FOR IMMEDIATE RELEASE
October 24, 2023
William Pierre-Louis, Jr.
Banking Regulators Issue Final Climate Risk Management Principles for Large Banks
Washington, D.C. — The Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency today released joint Principles for Climate-related Financial Risk Management for Large Financial Institutions that establish climate-related risk management expectations for banks with over $100 billion in assets.
Regulators laid out a high-level framework for large banks to manage their physical and transition risks to ensure safety and soundness and promote financial stability. The principles include guidance around governance, climate scenario analysis, net zero commitments, and fair lending assessments to guard against racial discrimination and disparate impacts.
“These long-awaited principles are a solid foundation on which to build a supervisory and examination framework to protect consumers, banks, and the financial system from escalating climate risks,” said Alex Martin, climate finance policy director at Americans for Financial Reform Education Fund. “Supervisors and examiners must now turn their attention to effective implementation, and the regulators should provide more detailed guidance in coordination with the Treasury Department on credible net zero transition plans that include fossil fuel criteria and align with these megabanks’ public climate commitments. Regulators should also enact explicit requirements to conduct a robust fair lending assessment whenever a bank initiates a new climate-related risk management strategy.”
The principles come as banks begin to wrestle with ongoing climate-exacerbated property and flood insurance crises, in which insurers are raising rates faster than homeowners can afford, failing, or withdrawing from areas altogether, leaving more bank assets and collateral exposed to climate disasters. Along with the Community Reinvestment Act regulations finalized today, these principles will be critical for aligning the financial system with equitable climate investments driven by the Inflation Reduction Act.