Bank Policy Institute examines bank climate risk guidance

The Bank Policy Institute (BPI), a nonpartisan public policy, research and advocacy group, has issued principles to regulators regarding bank climate risk guidance.

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BPI has filed a pair of comment letters with the Office of the Comptroller of the Currency (OCC) and the Basel Committee, maintaining banks need a flexible, risk-based approach from banking supervisors instead of granular prescriptive rules.

“Banks are essential to a smooth transition to a greener economy by helping their customers across all industries meet their financing needs,” BPI Senior Vice President and Associate General Counsel Lauren Anderson said. “It’s essential that regulators take thoughtful, steady steps forward, not over-committing with false precision-based rules at this point. We look forward to working with the Basel Committee and the OCC on these important policy issues.”

Per BPI, overly prescriptive rules focusing on credit allocation or financing costs would potentially have unintended economic consequences, including price shocks or shifting financing outside the banking sector.

The BPI has determined any final guidance or principles should not require banks to apply prescriptive quantitative limits or thresholds for climate-related financial risk at this time; regulators should provide banks with an opportunity to tailor risk management programs to risks they face in accordance with client portfolios and geographic exposures; and regulators should acknowledge benefits and appropriateness of banks aiding efforts to finance clients’ low-carbon transition needs.