Federal bank regulator proposes first climate risk guidance

The Office of the Comptroller of the Currency (OCC) on Thursday proposed the first-ever federal climate guidance for banks.

The guidance would be used to identify and manage risks relating to climate change or ecological disaster at any national bank or other OCC-governed institution with more than $100 billion in assets.

In a list of principles, the OCC said financial institutions should incorporate climate-related risks into determining bank strategies and operations, as well as how those risks could affect stakeholder expectations.

Banks should also develop plans for monitoring material risks related to climate, and find ways to collect data that help determine that risk, according to OCC. Managers should also analyze specific hypothetical climate-related scenarios during their risk planning, according to OCC.

“Today’s release takes an important, concrete step towards ensuring the safety and soundness of large banks in the face of increasing risks from climate change,” Acting Comptroller of the Currency Michael J. Hsu said in a statement. “We look forward to the feedback and to working with our interagency peers to develop more detailed guidance next year.”

The comment period for the proposed guidance ends Feb. 14 of next year.

Safety advocacy group Public Citizen called the guidance a “solid start” in a statement Thursday.

“It takes the foundational step of recognizing that climate-related risk can threaten the safety and soundness of individual banks and the whole financial system which means it puts the full range of OCC tools on the table, including enforcement authority,” said David Arkush, director of Public Citizen’s climate program.

Arkush particularly highlighted a portion of the guidance acknowledging “that managers may need to limit bank activities to mitigate climate-related risk and instructing bank managers to consider disproportionate impacts on disadvantaged households and communities.”

The announcement comes as the Federal Reserve is developing similar scenario analysis to better understand climate risks, as announced by Fed Governor Lael Brainard in October.