The Office of the Comptroller of the Currency (OCC), the regulator of the largest US banks, said today that it is working to “better understand climate-related financial risks related to safety and soundness, particularly in relation to risks in general banks. Since the OCC regulates banks like Chase, Bank of America
The full list of OCC key areas of increased focus for FY2023 supervisory strategies includes:
- Strategic and operational planning
- Operational resilience
- Third Parties and Related Concentrations
- credit risk management
- Allowance for Loan Losses
- interest rate risk
- Liquidity Risk Management
- consumer compliance
- Bank Secrecy Act
- Fair lending
- Community Reinvestment Act
- New products and services
- Climate-related financial risks
In a sign that risks related to climate change are gaining importance for the OCC, this important national banking regulator a few weeks ago Dr. Yue (Nina)Chen appointed Chief Climate Risk Officer. dr Chen, who has a Ph.D. in Chemical Engineering from Massachusetts Institute of Technology and a Certificate in Conservation and Environmental Sustainability from Columbia University, has expertise in climate change, banking and insurance companies. She is very well placed to make a significant contribution to the OCC in this capacity.
Since mid-July 2021, the OCC has been making announcements about its engagement in the areas of climate change and banking. It also now has a website dedicated to climate change issues.
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While US banks are not required to conduct stress tests that require the inclusion of risks related to climate change, US banking regulators are making progress. As I’ve written in numerous columns, banking regulators could already use the Basel III rules to require banks to measure how climate change is affecting their credit and market risk positions.
Last week, the Federal Reserve announced that it will conduct a pilot program for the largest banks to conduct climate change scenario analysis. According to the Federal Reserve’s press release earlier this week, “Scenario analysis can help companies and regulators understand how climate-related financial risks may manifest and differ from historical experiences by considering a range of possible future climate pathways and associated economic and financial developments.” The banks in the pilot exercise are Bank of America, Citigroup