Climate Change Regulation Coming Soon

11/23/21

In remarks last week, Acting Comptroller Michael Hsu indicated that the agency plans to address climate change risk regulation with high-level framework guidance and five “range of practices” questions for bank boards by the end of 2021.

The questions are intended to spur conversations at the board level with management and to inform more detailed guidance that would likely be developed in 2022. Examination based upon the guidance will follow after the more detailed guidance in 2022, and a focus on midsize and smaller bank risk will follow after that. Hsu committed to taking a deliberate, phased and data-driven approach to understanding the financial risks and opportunities posed by climate change and the transition to a lower-carbon economy. He also noted that each bank is unique with different customers and business lines, and that it is important to ensure that any consideration of climate risk as a supervisory issue is appropriate and tailored, based on the size, complexity and location of the institution.

The five questions he detailed are:

Question #1:  “What is our overall exposure to climate change?”

Question #2:  “Which counterparties, sectors, or locales warrant our heightened attention and focus?”

Question #3:  “How exposed are we to a carbon tax?”

Question #4:  “How vulnerable are our data centers and other critical services to extreme weather?”

Question #5:  “What can we do to position ourselves to seize opportunities from climate change?”

 “While the discussions right now are focused on the largest banks exposure to climate change, it is clear from the Biden Administration and OCC officials climate change exposure we soon be a part of all banks examinations” Evan Kleymeyer OBL’s SVP External Relations said. “We expect the banking regulators to propose climate change mitigation rules next year, and we will be commenting on behalf of the industry.”