According to Reuters, the Federal Reserve Board of Governors of the United States and other key banking regulators proposed a plan on Friday for how large banks should manage climate-related financial risks, prompting immediate dissent from one member and reservations from another.
The proposed principles specify how banks with more than $100 billion in assets should incorporate climate-related financial risks into their strategic planning. The Fed Board of Governors approved the proposal for public comment in a 6-1 vote.
The proposal is the latest effort by US policymakers to prepare for potential financial risks from climate change, bringing the Fed in line with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), both of which have proposed separate plans.
According to the Fed’s proposal, banks must consider climate-related financial risks in their audits and other risk management processes and incorporate climate-related scenario analysis into traditional stress testing. In addition, according to the proposal, banks should also assess and consider whether to include climate-related risks in their liquidity buffers.
The debate over the extent of climate change’s financial system risks has been politically charged. Fed Governor Christopher Waller voted against Friday’s proposal, raising concerns about whether it poses a severe risk to the soundness of large banks or the financial stability of the United States.
“Climate change is real, but I disagree with the premise that it poses a serious risk to the safety and soundness of large banks and the financial stability of the United States,” Waller said in a statement released alongside the proposal. “The Federal Reserve conducts regular stress tests on large banks that impose extremely severe macroeconomic shocks and they show that the banks are resilient.”
Governor Michelle Bowman supported the plan to seek public input with reservations, noting the Board should consider “the costs and benefits of any new expectations”.
The proposal will be open for public comment for 60 days.