(This piece was co-authored by Bridget Pals at NYU Law School’s Institute for Policy Integrity. It is also posted on the Institute for Policy Integrity’s website)
This fall, following a summer when climate change fueled catastrophic heat waves, droughts, floods, and fires, key U.S. authorities acknowledged the urgent need to act on climate risks to the banking system. Recent actions and remarks are beginning to shed light on what the next wave of policies to address these risks might entail. They’re likely to look a lot like many other, existing financial risk regulations.
The heads of the Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) both delivered remarks highlighting actions their agencies have already taken to address climate-related banking risks and identifying additional steps they will take. Michael Barr, the Vice Chair for Supervision of the Federal Reserve (Fed), similarly stated that climate-related financial risks implicate the Fed’s “supervisory responsibilities and [its] role in promoting a safe and stable financial system,” so the Fed plans to issue guidance in coordination with fellow financial regulators and conduct scenario analyses.
The officials’ recent statements build on earlier actions by the OCC and FDIC, which both issued draft principles in the last year on how banks should manage climate risk to meet safety and soundness expectations. The Institute for Policy Integrity and Environmental Defense Fund submitted joint comments supporting both guidance documents as important steps toward addressing the risks that climate change poses to the structural integrity of our financial system.
