Efforts to assess certain large banks’ climate-related risk management are already underway, with the national bank regulator reporting in its fiscal 2023 annual report Monday that it was already conducting “exploratory” reviews.
This statement by the Office of the Comptroller of the Currency (OCC) follows on an earlier statement in its fiscal 2024 supervision plan that examiners “should monitor the development of banks’ climate-related financial risk framework for safety and soundness and engage with bank management and other regulators to better understand the challenges banks face in this effort, including data and metrics, governance and oversight, policies, procedures, limits, strategic planning, and scenario analysis capabilities and techniques.” In that report, released in September, the OCC said these efforts should focus on institutions with more than $100 billion in consolidated assets and any branch or agency of a foreign banking organization that individually has total assets of over $100 billion.
The OCC, in the annual report it released Monday, said it was already conducting exploratory reviews of those institutions with assets of “$100 billion or more” in total consolidated assets “to develop a baseline understanding of the banks’ climate-related risk management.” It added that large-bank management “is in varying stages of incorporating climate-related financial risks in their strategic planning processes and understanding the effects of these risks on their financial condition and operations over different time horizons.”
The report, covering the period from Oct. 1, 2022, through Sept. 30, 2023, also highlights (among other things) the condition of the federal banking system, digitalization, the agency’s list of supervision priorities, and published rules, licensing activities, and enforcement actions.
On the banking system’s financial condition, the report notes the system remains sound. Still, it said pressure on interest margins is expected to intensify as banks “increasingly rely on more costly sources of funding.” It said that according to the Blue Chip consensus, inflation and interest rates are expected to remain elevated through at least the end of 2023.
It also stated that:
- Noninterest income also continued to increase in 2023 but to a much lesser extent. Over the last 12 months, noninterest income rose modestly for the system. For banks with assets less than $10 billion, noninterest income declined by 5.8%. Gains in revenues were partially offset by rising provisions as banks continued to incorporate the ongoing uncertainty of future credit conditions.
- The outlook for profitability for the remainder of 2023 is dependent on the Federal Reserve’s ability to slow inflation to its long-run target of 2.0% without tipping the economy into recession, while banks manage slowing loan demand and face higher funding costs.
Release: OCC Issues Annual Report for 2023