Still no firm timetable for US climate risk exams

A top US regulator has confirmed that there will be a cross-agency effort to test the climate risk management capabilities of large banks, but gave no timeline for when such assessments would be introduced.

Michael Hsu, acting comptroller at the Office for the Comptroller of the Currency (OCC), also said tests for medium-sized and community banks will not happen for many years.

His comments come as the OCC reviews feedback on a set of draft principles for large banks’ management of climate-related financial risks. Speaking at a conference this week, Hsu revealed that the principles would be finalised before the end of 2022, along with more detailed guidance. He also said that assessments based on this guidance would begin after an unspecified “appropriate transition period”.

The OCC is the lead regulator for national banks in the US. Hsu said its activities are being coordinated with the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, which are together responsible for regulating state-chartered banks and bank holding companies.

Fed chair Jerome Powell said last year that there is a desire among all agencies for their guidance to be consistent. He confirmed that the Fed is in dialogue with the largest institutions about their actions to address climate risk, but indicated it was not in a position to incorporate climate risk into its examinations of banks during 2022.

Regulators have faced criticism for their slow progress on integrating climate risk into supervision. In a hearing with the House of Representatives financial services committee, congresswoman Rashida Tlaib urged Powell to “turn dialogue into guidance and accountability”.

Although the OCC indicated that its draft principles would only apply to institutions with over $100bn in total consolidated assets, climate groups have called for them to be extended to all banks, regardless of size, location, and business model.

In a response to the OCC’s draft principles, the Center for American Progress warned that regional banks may be particularly vulnerable to localised extreme weather events because their portfolios are less diversified.

Other groups have also expressed concern that the OCC’s efforts to address climate risk may be hindered by a rule it passed last year, stipulating that supervisory guidance does not have the same legal weight as statutes or regulations.

In its response to the OCC principles, Better Markets said the rule was making it harder for supervisors to hold banks accountable for dangerous practices, including on climate risk. The group said it must therefore be rescinded.

The OCC does not currently have a permanent comptroller, after President Biden’s nominee Saule Omarova withdrew amid fierce opposition from Republicans, the banking industry and several moderate Democrats. Hsu has been acting comptroller since May 2021.