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Climate-Related Financial Risk Resources

Climate Risk and Resiliency in the Financial Services Sector

Climate risk and resiliency is a focus for financial regulators across the globe. In the United States, state and federal stakeholders are working together to coordinate climate-related risk and resiliency initiatives and regulatory guidance to ensure stable and resilient financial markets.

Table of Contents

Interagency Principles for Climate-Related Financial Risk Management for Large Institutions

The Office of the Comptroller of the Currency (OCC), Treasury; Board of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC) published the interagency guidance Principles for Climate-Related Financial Risk Management for Large Financial Institutions.

FDIC Issues Draft Principles on Climate Risk Management: March 30, 2022

The FDIC released for comment a set of draft principles to guide a framework for climate risk management for banks with more than $100 billion in total consolidated assets. The FDIC noted that the principles are an initial step and are, among other things, intended to support the use of scenario analysis.

The principles address governance; polices, procedures and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. They are similar to proposed principles issued by the OCC in December 2021.

Federal Reserve issues Draft Principles for Climate Risk Management: December 2, 2022

The Board of Governors of the Federal Reserve System (“Federal Reserve”) released draft principles for managing exposures to climate-related financial risks (“Climate Principles”). The Climate Principles generally are targeted at institutions with over $100 billion in total assets that are regulated by the Federal Reserve, including US branches and agencies of foreign banking organizations with over $100 billion in assets held at the branch or agency.

The Climate Principles are substantially similar to principles that were proposed by the Office of the Comptroller of the Currency (“OCC”) in December 2021 and the Federal Deposit Insurance Corporation (“FDIC”) in March 2022 (see above).

Financial Stability Oversight Council (FSOC)

Background:

The Financial Stability Oversight Council (FSOC or Council) was established by the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). One of the purposes of the Council under the Dodd-Frank Act is to respond to emerging threats to the stability of the U.S. financial system.

The Council seeks to identify and address vulnerabilities in the U.S. financial system so that abrupt and unpredictable shocks to economic or financial conditions do not impair the ability of the financial system to provide needed services, including the clearing of payments, the provision of liquidity, and the availability of credit.

The Council is composed of ten voting members who head the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System (Federal Reserve Board or FRB), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (Bureau or CFPB), the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corporation (FDIC), the Commodity Futures Trading Commission (CFTC), the Federal Housing Finance Agency (FHFA), and the National Credit Union Administration (NCUA), along with the independent member with insurance expertise, plus five nonvoting members. Two of the nonvoting members head the Office of Financial Research (OFR) and the Federal Insurance Office (FIO).

The other three nonvoting members are a state insurance commissioner, a state banking supervisor, and a state securities commissioner designated by their peers. 

State bank supervisors have appointed New York State Department of Financial Services Superintendent Adrienne A. Harris to serve as the state banking representative on the FSOC effective January 1, 2023. 

FSOC Report on Climate Related Financial Risk: October 2021

This report is issued in response to the directive in Executive Order 14030 (May 20, 2021), Climate-Related Financial Risk, to the Secretary of the Treasury to engage FSOC members on this topic and report on FSOC’s activities. 

The work of the Council on climate-related financial risks is an important component of the government’s efforts to address the potential adverse effects of climate change. Council members will continue their efforts to address climate-related financial risks consistent with their mandates, focusing on the safety and soundness of regulated institutions, the integrity of financial markets, investor and consumer protection, financial stability, and other measures necessary to ensure the resiliency of the financial system to climate-related risks.

These efforts will assist the ability of consumers, investors, financial institutions, insurers, and other market participants to make decisions that better reflect future climate-related financial risks.

Economic and financial decisions that account for climate-related financial risks contribute to greater stability and resilience to climate risks across the broader economy and help promote alignment of financing and capital towards a future with lower greenhouse gas emissions.

FSOC and Progress in Addressing Climate-Related Financial Risk: July 2022

In July 2022, the Council met to discuss accomplishments since the report’s publication and committed to continue to advance the work needed to promote the resilience of the financial system to climate risk.  FSOC published a Fact Sheet on July 28, 2022.

Community Reinvestment Act (CRA) and Climate Adaptation

Federal Reserve Bank of San Francisco: Climate Adaptation Investment and the CRA, June 2019

Related Initiatives

Related Additional Resources

New York Department of Financial Services (NYDFS):

  • On December 21, 2023, NYDFS issued Guidance for New York State Regulated Banking and Mortgage Institutions Relating to Management of Material Financial and Operational Risks from Climate Change. The Guidance covers New York State-regulated banking organizations, New York State-licensed branches and agencies of foreign banking organizations, and New York State-regulated mortgage bankers and mortgage servicers.
  • On October 29, 2020, NYDFS issued an Industry Letter outlining its expectations related to addressing the financial risks from climate change to all New York-regulated banking organizations, branches and agencies of foreign banking organizations, mortgage bankers and servicers, and limited purpose trust companies, as well as New York-regulated non-depositories (other than New York-regulated mortgage bankers, mortgage servicers, and limited purpose trust companies), including New York regulated money transmitters, licensed lenders, sales finance companies, premium finance agencies, and virtual currency companies.
  • On February 9, 2021, NYDFS issued an Industry Letter alerting banking institutions subject to the New York Community Reinvestment Act that they may receive credit for financing activities that support the climate resiliency of low- and moderate-income, and underserved communities.
  • In December 2022, NYDFS issues Request for Public Comment regarding Proposed Climate Related Guidance. Interested parties are invited to provide feedback on the proposed Guidance for New York State Regulated Banking and Mortgage Institutions Relating to Management of Material Financial Risks from Climate Change. The Guidance covers New York State-regulated banking organizations, New York State-licensed branches and agencies of foreign banking organizations, and New York State-regulated mortgage bankers and mortgage servicers. The deadline for submitting feedback is 11:59 p.m. EST on March 21, 2023.

 

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