Climate action at stake in battle for control of US regulator

December 16, 2021|Written by David Clarke|Federal Reserve

A political battle is underway for control of the Federal Deposit Insurance Corporation (FDIC), a key US banking regulator. The outcome could have important implications for action to address climate risk.

The FDIC insures deposits in US commercial banks and savings banks, and coordinates with other regulators on maintaining the safety and soundness of the banking sector. Climate advocates have called on the agency to issue climate supervisory guidance, create climate scenario analyses and look at integrating climate risk into its existing rules.

But the current chairman Jelena McWilliams has been reluctant to take such steps, and has largely refused to support cross-agency action. She is the only member of the Financial Stability Oversight Council (FSOC) who declined to vote in favour of its recent report on climate risk, saying she believes the report is based on insufficient analysis.

McWilliams is now facing a challenge from members of the FDIC’s board over the regulator’s direction. They are locked in a dispute after some board members voted to take public feedback on potential changes to the bank merger approval process. Although this dispute is not related to climate directly, it is seen as part of a wider battle.

One of the board members challenging McWilliams is Consumer Financial Protection Bureau (CFPB) director Rohit Chopra. A CFPB official told Politico: “There are a lot of pressing issues that are facing the banking sector, including climate change, including a revamp of the Community Reinvestment Act.”

“It’s fair to say that a majority of the board has a broader policy agenda.”

It is unclear how the dispute will play out, and some progressive groups are urging President Biden to remove McWilliams if she doesn’t adjust her approach. Climate action is a key part of the administration’s financial regulatory agenda.

Todd Phillips, director of financial regulation and corporate governance at the Center for American Progress wrote in a recent article, “It is time for new leadership at the FDIC that will ensure addressing climate risk is a priority. Fortunately, the other members of the FDIC’s board of directors have the inherent authority to take control of the agency; they need only to demonstrate the will to do so.”

He called on FDIC’s board members to instruct the agency’s staff to undertake the actions on climate recommended in the FSOC report.

This page was last updated December 16, 2021

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