Federal regulators have finalized guidance on managing risks related to climate change despite objections from conservative officials and banks.
The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency formally adopted a set of principles Tuesday for banks with more than $100 billion of assets when managing climate-related risks.
The guidelines largely mirrored individual proposals issued by each agency in
FDIC Chair Martin Gruenberg said the principles create a necessary "high-level framework" for managing climate-related risks to the financial system. In a statement, he also noted that climate change should not be viewed as a long-term threat, noting that instances of severe weather are already influencing financial considerations such as
"Climate-related financial risks pose a clear and significant risk to the U.S. financial system. If improperly assessed and managed, they may pose a threat to safe and sound banking and financial stability," Gruenberg said. "These principles are designed to help financial institutions make progress toward incorporating climate-related financial risks into risk management frameworks in a manner consistent with safe and sound practices."
Agency heads noted that the guidelines also reflect their limited role in overseeing climate-related risks. Fed Chair Jerome Powell said the central bank has "narrow but important" responsibilities for mitigating such risks, but he emphasized that the Fed should not assert itself as a climate policymaker.
"Decisions about policies to address climate change must be made by the elected branches of government. Over time, we must be vigilant to avoid crossing or blurring that line," Powell said in a statement. "It is not the Fed's role to tell banks which businesses they can and cannot lend to, and this guidance is not intended to do so."
Powell and Fed Vice Chair for Supervision Michael Barr both emphasized that the guidelines do not restrict banks from engaging in any particular activity or prohibit lending to specific groups or industries.
Even so, other regulatory officials say the adopted guidance exceeds the agencies' remit on the matter of climate policy. Jonathan McKernan, an FDIC board member, took issue with the singling out of climate as a specific risk, noting that it is hardly the only emerging threat to financial stability. He cited advancements in quantum computing, artificial intelligence and even the U.S. national debt as other rising concerns.
"This guidance's singular focus on just this one possible emerging risk exposes the real intent and effect. This guidance positions the U.S. bank regulators to follow the lead of their European counterparts in pushing banks to facilitate a transition to a lower carbon economy," McKernan said. "Policy decisions like this should be left to our elected leaders."
Fed Govs. Michelle Bowman and Christopher Waller also expressed concerns about the framework. Though Waller acknowledged that climate change is a real phenomenon, he said it poses no specific threat to the soundness of the banking system. Bowman said the principles are too broad and could have wide-reaching implications.
"While this guidance nominally focuses on climate-related 'financial risks,' I am concerned that the guidance could be used by the Federal Reserve and other federal banking agencies to pursue climate policies leveraging the opacity of the supervisory process," Bowman said. "At a time when confidence in public institutions is waning, the Federal Reserve should strive to demonstrate beyond doubt that it executes its duties in an independent manner, focusing on its statutory obligations."
Banking groups also expressed dissatisfaction with the rules. The Independent Community Bankers of America, a trade group representing small and midsize banks, objected to the guidance even though its members would not be directly affected by the framework.
In a statement, ICBA President and CEO Rebeca Romero Rainey said the guidelines would likely have consequences that trickled down to smaller banks and other parts of the economy. She also accused regulators of overstepping their bounds.
"ICBA remains concerned that the true aim of the principles is to choke off legal but disfavored industries from the financial system, and that community banks may also be expected to comply with today's large bank-guidance," Rainey said. "The agencies must ensure their novel efforts to impose supervisory expectations about climate risk through guidance do not adversely affect community banks, their customers and the communities they serve."
