Dec 17, 2021 - Energy & Environment

Bank regulators push Wall Street on climate risk

The seal of the Office of the Comptroller of the Currency (OCC) is displayed outside the organization's headquarters in Washington, D.C., U.S., on Wednesday, March 20, 2019.
The seal of the Office of the Comptroller of the Currency displayed outside the organization's headquarters in Washington, D.C., on March 20, 2019. Photo: Andrew Harrer/Bloomberg via Getty Images

A key financial regulator, calling climate change a risk to banks and the financial system, is out with draft guidelines for how large banks should address the topic.

Why it matters: The Office of the Comptroller of the Currency's guidance "marks the most significant step yet by regulators under President Joe Biden’s administration to push banks to address climate risks," Reuters reports.

The big picture: "Weaknesses in how banks identify, measure, monitor, and control the potential physical and transition risks associated with a changing climate could adversely affect a bank’s safety and soundness, as well as the overall financial system," the OCC document states.

  • Physical risks refer to threats like floods and heat waves, while transition risk refers to how the movement toward a lower-carbon economy could affect banks' assets and portfolios, including fossil fuel clients.

How it works: The draft plan calls on banks with over $100 billion in assets to fold climate risk into underwriting policies, assessing the level of liquid assets they should carry and much more.

Yes, but: Environmentalists are pushing financial regulators and the Federal Reserve to take much more direct and aggressive steps that steer banks away from supporting fossil fuels.

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