Climate-Risk Management
Following the pattern set in 2021 by the OCC, the FRB has now proposed climate risk-management standards as high-level principles to guide banking organizations with assets over $100 billion. As with the OCC’s proposal and the very similar one that followed it from the FDIC, the FRB would give large banking organizations considerable discretion to manage climate financial risk as long as the organization expressly and transparently does so. The Board is more explicit about the flexibility banks would have to decide if climate risk warrants a separate set of policies and procedures or if it can be incorporated into the broader risk-management construct. However, regardless of an institution’s choice, the board of directors and senior management would need to ensure that climate risk is identified, measured, managed, and mitigated to the greatest extent possible consistent with the company’s business model and available climate-risk data. Scenario analyses would also be required, although banks would have considerable flexibility conducting them.