ABA calls for ‘flexible, iterative’ approach to FDIC climate risk management

While expressing overall support for the FDIC’s Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions, ABA today emphasized the need for a “flexible and iterative, principles-based approach” until the data and methodologies for understanding climate-related financial risk are more fully developed.

“Overall, we support the principles as a guide for larger institutions, which are currently working to better understand their climate-related risks and communicate the information and actions to regulators, investors and other stakeholders,” ABA wrote. The association noted that large banks are making “significant investments” in staffing, training, systems, modeling and data collection to better assess their climate-related risks.

The principles are intended to improve the identification and management of climate-related financial risks at banks with $100 billion or more in assets. ABA urged the FDIC not to expand the scope of the guidance to midsize and community banks until more robust data is available, and the climate-related financial risks and opportunities are better understood. ABA believes any future guidance or regulations should remain open-ended, with regulators focused on ensuring that the largest banks are progressing in their capabilities and conducting internal climate-related risk analysis calibrated to the risks material to their individual business model.

“Over the near term, attaching regulatory consequences to climate-related risk exposures would be premature,” ABA said. “Additional regulation based on today’s capabilities could potentially result in a misallocation of resources.” ABA also asked that the FDIC work closely with the other U.S. banking and financial agencies and international standard-setting bodies to “close data gaps and apply a consistent set of definitions, assumptions and methodologies.” The FDIC’s principles are similar to a proposal issued by the OCC earlier this year, to which ABA sent a similar response.