because it requires assessing the implications for financial stability and individual financial institutions in a systematic way. the interactions across institutions and market segments must be traced out, and missing data must be identified, acquired, and analyzed, leading to a clearer picture of the transmission of risks. scenario analysis should ultimately facilitate estimating the possible effects on individual financial institutions as well as on financial markets more broadly. by systematically modeling the effects of climate - related risks across the financial system, scenario analysis can help inform risk management at the level of individual financial institutions and more broadly. given that this conference is about stress testing, it is worth revisiting some lessons from the first generation of bank stress tests. 9 bank stress tests were developed at

2 the study spells out the relative advantages of different types of funds for different kinds of projects — preservation versus development, for example — and details which funds are best for the early, middle, or late stages of a project. turning to support for small businesses, community development staffers across the federal reserve conduct extensive research and analysis of the challenges and opportunities facing small business owners. for example, the 12 federal reserve banks collaborate on the annual small business credit survey, which surveys business owners about their financing needs and experiences to provide timely insights to policymakers, service providers, and lenders. 3 in addition to providing information on small business credit conditions, the federal reserve is trying to advance understanding of the best economic development strategies for supporting small businesses. the kansas city fed has helped lead on these issues through its “ grow your own ” entrepreneurship - based economic development guidebook, and its 2018 growing entrepreneurial communities summit. 4 these are just a few of the ways that federal reserve banks and the board of governors support the efforts of community development organizations. i hope that our work will be useful as you chart a path forward for your second decade of service to utah, and i look forward to continued collaboration between the federal reserve and community development organizations such as ucns. together, we can help support thriving communities across the wasatch front, the state of utah, and across our nation. thank you again for inviting me to speak, and congratulations again for 10 years of building stronger communities in utah. 1234 1 ucns is the parent organization of four separate organizations that, in combination, work to advance access to affordable housing, including homeownership and housing near high - capacity or high - frequency transit ; support economic development and job creation by funding small businesses ; and improve access to important community infrastructure. 2 2. elizabeth mattiuzzi, “ funds for kickstarting affordable housing preservation and production : lessons for new investors, ” community development research briefs ( san francisco : federal reserve bank of san francisco, march 2019 ). return to text 3 see www. fedsmallbusiness. org / for more information. 4 the guidebook is available at www. kansascityfed. org / ~ / media / files / publicat / community / gyo / entrepreneurship - econ - dev - local - communities. pdf. 2 / 2 bis central bankers'speeches