Bank leaders need to take climate change risk seriously -U.S. regulator

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FILE PHOTO: California's Dixie Fire burns at night in Taylorsville
FILE PHOTO: The Dixie Fire burns at night in Taylorsville, California, U.S., July 27, 2021. REUTERS/David Swanson/File Photo

November 8, 2021

By Pete Schroeder

WASHINGTON (Reuters) – A U.S. regulator is calling on the leaders of large banks to more seriously assess and manage their risk to climate change, including exposure to a possible carbon tax.

Michael Hsu, the acting Comptroller of the Currency, said in a speech Monday that bank boards should press their executives for detailed answers on climate change. He suggested management should be able to detail their plans for bank supervisors by next year.

Hsu added that within his office, supervisors are developing a framework for how banks should properly manage climate risk, and he expects to issue guidance by the end of this year. Some of the largest banks overseen by his office include JPMorgan Chase, Wells Fargo and Bank of America.

“Climate change poses significant risks to the financial system. Detailed reports have been published. Eloquent words have been spoken. It is time to convert those words into action,” he said in his prepared remarks.

Hsu suggested banks should be able to determine and track their overall risk to climate change, including which counterparties or areas merit closer watch in their portfolios. Another area Hsu said banks should monitor is their exposure to a potential carbon tax. Banks should prepare for “transition risks” that come from a policy shift to a low-carbon economy, in addition to physical risks.

On a more tangible level, Hsu also said banks should be aware of how their physical infrastructure, such as data centers, could be impacted by worsening weather events spurred by climate change.

“Banks increasingly are dependent on third-party vendors for a range of things, including critical services. To the extent that critical service providers are vulnerable to climate change, banks’ abilities to continue critical operations may be affected,” he said.

(Reporting by Pete Schroeder; Editing by Lisa Shumaker)

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