U.S. Banks Ask Regulators to Liberalise Climate Risk Rules

A Brief Summary

The U.S. banks recently accepted a regulatory proposal to integrate climate-related risks into their day-to-day operations. But, they opposed risk management and lending guidelines, exposure disclosures and capital penalties.

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Banks rebuffed President Joe Biden's administration's idea that banks be forced to divulge climate risk exposures publicly or to regulators. Many banks are already participating in voluntary reporting efforts, according to the authors.

Environmentalists and climate campaigners are putting pressure on governments and companies to better plan for the repercussions of climate change, such as rising sea levels, severe floods, and wildfires. These calamities, together with policies aimed at shifting away from carbon-intensive industries, have the potential to wipe out billions of dollars in global assets.

Banks in the United States are also under increasing pressure to cut back on financing to oil corporations, pipelines, and other fossil fuel producers. Many lenders have stated that they will no longer lend on fossil fuels.

The Office of the Comptroller of the Currency (OCC) asked for comment in December on draught guidelines requiring banks to include climate change risk into their operations.

The broad proposal applies to lenders with assets of more than $100 billion. It covers a wide range of topics, including board governance, liquidity, credit, and operational risk management, as well as how banks predict hypothetical future losses on their books and their capacity to serve impoverished populations.

The proposal's responses were due on Monday. JPMorgan Chase, Goldman Sachs Group, Morgan Stanley, and Bank of America, among others, took out positions in them on hot-button climate risk concerns that Biden's regulators have focused on.

Given the difficulty of identifying, gathering, and modelling financial and non-financial climate-related data over a range of long time horizons, banks urged the OCC to take a flexible principles-based approach.

The sector rejected the idea that bankers' climate change risk assessments should influence capital or liquidity, citing data and modelling issues.

While banks should consider how their books might fare under various climate change scenarios, the organisations argue that climate change risks should not be included in stress tests used to set bank capital plans.

When it comes to financing to the oil and gas industry, BPI believes that lenders should be able to help customers move to low-carbon business models. Some producers, for example, are reducing greenhouse gas emissions from wells and pipelines and investing in carbon-capture equipment.

The Institute of International Finance also cautioned that regulators' increased attention on climate risks, particularly pilot scenario evaluations being done by many nations, was diverting resources from an internal capacity building that banks should be investing in.