ABA Response to Fed Principles on Climate-Related Risk

Ann Misback
Secretary
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue
Washington, DC 20551

Dear Ms. Misback:

The American Bankers Association appreciates the opportunity to provide feedback on the Principles for Climate-Related Financial Risk Management for Large Financial Institutions ("the Principles") published for comment by the Federal Reserve. The Principles intend to improve the identification and management of climate-related financial risks at banking organizations 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, and largely mirror those previously issued by the Basel Committee on Banking Supervision (BCBS), the FDIC and OCC.

ABA and its members reiterate our understanding that climate change has implications for banking organizations, their counterparties and the communities banking organizations serve. Overall, we continue to support the Principles as a high-level guide for the largest institutions, but are concerned about the process through which the Principles are being developed. Additionally, given the level of complexity and uncertainty related to identifying and measuring climate-related financial risk, we recommend that before finalizing the Principles, the Federal Reserve work with the FDIC and OCC to clarify and make consistent the definitions of key terms and concepts.

As a threshold matter, we urge the Federal Reserve, together with the FDIC and OCC, to maintain a robust and transparent process when developing climate-related financial risk guidance or rulemakings in the U.S. The Principles are based on those developed by the BCBS, which were finalized in June 20223 and largely mirror those proposed by the FDIC and OCC earlier this year. It seems that the Federal Reserve is advancing concepts finalized by the BCBS, such as the directives for institutions to (1) analyze and possibly change their compensation policies and (2) include "measures of conservatism," in risk management and controls. Neither of the these factors were included in the FDIC's or OCC proposed principles, but are in the final BCBS Principles and Frequently Asked Questions (FAQ), issued subsequent to the proposals by the OCC and FDIC. Basing U.S. policy proposals on final Basel Committee documents implies that these concepts are already accepted and embedded in the Basel framework, and thus not actually open for comment for purposes of U.S. implementation.

Going forward, we urge the Federal Reserve, together with the FDIC and OCC, to seek early and frequent public input when developing standards through international bodies. Once finalized, internationally developed guidance and standards, such as the BCBS Principles, may alter the provision of financial services to certain industries and communities. The economic effects of this will be felt by all banks, which will need to adapt to the resulting market changes and ensure that financial services to vulnerable communities and customers are preserved. It is incumbent on the banking agencies to ensure that all banks have sufficient opportunity to provide comments on potential policy decisions. Feedback from a wide variety of stakeholders will help ensure that international standards are properly calibrated to U.S. laws and markets and do not harm the customers and communities banking organizations serve. Additionally, we respectfully note that central banks and supervisors in other jurisdictions may have broader mandates than the Federal Reserve or other U.S. regulators do, so that not all international standards or parts thereof would be appropriate for U.S. implementation.

Download the comment letter to read the full text.