US Banking Regulators Spurn Climate Rules Amid Rising Disasters

Highlights

• US banking agencies have withdrawn climate risk guidelines for large financial institutions with over $100 billion in assets.
• Federal Reserve Chair Jerome Powell warned that worsening climate disasters could make some U.S. regions unbankable.
• Critics say the move, steered by the Trump administration’s stance on climate change, exposes the financial system to rising environmental risks.

As the planet heats up and climate disasters intensify, U.S. banking agencies have chosen to withdraw climate risk rules designed for large financial institutions.

The decision comes on the back of a warning from Federal Reserve Chair Jerome Powell, who said that due to worsening environmental conditions, there could soon be regions in America where mortgages, ATMs, and bank branches might no longer exist.

Read More: Fossil Fuel Financing Surges as World’s Largest Banks Backtrack on Climate Goals

In their announcement, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) confirmed that they would withdraw their Principles for Climate-Related Financial Risk Management.

These principles required banks with assets exceeding $100 billion to consider climate-related financial risks in their strategies and risk management systems.

The agencies explained that their general safety and soundness standards were sufficient and that banks were already expected to handle a range of risks, including those emerging from climate impacts.

The guidelines, first issued in 2023, came during the hottest year on record, when the U.S. suffered from extreme droughts, wildfires, and floods, resulting in $92 billion worth of damage. At that time, Jerome Powell had said banks must understand and manage the financial dangers of climate change, and the OCC warned about physical and transition risks — the former involving damage from extreme weather and the latter involving the economic effects of moving to a low-carbon economy.

Under President Donald Trump’s administration, these concerns have been dismissed. Trump, who has labelled climate change a “con”, has taken steps to expand fossil fuel production and remove references to climate science from federal agencies.

Also Read: Trump’s Policies Cause Temporary Delay to Net Zero Goals: Survey

The banking regulators’ decision reflects this wider federal shift, where climate risk is now viewed as unnecessary to regulate separately.

Elyse Schupak, from Public Citizen’s climate programme, criticised the rollback, calling it politically driven and harmful.

She said the growing frequency and intensity of climate disasters and the worsening property insurance crisis make it vital for regulators to improve their understanding of climate-related financial threats. She also warned that by reversing these guidelines, the agencies are ignoring dangers that could destabilise banks and the financial system.

The decision comes at a time when the global temperature has already climbed between 1.3°C and 1.4°C above preindustrial levels and could soon pass 1.5°C, which scientists say will lead to irreversible climate impacts such as rising sea levels, prolonged droughts, and more destructive storms.

According to the Congressional Budget Office (CBO), continued warming could reduce U.S. GDP by 4%, and rising seas could cause $250 billion to $930 billion in property and financial losses by the end of the century.

In testimony before Congress, Powell noted that banks and insurers were already withdrawing from high-risk areas, such as coastal and wildfire-prone regions. State Farm, for instance, cancelled thousands of insurance policies in Los Angeles before massive fires struck in January. Powell said that over the next decade, entire regions could become financially unserviceable, with no mortgages or banking facilities available.

See Also: Clean Energy Tax Perks Slashed Under New OBBBA Law

Schupak added that the Federal Reserve’s retreat from climate regulation weakens its credibility and reduces its ability to buffer the financial system.

She also noted that Powell had already admitted the Fed has done the “bare minimum” on climate, and this new move reduces even that limited effort, leaving banks and the wider economy more exposed to climate-related risks.

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Source: Common Dreams