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Community banks have successfully employed strategies for managing climate-related financial risk, though the prevalence of risk will increase with climate change, FDIC Acting Chairman Martin Gruenberg said.
Key Strategies: Noting that community banks by their nature have a wealth of first-hand perspectives and experiences from serving local communities, Gruenberg cited strategies such as consulting weather, agricultural, and other non-financial data; managing exposures within flood plains; and assessing the impact of extreme weather events.
Climate Risk: Gruenberg nevertheless said climate-related financial risk will increase, though he noted the FDIC is not responsible for climate policy, will not be involved in determining which sectors financial institutions should do business with, and continues to tailor supervisory expectations based on size. He encouraged community banks and other institutions to consider their unique climate-related financial risks, starting with boards of directors and senior management.
Proposed Principles: Gruenberg said the agency’s proposed principles for climate-related financial risk management—which are intended for institutions over $100 billion in assets—are consistent with existing FDIC rules and guidance.
New FSOC Panel: Separately, the Financial Stability Oversight Council announced the formation of its Climate-related Financial Risk Advisory Committee to help assess climate risks to the financial system. FSOC committed to the new committee in its October 2021 climate report.
ICBA Position: ICBA strongly opposes climate risk regulation of community banks and has told policymakers that any trickle-down effect of large bank regulation in this area will stifle innovation and create barriers to serving consumers and small businesses.
ICBA Advocacy: ICBA recently expressed concerns with the FDIC and related OCC climate risk proposals for larger institutions, noting they could ultimately apply to community banks. It has also said the SEC’s climate risk plan—which includes no exemptions for smaller institutions—would discourage financial institutions from doing otherwise lawful business and participating in the public capital markets.