CONTACT: Brigid Richelieu
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brichelieu@fsforum.com
Nation’s Largest Banks Affirm Commitment to Managing Climate-Related Financial Risks
Washington, D.C. – The Federal Reserve Board should use high-level principles and a risk-based, flexible approach that focuses on material risks in its guidance to banks on climate-related financial risks, the Financial Services Forum said Monday.
Responding to a proposal from the Federal Reserve Board (FRB), the Forum appreciated the agency’s efforts to provide guidance for banks to address climate-related financial risk and provided specific recommendations on how the proposal could be adjusted. The Forum’s feedback was similar to that provided to the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency in response to their earlier proposals.
“Our members recognize the need for banks to have robust capabilities for the safe and sound management of exposures to climate-related financial risks and, as the proposal recognizes, have already taken important steps to incorporate such risks into their comprehensive, enterprise risk-management frameworks,” Forum President and CEO Kevin Fromer said. “The Forum urges interagency coordination to ensure regulatory consistency of oversight of climate-related financial risks.”
The Forum’s letter offered several key observations and recommendations regarding the proposal. The Forum encouraged regulators to use high-level principles and a risk-based, flexible approach that focuses on material climate-related financial risks. Additionally, the Forum cautioned against overly prescriptive board and management requirements that may hamper a banking organization’s ability to develop appropriate practices to address climate-related financial risk and other risks. The proposal’s use of exploratory scenario analysis, rather than stress testing, is the appropriate approach to assist banks in quantifying and assessing the range of impacts from potential transition and physical climate-related financial risks. That said, data gaps and long time horizons pose significant challenges to climate scenario analysis, creating uncertainty and unreliability in results. Therefore, regulators should provide banks flexibility in designing scenarios and determining how to use and integrate the outcomes of the scenario analysis.
The Forum’s full comments to the FRB can be found here.
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The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.