A high U.S. banking regulator has discovered that main lenders are within the early phases of assessing and managing the dangers climate change poses to their companies, and that vital work is required in some areas, three individuals accustomed to the matter mentioned.
The Workplace of the Comptroller of the Forex carried out a evaluation final 12 months together with 22 massive banks to see how they account for the affect of local weather change on their mortgage books and companies.
In a letter despatched in current days to the banks’ chief executives, the OCC mentioned it discovered all had accomplished some degree of threat identification, however approaches and phases of growth different broadly. The letter, the contents of which had been described to Reuters by sources, has not been beforehand reported.
It sheds extra gentle on the shortcomings regulators have recognized in lots of banks’ preparations to handle local weather dangers, which some trade specialists argue places trillions of {dollars} of property in jeopardy.
The OCC discovered that the majority banks had been early within the means of incorporating local weather threat into capabilities equivalent to strategic and operational planning, inside audit and assessments of their threat urge for food, the sources mentioned.
It additionally discovered that a number of had not began working with local weather state of affairs evaluation and that vital work was wanted to implement deliberate governance frameworks round local weather threat, the sources mentioned.
An OCC spokesperson mentioned the company doesn’t touch upon supervisory actions. The sources requested anonymity to speak about confidential regulatory issues.
Banks and regulators world wide are grappling with the way to measure and handle the results a warming local weather and alterations to vitality coverage can have for the monetary system.
Some trade executives query, although, whether or not the long-term means of local weather change poses a extreme fast menace to financial institution stability in the identical means {that a} recession may.
The OCC carried out its first evaluation in 2023, conducting a number of conferences with banks, and printed steerage on managing dangers alongside the Federal Deposit Insurance coverage Company and Federal Reserve.
The Fed led its personal train by which the six greatest banks had been requested to simulate what excessive climate and a shift to cleaner vitality may do to their property and investments.
The OCC’s letter describes a variety of follow observations and doesn’t spell out particular actions it needs the banks to take, the sources mentioned.
It mentioned it’s going to proceed to conduct risk-based supervisory actions, the sources added.
—Isla Binnie and Nupur Anand, Reuters