How climate risk is already creeping into banking policy

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WASHINGTON – How slowly but surely the Biden administration’s focus on climate risk will affect regulators’ oversight of the U.S. financial system is emerging.

In May, the administration asked federal agencies to paint a picture of the country’s economic vulnerabilities related to climate change and cottage policies to address them. The goal was to mitigate the risks to homeowners, consumers, businesses and workers, the financial system and the federal government.

As recently as last week, the White House released a backgrounder detailing six fundamental pillars of its approach to tackling climate risk. These pillars include strengthening the resilience of the financial system, protecting citizens’ savings and pensions, greening government procurement practices, integrating climate risk into underwriting guaranteed mortgages. government and building more resilient infrastructure.

Administration guidelines have mobilized agencies to act, but in some cases regulators appointed by Biden have already taken aggressive action to address climate-related risks.

Earlier this month, Federal Reserve Governor Lael Brainard said the central bank would subject financial institutions to a “scenario analysis” of their climate-related risks, a process that the Fed says is distinct from traditional stress tests. In July, the Office of the Comptroller of the Currency announced the appointment of Darrin Benhart as the agency’s climate change risk manager and said the OCC was joining the international network of central banks and supervisors for the greening of the financial system.

A forthcoming report from the Financial Stability Supervisory Board could further explain how regulators will view climate risks in banking supervision. Meanwhile, some agencies have already moved more aggressively. For example, the Securities and Exchange Commission is working on a rule requiring publicly traded companies to publish information about their impact and risks associated with climate change.

Many bankers, including those at many of the country’s largest institutions, have recognized the looming business risks associated with extreme weather events, a societal shift to cleaner energy sources, and other consequences of a climate change. planet that is heating up rapidly.

At the same time, many financiers remain wary of climate regulations that could impose significant new disclosure obligations, tie their hands when lending to certain industries, or even increase capital requirements.

It is certain that the Biden administration will stay on track in trying to mitigate the impact of climate change on the US economy. The following is a breakdown of the biggest policy changes expected on the horizon for banks and other financial institutions.


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