AFREF authored a memo endorsed by nine partner organizations, which highlights opportunities for financial institutions to mitigate climate-related financial risk in a way that doesn’t violate fair lending and supports communities while building resilience through Community Reinvestment Act (CRA) and Inflation Reduction Act (IRA) opportunities. The memo is directed at the banking regulators — the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation — but its ideas are also relevant for other agencies overseeing the financial system.
The memo recommends that the agencies:
- Help banks identify and ramp up activities that meet supervisory expectations, satisfy regulatory obligations, and benefit from public subsidies, especially those satisfying all of the following conditions: (1) Mitigating their climate-related financial risk in line with the Principles for Climate-Related Financial Risk Management for Large Financial Institutions while complying with fair lending laws; (2) Supporting disaster preparedness, weather resiliency, essential community facilities and infrastructure, and affordable housing in low-income communities, consistent with the agencies’ CRA rule; and (3) Leveraging new federal resources from the IRA to incentivize green investment.
- Update fair lending examination procedures and risk management expectations to more explicitly incorporate climate-related financial risk.
- Support bank development and implementation of transition plans to reduce banks’ microprudential climate-related financial risks and reduce their contributions to systemic climate-related related financial risks.