Federal Reserve Unveils Climate Risk Proposal for Big Banks for Public Comment

In line with proposals from FDIC and Treasury's OCC

The Federal Reserve building in Washington, in a file photo. MDart10/Shutterstock

The Federal Reserve Board of Governors on Dec. 2 invited public comment on proposed principles for managing climate-related risks of banks with $100 billion or more in assets.

Six of the board’s seven members voted in favor of the move. They included Federal Reserve Chair Jerome Powell, who became chair under President Donald J. Trump. Powell was first appointed to the board by President Barack Obama.

Federal Reserve Board Chairman Jerome Powell speaks during a press conference following a meeting of the Federal Open Market Committee (FOMC) at the headquarters of the Fed in Washington on Sept. 21, 2022. Mandel Ngan/Getty Images

One governor, Christopher Waller, dissented.

“I cannot support this issuance of guidance on climate change. Climate change is real, but I disagree with the premise that it poses a serious risk to the safety and soundness of large banks and the financial stability of the United States. The Federal Reserve conducts regular stress tests on large banks that impose extremely severe macroeconomic shocks and they show that the banks are resilient,” Waller, a Trump appointee, said in a statement.

Governor Michelle W. Bowman, another Trump appointee, made it clear that she wasn’t conveying her approval of the proposal in her Dec. 2 vote.

“While I support seeking public comment, this vote does not indicate my support for the finalization of this guidance. I will evaluate any future recommendation to finalize this guidance on its merits,” she said.

“The new principles contemplate additional obligations on firms to monitor and measure a broader set of climate-related risks, over indefinite time horizons. I look forward to public input on whether the guidance will improve safety and soundness at a reasonable cost.”

Federal Reserve governors Michelle Bowman and Christopher Waller (R) pose for a photo, during a break at a conference on monetary policy at Stanford University's Hoover Institution in Palo Alto, Calif., on May 6, 2022. Ann Saphir/Reuters

In its announcement on the vote, the Fed noted that the draft principles resemble a similar proposal from the Federal Deposit Insurance Corporation (FDIC), which offers insurance carried by virtually every bank in the United States.

The Fed’s proposal is also comparable to one from the Department of Treasury’s Office of the Comptroller of the Currency (OCC), which “charters, regulates, and supervises all national banks and federal savings associations as well as federal branches and agencies of foreign banks.”

The announcement clarified that the Fed will coordinate with the FDIC and OCC “to promote consistency in the supervision of large banks through final interagency guidance.”

Mixed Reactions

“Regulators must issue guidance that addresses the growing threats to both individual banks and the stability of the entire financial system,” David Arkush, director of the climate program for the Ralph Nader-founded non-profit Public Citizen, said.

“There is no time for the Fed or other banking regulators to delay finalizing these rules.”

Phillip Basil, director of banking policy at Better Markets, praised the Fed’s stated commitment to working with the OCC and the FDIC.

“The effects of climate change present serious and complicated risks to our banking system, and this type of coordination between the banking agencies is critical to addressing those risks,” he said in a statement.

A statue of former U.S. Secretary of the Treasury Albert Gallatin stands at the Treasury Department in Washington on April 25, 2021. Al Drago/Reuters

Not everyone shares that enthusiasm.

“Hooray for the courageous Chris Waller,” Hoover Institution economist John Cochrane told The Epoch Times in a Dec. 2 email.

Waller cast the lone dissenting vote.

“Chris is right that it is completely obvious that ‘climate risk’ does not conceivably imperil the financial system, or at least not with more than infinitesimal probability and a lot less than other dangers—war, sovereign debt collapse, pandemic, etc.,” Cochrane wrote in a subsequent post on his blog, The Grumpy Economist.

“Assume it means nothing as the Fed doesn’t have authority to do anything directly on this,” Boris Ryvkin, a corporate attorney who served as national security adviser for Sen. Ted Cruz (R-Texas), said in a post on Twitter.

Members of the public have 60 days to comment on the proposed principles, which can be read here: https://www.federalreserve.gov/newsevents/pressreleases/files/other20221202b1.pdf