U.S. banking regulators engaged on local weather threat administration steerage, official says

An aerial view of floating ice, taken by a drone launched by the Greenpeace ship Arctic Sunrise in the Arctic Ocean, September 15, 2020. Image from September 15, 2020. REUTERS / Natalie Thomas

WASHINGTON, Sept. 15 (Reuters) – U.S. banking regulators are working on new climate risk management guidelines for large lenders, a senior official said Wednesday, another sign of efforts to incorporate the risks of rising temperatures into financial regulations.

Acting currency auditor Michael Hsu said his agency is working with other banking regulators on the guidelines to help lenders manage the physical and transitional risks that climate change poses to the financial system.

Climate change could turn the financial system upside down, as threats like rising sea levels, as well as policies and climate-neutral technologies aimed at slowing global warming, could destroy trillions of dollars in assets, risk experts say.

“Climate change poses an existential risk to society and the associated financial risks represent a security and solidarity risk for banks. In order to maintain trust, banks and regulators must act now,” said Hsu during a speech in Washington.

The Federal Reserve has asked lenders to provide information on the steps they are taking to mitigate the risks associated with climate change on their balance sheets, Reuters reported in May. Since then, Fed officials have announced that they will subject banks’ balance sheets to “stress tests” for climate scenarios.

However, Hsu’s comments are the first to suggest regulators are working on broader guidance that could affect a far wider range of the country’s lenders and the companies they do business with. While guidelines do not carry the same legal weight as a formal requirement, lawyers say they are often just as effective and can be implemented much faster.

Reporting by Michelle Price; Editing by Cynthia Osterman

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