Federal regulators, including the Federal Reserve Board, the Treasury Department’s Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, have finalized a framework on Wednesday to guide large banks in managing climate-related financial risks. The principles are specifically designed for banks with assets over $100 billion.
The framework identifies physical and transitional risks related to climate change. It provides guidance in six areas and outlines how to manage these financial risks across different risk types, emphasizing on material risks. The move has earned support from various institutions participating in the Climate Risk Consortium and a Climate Scenario Analysis Exercise.
Despite this backing, concerns about supervisory expectations and potential impacts on financial stability persist. Fed Chair Jerome Powell clarified that banking regulators' aim is not to become climate change regulators through this framework. He also highlighted the central bank's limited responsibilities in overseeing these risks, stating that policy decisions should be made by elected government branches.
FDIC Chair Martin Gruenberg addressed the immediate impact of climate change on financial aspects such as insurance costs. Fed Vice Chair for Supervision Michael Barr supported Powell's stance.
However, opposition comes from critics who argue that the guidance overlooks other pressing threats such as quantum computing, artificial intelligence, and U.S. national debt. Concerns about the broadness of the principles and their potential impact on the supervisory process were also raised.
The Independent Community Bankers (NASDAQ:ESXB) of America (ICBA), representing small and midsize banks, expressed opposition due to potential repercussions on smaller banks and legal but disfavored industries. ICBA President Rebeca Romero Rainey accused regulators of exceeding their authority, posing a threat to safe and sound banking practices.
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