The U.S. major banking regulators, including the Board of Governors of the Federal Reserve System (Fed), Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), announced that they are withdrawing the interagency Principles for Climate-Related Financial Risk Management for Large Financial Institutions, a key framework designed to help large banks manage climate-related risks.
Established in 2023, the principles were designed to support efforts by the largest financial institutions – those with over $100 billion in total consolidated assets – to focus on key aspects of managing the physical risks and transition risks associated with climate change, and to provide guidance to develop strategies, deploy resources, and build capacity to identify, measure, monitor, and control for climate-related financial risks.
At the time, the agencies explained that the soundness of financial institutions could be adversely affected by weaknesses in their identification, measurement, monitoring, and control of climate-related financial risks, with the interagency framework providing a joint high-level framework to manage risk exposure. The agencies also noted that the principles did not prohibit or discourage banks from providing services to any customers.
In the new communication from the Fed, FDIC and OCC, however, the agencies stated that they “do not believe principles for managing climate-related financial risk are necessary,” as financial institutions are already required to have effective risk management practices in place based on the agencies’ existing safety and soundness standards.
In a memo to Fed staff, the Board also said that “the Climate Principles may be distracting large financial institutions from the management of material financial risks.”
The withdrawal of the principles forms the latest in a series of moves by U.S. federal agencies since the beginning of the Trump administration to reverse course from the prior administration’s focus on climate issues, including the Fed’s exit from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), a global coalition of central banks aimed at working together on climate and green finance issues, immediately following the presidential inauguration in January. In a September speech at the U.N., Trump called climate change “the greatest con job ever perpetrated on the world.”
Five of the Fed Board’s seven members voted to approve the withdrawal. In a statement released after the decision, Governor Michael Barr, who voted against the withdrawal, said that “revoking the principles as climate-related financial risks increase defies logic and sound risk management practices.”
Barr added:
“The rescission contains literally no evidence to support taking this step only two years after putting the principles into effect. We owe the public a rational, evidence-based explanation for our actions, and this rescission fails that test.”
