FDIC Addresses Consideration of Climate Risks in Banking Oversight

FDIC Chair Martin J. Gruenberg said that understanding and assessing climate-related financial risk is "a top priority" of the FDIC, but the project remains in the "early stages."

In remarks at the American Bankers Association Annual Convention, Mr. Gruenberg said that the risk management practices surrounding climate-related financial risk are constantly evolving and so a constant dialogue on how to improve risk management practices is necessary to ensure banks take a thoughtful and measured approach to assessing climate-related financial risk. He said that climate-related financial risk is inherently a changing trend, and banks must be aware of both the physical and transitional risks climate change presents.

Mr. Gruenberg highlighted actions that the FDIC and other banking regulators have taken, while stressing that there is "significant work ahead." Among other things, he cited a recent FDIC request for comment on draft principles that would "provide a high-level framework for the safe and sound management of exposures to climate-related financial risks" (see previous coverage). He said that the FDIC is currently reviewing submitted comments and will continue to provide guidance on managing climate-related financial risk as necessary, in coordination with other regulators. While the draft principles are being developed, Mr. Gruenberg advised each bank to better its understanding of climate-related financial risk and consider circumstances unique to its business model, as well as establish its own governing framework that has the ability to adapt to, and incorporate, appropriate risk management practices.