Bank regulators give final approval to ‘climate-related financial risks’ principles for large banks; leave loan decisions to individual lenders

Principles intended to provide a “high-level framework for the safe and sound management of exposures to climate-related financial risks” for banks with $100 billion or more in assets were finalized by the federal banking agencies late Tuesday.

In a joint action, the Federal Deposit Insurance Corp. (FDIC), Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced they had approved the principles to address physical and transition risks associated with climate change.

“The principles are intended to support efforts by the largest financial institutions to focus on key aspects of climate-related financial risk management,” the agencies said. “General climate-related financial risk management principles are provided with respect to a financial institution’s governance; policies, procedures, and limits; strategic planning; risk management; data, risk measurement, and reporting; and scenario analysis. Additionally, the principles describe how climate-related financial risks can be addressed in the management of traditional risk areas, including credit, market, liquidity, operational, and legal risks.”

The agencies asserted that the principles “neither prohibit nor discourage” the large banks from providing banking services to customers of any specific class or type, as permitted by law or regulation. They said that decisions about whether to make a loan or to open, close, or maintain an account rests with the financial institution, “so long as the financial institution complies with applicable laws and regulations.”

Agencies issue principles for climate-related financial risk management for large financial institutions