US regulator probes banks' climate risk planning
14/12/2023 11:00
By Isla Binnie and Chris Prentice
Dec 14 (Reuters) - The U.S. Treasury Department's Office
of the Comptroller of the Currency (OCC) carried out its first
climate risk assessment of more than two dozen banks in recent
months, laying the groundwork for heightened scrutiny of Wall
Street's accounting for such threats, people familiar with the
matter said.
Dubbed a "discovery review," the previously unreported
process involved the regulator assessing how banks are
accounting for the impact of climate change on their loan books
and business, as well as exploring how they manage energy
finance and greenhouse gas emissions, according to the sources.
The exams shed light on how the OCC plans to implement
guidance on climate risk for banks with more than $100 billion
in assets, which it issued in October together with the Federal
Reserve and the Federal Deposit Insurance Corporation. More than
30 banks meet this threshold, according to the latest OCC data
available on its website.
Identifying and acting on this risk has been one of U.S.
President Joe Biden's key administration priorities.
The regulator used the discovery review to establish a
baseline of banks' practices so it has a yardstick with which to
assess their progress in implementing the guidance, the sources
said. The OCC may take disciplinary action as early as next year
against banks that do not show progress, the sources added,
requesting anonymity to discuss confidential regulatory
matters.
An OCC spokesperson acknowledged carrying out the discovery
review but declined to comment on the details.
"The OCC's focus on and supervision of climate-related
financial risk is firmly rooted in its mandate to ensure that
national banks and federal savings associations operate in a
safe and sound manner. The OCC's approach is focused on banks'
risk management, not on setting industrial policy," the
spokesperson said.
The information-gathering visits, which happened mostly in
the second half of 2023, involved multiple meetings with the
banks over several days, three of the sources said.
Specialists in risk management, operations, monitoring and
audit were called to the meetings, according to the sources.
Chief risk officers attended some of the meetings, two of the
sources said.
Bankers handling relationships with clients, compliance and
risk officers and auditors were asked about climate risk to see
if they responded coherently, one of the sources added.
OCC officials also sent lengthy requests for information on
dozens of points to banks, ranging from how they would prepare
for a shift to low-carbon energy to how they use data and
monitor progress towards targets, the sources said.
Examiners also wanted to know how banks' public comments on
climate align with their investment plans and risk appetite, two
of the sources said.
OCC staff were at times joined by officials from the Federal
Reserve Board, one source said, and in other cases by
representatives of the Prudential Regulation Authority (PRA) of
the Bank of England, another of the sources added. It is not
unusual for the OCC to share information with the Bank of
England and other foreign regulators through memorandums of
understanding to better supervise global banks.
A PRA spokesperson declined to comment.
'PRUDENCE DEMANDS IT'
Michael Hsu, who became acting OCC Comptroller in 2021, was
among the first banking regulators to push for the sector to
assess and manage its risk to climate change.
Hsu told U.S. lawmakers in October that the OCC has worked
with large banks to better understand and help them mitigate
climate-related financial risks, and that it plans to monitor
these frameworks in the future.
"They should not wait for disaster to strike before they
act. Prudence demands that regulators and the industry adapt as
risks emerge," he said.
The OCC appointed its first-ever Chief Climate Risk Officer
in July 2021. Former banker Nina Chen, who had also worked at
major non-profit The Nature Conservancy, has been serving in
that role since September 2022.
Federal Reserve Chair Jerome Powell has said his agency "is
not and will not be a climate policymaker." The U.S. central
bank has taken the lead on a separate, more narrowly targeted
exercise which required the six biggest U.S. banks to map out
what extreme weather and the transition to cleaner forms of
energy will do to their assets and investments.
That review included Bank of America BAC.N , Citigroup
C.N , Goldman Sachs Group GS.N , JPMorgan Chase JPM.N ,
Morgan Stanley MS.N and Wells Fargo WFC.N . This process has
now wrapped up, with the Federal Reserve expected to publish
aggregated findings shortly, a source familiar with the matter
said.
Spokespeople for the Fed and all the banks declined to
comment.
(Reporting by Isla Binnie and Chris Prentice in New York
Additional reporting by Saeed Azhar in New York and Pete
Schroeder in Washington
Editing by Greg Roumeliotis and Nick Zieminski)
((isla.binnie@thomsonreuters.com; Reuters Messaging:
isla.binnie.thomsonreuters.com@reuters.net))