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Capitol Hill Examines Volatile Weather Events and Financial Risk

The House Financial Services Subcommittee on Financial Institutions and Monetary Policy, led by Chairman Rep. Andy Barr, recently held a hearing entitled “Climate-Risk: Are Financial Regulators Politically Independent?” discussing climate change as an emerging and increasing threat to financial stability.

Among those delivering testimony were Dr. Michael S. Gibson, Director, Division of Supervision and Regulation, Board of Governors of the Federal Reserve System; Greg Coleman, Senior Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency (OCC); Doreen Eberley, Director, Division of Risk Management and Supervision, Federal Deposit Insurance Corporation (FDIC); the Honorable Sarah Benatar, Treasurer, Coconino County, Arizona; and Rendell L. Jones, Deputy Executive Director, National Credit Union Administration (NCUA).

As financial institutions continue to struggle with increased climate change, the risk involved with these institutions and the investments of stakeholders are increasingly in jeopardy.

On May 20, the Biden Administration recognized this issue and issued the “Executive Order on Climate-Related Financial Risk,” to advance consistent, clear, intelligible, comparable, and accurate disclosure of climate-related financial risks.

“By measuring, monitoring, and mitigating risks, including climate-related financial risks, the NCUA can fulfill its statutory mandate of maintaining the safety and soundness of credit unions, protecting consumers, and safeguarding the Share Insurance Fund,” said Jones during his testimony. “Statutory modifications to the Federal Credit Union Act could bolster the agency’s efforts."

In his testimony, Coleman discussed the OCC’s supervision activities at banks over $100 billion in consolidated assets to understand their climate-related financial risks. Coleman described the OCC’s focus on climate-related financial risks rooted in its safety and soundness mandate, and shared initial observations of large banks’ management of climate-related financial risks.

“Two categories of climate risk may present safety and soundness implications for banks, physical, and transition risks,” said Coleman. “Physical risks include the increased frequency, severity and volatility of weather events and the associated impact on the value of financial assets and borrowers’ creditworthiness. Transition risks relate to adjustments to a low-carbon economy and include associated policy changes from Congress and other authorities, technology changes, and litigation. The OCC’s role is to ensure that national banks and federal savings associations understand their climate-related financial risks and develop comprehensive risk management frameworks and capabilities to identify, measure, monitor and control those risks.”

Gibson added, “Weaknesses in how banks identify, measure, monitor, and control climate-related financial risks could adversely affect a bank’s safety and soundness. To fulfill this supervisory responsibility, the Federal Reserve is working to better understand the potential implications of climate change for supervised banks, engaging with large banks, pursuing independent analysis on potential risks and opportunities, discussing issues with a wide range of external experts, and monitoring industry developments.”

Click here for more information on the House Financial Services Subcommittee on Financial Institutions and Monetary Policy hearing, “Climate-Risk: Are Financial Regulators Politically Independent?”

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.

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