FDIC Issues Draft Principles on Climate Risk Management

The FDIC today released for comment a set of draft principles to guide a framework for climate risk management for banks with more than $100 billion in total consolidated assets. The FDIC noted that the principles are an initial step and are, among other things, intended to support the use of scenario analysis. The principles address governance; polices, procedures and limits; strategic planning; risk management; data, risk measurement and reporting; and scenario analysis. They are similar to proposed principles issued by the OCC in December.

Like the OCC proposal, the FDIC noted that with respect to climate scenario analysis, “management should develop and implement climate-related scenario analysis frameworks in a manner commensurate to the institution’s size, complexity, business activity, and risk profile. These frameworks should include clearly defined objectives that reflect the institution’s overall climate risk management strategies.” The principles also address how firms should consider climate-related financial risks when identifying and mitigating all types of risk.

In a statement, Acting FDIC Chairman Martin Gruenberg called the principles “an initial step toward the promotion of a consistent understanding of the effective management of climate-related financial risks,” and said the agency would subsequently issue guidance on each one. “Future guidance will continue to be appropriately tailored to reflect differences in financial institutions’ circumstances, including size, complexity of operations, and business model,” Gruenberg said. “Through this and any subsequent climate-related financial risk guidance, the FDIC will continue to encourage financial institutions to prudently meet the financial services needs of their communities.”

Comments on the draft principles will be due 60 days after publication in the Federal Register. The American Bankers Association has formed a Climate Task Force to bring expertise on climate issues to the many areas that will be affected, and a specific subgroup focused on the FDIC principles.