OCC’s Hsu: Climate Risk Exams for Community, Midsize Banks ‘Number of Years’ Away

During an industry event today, OCC Acting Comptroller Michael Hsu said his agency is “laser-focused on the safety and soundness aspects” of climate change risks. Specifically, the OCC is concentrating on large banks’ climate risk management capabilities: identifying, measuring, monitoring and mitigating climate-related exposures. “Weaknesses in risk management could adversely affect a bank’s safety and soundness, as well as the overall financial system,” he said.

Hsu called “prudent” risk management a safety and soundness “imperative,” noting that the draft principles the OCC released in December are just a starting point and will be finalized later this year. At that time, more detailed guidance will be developed along with the Federal Reserve and FDIC. After what Hsu called “an appropriate transition period”—though he didn’t define how long that would be—assessment of large banks’ climate risk management capabilities would begin.

“This means that for midsize and community banks, it will be a number of years before OCC examiners conduct climate risk management examinations,” Hsu said. “My suggestion to those bankers has been simple: Use the time wisely. To the extent that midsize and community banks can develop thoughtful, tailored assessments of their climate risk profiles, they will help mitigate the risk of a ‘trickle down’ of large-bank climate risk management expectations in the future.”