On Thursday, October 16, regulators announced they were repealing controversial rules that forced banks to account for losses in the event of climate-related calamities.
According to a joint statement from the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, the requirements are no longer deemed required since they are redundant with other measures banks make to prepare for unforeseen circumstances and emergencies.
“The agencies do not believe principles for managing climate-related financial risk are necessary because the agencies’ existing safety and soundness standards require all supervised institutions to have effective risk management commensurate with their size, complexity, and activities,” a joint release from the three regulators said.
The previous Vice Chair for Supervision, Fed Governor Michael Barr, expressed disapproval of the action in a statement.
“Rescinding the principles is shortsighted and will make the financial system riskier even as climate-related financial risks grow,” Barr said.
Government Actions & Missions
The Fed has been under fire from Trump administration officials for violating its missions for monetary policy and bank regulation, or for succumbing to mission creep. One area of criticism was the October 2023 provisions pertaining to climate change.
Climate is not a direct Fed problem, as Chair Jerome Powell has stressed on numerous occasions. The regulations mandated that banks disclose the losses they might incur due to climate-related risks as part of routine testing.
In an effort to “refocus the supervisory process on material financial risk,” Governor Michelle Bowman, a Trump appointment who took Barr’s place as the Fed banking supervisor, commended the decision to revoke the guidelines.
“Rescission of the climate principles is an important step in this process,” Bowman said. She criticized the climate rules, saying “the effect of this guidance was to create confusion about supervisory expectations and increase compliance cost and burden without a commensurate improvement to the safety and soundness of financial institutions or to the financial stability of the United States.”
While acknowledging the risks that climate change poses, Bowman said the Fed’s mission does “not extend to climate policymaking.”
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