Brainard: Fed Will Not Tell Banks to Restrict Lending to Oil and Gas Firms

With regulatory scrutiny of climate change-related risks growing, Federal Reserve Governor Lael Brainard promised today that the Fed’s climate risk supervision will not include directives for banks not to lend to specific industries like oil and gas. “That’s not our job. We don’t tell banks which sectors to lend to,” said Brainard during her confirmation hearing to be vice chair of the Fed, in response to questions from Sen. John Kennedy (R-La.) “We ask them to risk manage and we make sure they have good processes in place.”

During the hearing, responding to questions from Ranking Member Pat Toomey (R-Pa.), Brainard also said she has “not suggested we should do stress tests for climate,” although she noted that “geo-economic” risks have historically been incorporated into the Dodd-Frank stress testing process. Instead, she said the supervisory approach the Fed has taken is to “ask large institutions in particular, ‘Do you have a good risk management framework for assessing all of your material risks?’. . . It is very well known to the large institutions and really not very different from what they’re doing today.”

Brainard added that she did not think climate-related supervisory guidance is “appropriate for small institutions. . . . they’ll decide what their risks are. I’m really more focused on the large institutions, who themselves come in to tell us that they’d like to have more consistent expectations in this area across jurisdictions.”