Banking Regulators Defend Climate Initiatives

Before the House Subcommittee on Financial Institutions and Monetary Policy, regulators and state officials testified on efforts to address climate related financial risk.

At a hearing titled "Climate-Risk: Are Financial Regulators Politically Independent?," Subcommittee members heard from:

• Federal Reserve Board ("FRB") Division of Supervision and Regulation Director Michael S. Gibson. Dr. Gibson asserted that the FRB's primary focus with regard to the supervision of banks is on (i) evaluating whether they operate in a safe and sound manner and address risks, among which include climate-related financial risk and (ii) identifying how climate change can increase financial sector vulnerabilities and shocks. Dr. Gibson reported that the FRB is in the midst of reviewing comments received, alongside other federal regulators, including the OCC and FDIC, in response to an earlier request for feedback on proposed guidance to establish a "high-level framework" to help large banks manage exposures to climate-related financial risks.
• OCC Senior Deputy Comptroller for Large Bank Supervision Greg Coleman. Mr. Coleman highlighted efforts under the OCC’s recent establishment of the Office of Climate Risk ("OCR") which is tasked with coordinating the OCC’s activities on supervision and policy. Mr. Coleman stated that the OCR has (i) worked to develop examination strategies for banks with more than $100 billion in total consolidated assets, (ii) created initial training and curricula for OCC staff on climate-related financial risk supervision and (iii) encouraged interagency knowledge sharing on climate-related financial risks.
• FDIC Division of Risk Management and Supervision Director Doreen Eberley. Ms. Eberley emphasized that the FDIC’s work on climate-related financial risks is aimed at ensuring that the financial system can remain resilient in the face of these risks. Ms. Eberley said that the FDIC has coordinated efforts with other agencies within the Financial Stability Oversight Council ("FSOC") to address climate-related risks and to "foster an open dialogue."
• National Credit Union Administration Deputy Executive Director Rendell L. Jones. Mr. Jones said that NCUA requested comment from stakeholders to gain a better understanding on (i) credit unions’ views of climate-related financial risks and (ii) the products and services credit unions can offer to leverage opportunities presented by shifts in the economy’s applicable sectors, such as transportation and energy.

In addition,

• Coconino County, Arizona Treasurer Sarah Benatar. As treasurer for the second largest county by area, Ms. Benatar raised concern that legislation in opposition to ESGs that has been introduced in "states like Arizona" will force "numerous bidders out of the process entirely" and ultimately threaten free markets. She argued that this "damaging" and "anti-free market" legislation is designed to "provide special access for special interests" all the while threatening businesses with "being blacklisted for considering real risk factors in their business decisions." She warned that the legislation would greatly reduce the range of banks with whom her treasury can do business.

The Subcommittee is considering the following legislative proposals:

• H.R. ____, the "Stop Executive Capture of Banking Regulators Act" which would require federal banking regulators to provide reports on implementations made based on (i) recommendations made by the FSOC chair and (ii) executive orders.

• H.R. ____, the "Ensuring U.S. Authority over U.S. Banking Regulations Act" which would create additional requirements for federal banking agencies when issuing rulemakings that implement policies of non-governmental international organizations.

• H.R. ____, the "Banking Regulator International Reporting Act" which would establish reporting requirements for federal banking agencies regarding their interactions with non-governmental international organizations.

• H.R. ____, the "Restoring the Federal Reserve Board Act" which would amend the Federal Reserve Act by removing the designations of one of the members of the Board of Governors of the FRB as the "Vice Chairman for Supervision."