Community Bank Climate Risk Regulation
With decades of experience managing concentration risks, maintaining strong underwriting and insurance practices, and responding to natural disasters, community banks are seasoned experts at monitoring the risk of their lending and investment portfolios and knowing when and how to reduce their loan concentrations.
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Position & Background
- ICBA will oppose any federal or state climate risk regulation that adversely impacts community banks and their ability to support their communities and customers, including any guidance, rule, regulation or law that requires community banks to directly or indirectly:
- comply with hard concentration limits on any type of legal lending, including lending to fossil fuel or other carbon-intensive industries;
- perform climate stress testing or scenario analysis;
- make mandatory climate related disclosures;
- adhere to capital requirements based on climate risk; or
- discriminate against legal but climate disfavored industries or customers.
- ICBA supports independent decision making at community banks and will oppose any federal or state initiatives, including ESG and so-called anti-ESG initiatives, designed to limit community bank discretion by forcing banks to categorically deny or discriminate against lending to lawful but disfavored industries and businesses or compelling banks to lend to specific industries or customers.
- ICBA supports providing incentives to industries deemed to be affected by climate risks if such incentives reward current and future voluntary practices and if climate impact is verified by accurate scientific analysis. Such incentives could include carbon sequestration or other climate mitigation efforts.
- State and federal bank regulators should conduct outreach meetings with community bankers and collect empirical data prior to finalizing any supervisory guidance on climate risks to confirm community banks are successfully managing climate risks and better understand how burdensome “one-size-fits-all” climate risk supervision will harm community banks and their customers.
With decades of experience managing concentration risks, maintaining strong underwriting and insurance practices, and responding to natural disasters, community banks are seasoned experts at monitoring the risk of their lending and investment portfolios and knowing when and how to reduce their loan concentrations.
As stewards of their local communities, community banks have prepared for, responded to, and survived myriad natural disasters since the early 19th century and are best positioned to evaluate the risk of their geographically limited loan portfolios.
For this reason, ICBA is strongly concerned by the recent focus from lawmakers and state and federal bank regulators on the topic of climate change. Banks are being pressured to address loosely defined or studied climate-related financial risks.
Much of this pressure stems from an FSOC report which concluded climate change is an “emerging threat to the financial stability of the United States” and recommended the regulators issue additional regulation and guidance on climate risks including using scenario analysis, where appropriate, as a tool for assessing climate- related financial risks. In response, the OCC, FDIC and Fed finalized a set of principles to support the identification and management of climate-related financial risks for large national banks with $100B or more in assets.
The New York Dept. of Financial Services proposed a similar framework that does not contain any exemptions for community banks. Additionally, the SEC has proposed mandatory climate disclosures for publicly held banks.
Letters & Testimonies
Proposed Guidance for New York State Regulated Banking and Mortgage Organizations
ICBA Expert Contacts
