WASHINGTON, D.C.— Dennis M. Kelleher, Co-founder, President, and CEO issued the following statement in response to today’s interagency policy statement on Principles for Climate-Related Financial Risk Management for Large Financial Institutions.
“We applaud the FDIC, Federal Reserve, and OCC (“Agencies”) for recognizing the serious risks climate events present to the safety and soundness of banks, as well as to financial stability and the American people. However, the principles released today are grossly inadequate to protect the financial system and the broader economy from climate-related financial risks, which are growing in size, severity, and cost. Climate events and the damage they cause to communities, property, small businesses, and the livelihoods of so many Americans are going to lead to a banking crisis. The issue is not if, but when such a crisis will happen. Banks are increasingly exposed to concentrated portfolios of loans and other credit instruments related to uninsured or underinsured real estate properties and businesses.
“While issuing principles-based guidance and integrating climate risks into the supervisory assessment process is a step in the right direction, this guidance alone is not enough to prompt banks to adopt suitable practices to address climate risks. That’s why the Agencies must work together to propose a rule that will be enforceable and give the American people the protections that the dangers of climate-related financial risks warrant. As stated in our comment letters to the FDIC and the Federal Reserve, the Agencies must recognize the unique risks posed by climate risks:
- Regulators must implement additional analysis and protections including scenario analysis to identify and measure climate risks, consider longer time horizons, and recognize that climate risk and its management is an evolving process.
- Bank management must be held accountable for designing and executing processes that effectively manage climate risks on a day-to-day basis.
- Bank boards and senior management are ultimately responsible for overseeing and ensuring sufficient management of climate risks, alongside all other risks that the bank faces.
- Regulators must assess the banks’ risk management and governance processes and take supervisory actions to require banks to fix weaknesses in those processes.
“These are modest and long-overdue actions. The FDIC and other banking regulators simply must start acting with urgency or, like the past, they are going to once again be responding to a banking crisis rather than taking appropriate actions to prevent the crisis from happening.”