Federal bank regulators finalized principles for a framework to manage exposures to climate–related financial risks for large financial institutions.
The principles address physical and transition risks associated with climate change and are consistent with the risk management framework described in the agencies’ existing rules and guidance. They are intended for financial institutions with $100 billion or more in total assets.
They are meant to support efforts by the largest financial institutions to focus on key aspects of climate–related financial risk management. More specifically, the general climate–related financial risk management principles are provided with respect to a financial institution’s governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Further, they detail how climate–related financial risks can be addressed in the management of traditional risk areas, including credit, market, liquidity, operational, and legal risks.
Also, the final principles neither prohibit nor discourage large financial institutions from providing banking services to customers of any specific class or type, as permitted by law or regulation. The decision regarding whether to make a loan or to open, close, or maintain an account rests with the financial institution, as long as it complies with applicable laws and regulations.
The principles were jointly developed and finalized by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency.
The Independent Community Bankers of America (ICBA) expressed some concerns about the principles.
“While ICBA appreciates that today’s interagency climate related financial risk management guidance applies only to institutions with $100 billion or more in assets, we are troubled by the impact these principles may ultimately have on community banks, and we object to vague language in this document describing all financial institutions,” ICBA President and CEO Rebeca Romero Rainey said. “ICBA remains concerned that the true aim of the principles is to choke off legal but disfavored industries from the financial system, and that community banks may also be expected to comply with today’s large bank guidance.”
Rainey said the agencies must ensure that the climate risk guidelines do not adversely affect community banks, their customers, and the communities they serve.
“Community banks have decades of experience managing concentration risks and responding to extreme weather events and natural disasters in their communities — as noted by FDIC Chairman Martin Gruenberg — so any climate risk management frameworks, best practices, or other guidance that is aimed at, or that trickles down to, community banks would be counterproductive,” she added.