Letter to FDIC on Climate-Related Financial Risk Management

James P. Sheesley
Assistant Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

The American Bankers Association appreciates the opportunity to provide feedback on the Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions (“the Principles”) published for comment by the Federal Deposit Insurance Corporation (FDIC). The Principles are intended to improve banks’ identification and management of climate-related financial risks at banks with $100 billion in assets and above. The Principles call for enhanced governance, strategic planning, risk management, oversight, and data reporting practices for climate-related financial risks.

ABA and its members understand that climate change has implications for banks, their counterparties and the communities banks serve. Overall, we support the Principles as a guide for larger institutions, which are currently working to better understand their climate-related risks and communicate the information and actions to regulators, investors and other stakeholders. We reiterate the concerns and comments discussed in response to the BCBS and OCC’s proposed principles, and emphasize the need for a tailored, principles-based approach until the data and methodologies for understanding climate-related financial risk are more fully developed.

The largest banks are currently making significant investments in staffing, training, systems, modeling and data collection to better assess and monitor their climate-related risks. As the FDIC is aware, however, defining and quantifying climate change-related impacts on traditional bank risks is a relatively new and complex process, with the assumptions backing the analyses dependent on a vast number of policy choices and outcomes, over timeframes that extend far beyond those used to assess traditional banking risks.

Given these uncertainties, and to accommodate what will likely be significant changes to the practice of climate-related financial risk identification, we urge the FDIC to continue to take a principles-based approach that is flexible and iterative—and that allows banks to assess the risks they identify as the most material to their unique circumstances. Moreover, we urge the FDIC not to expand the scope of the guidance to mid-size and community banks until more robust data is available, and the climate-related financial risks and opportunities are better understood. This does not mean that these risks are unmitigated, rather, that banks and other corporations are being asked to identify and isolate new variables and concepts, such as exposure to transition risks. Banks are well-practiced in adapting to and managing change in the business environment and consumer and market preferences. Climate-related financial risks are naturally embedded into this process through the dynamic market, economic, and counterparty data that are the backbone of robust risk management. As the policy goals, definitions, and methodologies behind climate-related financial risk identification evolve, banks of all sizes will continue to apply traditional credit and financial risk tolerances and parameters to their balance sheets to manage their risks and support the customers and communities they serve.

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