US regulators urged to launch new climate rules

September 30, 2021|Written by David Clarke|Federal Reserve

Leading environmental, financial and public interest groups have written to US regulators calling on them to add climate risk to their supervision of the nation’s banks.

In a letter sent on Wednesday to federal bank regulators, the groups state that regulators must urge banks to address the physical effects of climate-related disasters such as wildfires, hurricanes and floods, as well as the transition away from fossil fuels. The letter was signed by the Center for American Progress, Americans for Financial Reform Education Fund, Friends of the Earth US, Public Citizen, the Natural Resources Defense Council, and Sierra Club.

The letter notes that climate change creates credit risk, market risk, liquidity risk, and operational risk to financial institutions, most of which do not currently factor risks into their regular assessment plans.

The groups contend that addressing climate risk faced by banks falls within the mandates for the relevant federal regulators, which include the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration.

US regulators have lagged behind their peers in setting expectations on the management of climate-related risks. Banks in the Eurozone, China, UK and elsewhere are already required to integrate climate considerations into risk management practices.

“Issuing clear guidance for banks and examiners on expectations for climate-related risk exposure is a necessary first step regulators must take: one that many banking regulators around the world have already implemented and have found in doing so that banks are falling short on prudent climate risk management”, the letter argues.

The groups noted that federal bank examiners routinely review the assets and practices of the institutions they regulate to identify “unsafe or unsound” bank activities that put the banks and the banking system at risk.

“Federal examiners can order banks to stop risky activities, divest risky assets, and bring their lending activities in line with regulators’ expectations,” said the group Public Interest in a release accompanying the letter. “[They] should start doing the same to address the growing dangers from climate change.”

This page was last updated September 30, 2021

Share this article