FDIC exits Network for Greening Financial System

Al Drago/Bloomberg

The Federal Deposit Insurance Corp. on Tuesday officially withdrew from an international body devoted to combatting climate-driven financial risks, according to an agency release. 

The decision to exit the body, known as the Network of Central Banks and Supervisors for Greening the Financial System, comes days after a similar decision by the Federal Reserve and follows priorities the current FDIC Acting Chair Travis Hill previewed weeks before.

"The work of NGFS is not within the FDIC's authorities and mandate," an agency release said. "Thus the FDIC has withdrawn."

In a Jan. 10 speech to the American Bar Association, Acting Chair Hill — who was then-Vice Chair of the FDIC board before his appointment on Monday — foreshadowed Tuesday's decision, saying he wants the agency to adhere to a more strict interpretation of its authority that excludes climate efforts.

He has argued the FDIC's mandate is limited to ensuring the safety and soundness of financial institutions and that environmental issues are outside that purview. Hill explicitly called for the FDIC's withdrawal from the Network for Greening the Financial System and expressed doubt about the relevance of a proposed Basel Committee framework for climate-related financial risk disclosures. Hill also said he expects the FDIC to resist implementing climate-focused disclosure requirements under new leadership.

The climate change organization was formed in 2017 in what some say was a reaction to the first Trump term's decision to withdraw from the Paris Climate Accord. The NGFS' stated goal was to uphold the Paris Accord's goals of stemming climate change — including by leveraging finance to stem greenhouse gas emissions — as well as study financial risks stemming from climate change. 

The FDIC's withdrawal from the NGFS marks the beginning of a predicted shift in the agency's approach towards overseeing climate risks in the financial system. The FDIC's exit also comes just days after the Federal Reserve on Friday announced it had withdrawn from the NGFS, saying similarly that the climate efforts were outside the Fed's statutory mandate. 

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While opinions differ on regulators' role in managing climate related financial risks, banking scholar and historian Peter-Conti Brown argues the more surprising aspect was the Fed's decision to join the body in the first place. The Fed was the first federal prudential regulator to join the climate organization, the Office of the Comptroller of the Currency joined in 2021 and the FDIC joined in 2022. 

Conti-Brown said that the Fed's best method of mitigating such risks would be through its supervisory process, including by ensuring that banks have capital and liquidity commensurate with their exposures to industries that could be vulnerable to climate shocks. 

"The risks that climate change poses to the financial system and macroeconomy are obviously relevant to Fed policy, because their statutory mandate is, essentially, stability in the financial system and macroeconomy," he wrote in a Substack article. "The problem is that the NGFS includes such a diverse coalition of central banks and supervisors, with such a variety of statutory and informal relationships to climate policy, that it was always going to be an odd bank out."