Status: Draft -- Not PublishedWill be live at 02/07/2023 10:30
IIF responds to U.S. FRB Draft Principles for Climate Financial Risk Manage
On February 6, the IIF submitted a comment letter on the U.S. Federal Reserve Board's (FRB) Draft Principles for Climate-Related Financial Risk Management for Large Financial Institutions.
In the letter, which builds on the IIF response letters to the Basel Committee on Banking Supervision (BCBS) consultation on ‘Principles for the effective management and supervision of climate-related financial risks’ and Office of the Comptroller of the Currency (OCC) consultation on ‘Principles for Climate-Related Financial Risk Management for Large Banks,’ the IIF welcomes the FRB’s initiative to articulate a high-level framework for the safe and sound management of exposures to climate-related financial risks, and its principles-based approach to this important topic.
It is encouraging that many authorities across the world are seeking to move swiftly on these extremely important and pressing topics; however, particularly given significant uncertainties and knowledge gaps, uncoordinated policy development could create a potentially less effective, policy landscape. IIF members therefore appreciate the steps the FRB has taken to contribute to greater coordination of supervisory approaches, including the alignment between the proposed principles and the BCBS Principles. The IIF also commends the FRB for developing the proposed guidance in consultation with the OCC and the Federal Deposit Insurance Corporation (FDIC).
The IIF makes a number of specific suggestions, including but not limited to:
- Encouraging the FRB, FDIC and OCC to produce one common set of principles for large financial institutions which is joint across the three agencies.
- Welcoming the clear differentiation between climate-related scenario analysis exercises and traditional stress testing exercises. Requesting that climate scenario analysis exercises should continue to be differentiated from other prudential activities and should not have regulatory capital implications.
- Explaining why it is not appropriate at this stage to incorporate climate-related risks into any capital or liquidity adequacy assessments.
- Requesting more clarity regarding the application of the draft principles to the U.S. operations of foreign banking organizations (FBOs), and making suggestions in this regard.
- Requesting that supervisors take an explicitly proportionate, phased, and incremental approach to the introduction of supervisory expectations with respect to climate-related risks.