UPDATE 1-US bank climate change exam highlights data, modeling challenges, says Fed

(Adds more context and detail in paragraphs 3-4, banks tested in paragraph 6)

By Isla Binnie and Michelle Price

WASHINGTON, May 9 (Reuters) - U.S. banks face a range of data and modeling challenges in predicting the impact of climate change on their loan books, according to an analysis published by the Federal Reserve on Thursday.

The Fed's first ever exploratory climate change exercise also found U.S. lenders are taking a wide range of approaches in assessing how rising temperatures and policies aimed at mitigating climate change would affect their balance sheets.

Physical risks, like rising sea levels and fires, and policies transitioning away from carbon-heavy industry, could destroy trillions of dollars of assets, posing potentially major risks for bank loan books, some regulatory experts have argued.

The exercise comprised a physical risk module and a transition risk module, the aim of which was to help the Fed learn more about, and help improve, the way banks are approaching climate change risk management.

While the central bank did not provide estimates of how much money banks might lose, its report highlighted the challenges lenders and regulators are experiencing in quantifying climate related risks.

The banks subjected to the test were: Bank of America , Citigroup, Goldman Sachs, JPMorgan Chase , Morgan Stanley and Wells Fargo.

Spokespeople for the lenders did not immediately provide comment.

A confidential document prepared by Citigroup as part of the exercise showed a relatively small hypothetical hit to the bank's books, Reuters

reported

this month.

The industry has previously criticized the exercise, arguing that climate change does not pose a severe threat to bank stability and that lenders are already set up to manage any related risks. (Reporting by Isla Binnie and Michelle Price)