ABA urges flexible approach to climate risk guidelines

The Federal Reserve’s proposed guidelines to help large banks mitigate climate change risks need to be flexible to implement, and they should not be applied to community banks, the American Bankers Association said today in a letter to the agency. The Fed’s draft “Principles for Climate-Related Financial Risk Management for Large Financial Institutions” is intended to improve the identification and management of climate-related financial risks at banking organizations with $100 billion or more in assets. (The Office of the Comptroller of the Currency and FDIC proposed their versions of the guidelines last year; ABA also commented on those proposals.)

ABA said it supports the principles as a high-level guide for the largest institutions but has several concerns that must be addressed before the document is finalized. For starters, the association urged the agency to embrace a flexible and iterative approach to how banks can implement the principles, noting that many significant uncertainties remain regarding climate-related financial risk assessment.

ABA warned that given the uncertainties, it is too early to expect banks to set lending or other risk limits. The association also urged the Fed to provide additional clarity on the application of the principles to foreign banking organizations. Finally, it stressed the principles should not apply to community banks.

In addition, ABA said that even though they are scoped for the largest banks, the principles will likely have broad economic effects. The letter urged the agencies to engage in a robust and transparent process to ensure that rules developed through international organizations are calibrated for U.S. laws and markets and do not harm the customers and communities that banks serve.