Acting Comptroller of the Currency Michael Hsu called on community bankers to start researching the impacts of climate change as regulators address the climate change policies of larger financial institutions.
While addressing the American Bankers Association’s Washington Summit, Hsu said regulators will start to focus more on the climate risks facing mid-size and community banks once more formal guidance is established for larger financial institutions. According to the ABA, this process could take years.
To Hsu, community banks should evaluate issues related to climate change based on their location: Whereas larger banks typically have locations across the country, community banks have much smaller footprints. Hsu noted community banks along the Gulf Coast could consider the possibility of Category 4 hurricanes becoming more frequent as climate change worsens or a Kansas City bank could factor in the likelihood of other geographically-specific severe weather events like tornadoes and floods. He did not outline a firm schedule of when climate risk assessments could begin for mid-size and smaller banks.
In December, the OCC outlined draft principles for large banks to identify and manage climate change financial risks in terms of enhanced governance, strategic planning, risk management, oversight, and data reporting. Other government regulators are moving forward with their own work: Federal Reserve Gov. Lael Brainard announced last October that the central bank is moving forward with an exercise to measure the impact of climate change on financial institutions and markets. A 2021 Financial Stability Oversight Council report found that rising temperatures were becoming more of a threat to the financial sector and called on regulators to analyze possible scenarios to build risk-management tools.
Hsu contrasted the OCC’s regulatory climate change framework with the European Union, which has regulatory mandates relating to both safety and soundness and transitioning the economy to net-zero by 2050. To Hsu, the OCC is only concerned with the former.
The role of the public sector in combating climate change was discussed throughout the ABA conference. Senate Banking Committee member Jon Tester (D-Mont.) said though he believes climate change is real, regulators should not bar banks from making loans to traditionally high-risk sectors.
Republicans and Democrats differ on how they view President Joe Biden’s stalled nomination of Sarah Bloom Raskin as the Fed’s top banking regulator along similar lines. Republicans are stalling the vote due to their concerns over her previous comments supporting transitioning away from the oil and gas industry. Sen. Jerry Moran (R-Kan.) said Republicans have stalled her nomination because of her refusal to answer questions relating to those comments, an assertion disputed by Banking Committee Chair Sherrod Brown (D-Ohio).
Raskin was critical of broad-based emergency-lending backstops enacted by the Fed and the Treasury Department to assist businesses during the pandemic because she believed they should have taken steps to prevent lending to oil and gas sectors.