House Financial Services Committee Chairwoman Maxine Waters, D-Calif., is challenging the National Credit Union Administration and other banking regulators to issue guidance requiring institutions to measure and manage climate risk—a thorny issue for the NCUA board.
Waters praised Acting Comptroller of the Currency Michael Hsu for issuing proposed guidance for climate risk supervision at banks with assets over $100 billion in assets. “If finalized, the guidance that these principles are aimed at producing would be historic, representing the first time that a federal banking regulator in the United States acted to require financial institutions to measure and manage climate risk,” she said.
The NCUA board has struggled with the climate issue. Sources said earlier this year that the agency’s Strategic Plan was delayed because of the lack of agreement on the issue. Democrat Todd Harper has been outspoken about his desire to ensure that credit unions address climate risk. However, Republicans Kyle Hauptman and Rodney Hood have been less outspoken and are in a position to block any strong climate statement.
The Office of the Comptroller of the Currency is controlled by one director, Democrat Hsu, making it far easier for the agency to take a strong position on how banks should address climate issues. If adopted, the OCC guidance would expect the nation’s largest banks to prepare a scenario analysis to help understand and mitigate climate risk. Waters challenged other banking regulators to follow suit.
“Weaknesses in how banks identify, measure, monitor, and control potential climate-related financial risks could adversely affect banks’ safety and soundness, as well as the overall financial system,” the OCC said, in releasing the guidance last week. “The principles provide large banks with a high-level framework for the safe and sound management of exposures to climate-related financial risks consistent with existing OCC rules and guidance.”
And the OCC said, “In keeping with the OCC’s risk-based approach to supervision, the OCC intends to appropriately tailor any resulting supervisory expectations to reflect differences in banks’ circumstances such as complexity of operations and business models.”
Waters also praised the Financial Stability Oversight Council for establishing a climate risk committee. And she challenged the other financial regulators to join the OCC and the Federal Reserve and become part of the Network for Greening the Financial System, an international organization of financial regulators that shares best practices for managing climate risk.
In its draft Strategic Plan that was released last month, the NCUA took a much less prescriptive position, stating that “Credit unions need to consider climate-related financial risks and how they could affect their membership and institutional performance.”
The draft plan goes on to state that “Climate change presents several complex conceptual and practical challenges not only for credit unions but also for the NCUA. The agency will need to adapt its risk monitoring framework to account for climate-related threats to financial stability, the credit union system, and the Share Insurance Fund.”