With decades of experience managing concentration risks, maintaining strong underwriting and insurance practices, and responding to natural disasters, community banks are seasoned experts at monitoring the risk of their lending and investment portfolios, and knowing when and how to reduce their loan concentrations. As stewards of their local communities, community banks have prepared for, responded to, and survived myriad natural disasters since the early 19th century, and are best positioned to evaluate the risk of their geographically limited loan portfolios.
For this reason, ICBA is strongly concerned by the increasing focus of the Biden administration, lawmakers, and state and federal bank regulators on the topic of climate change. Banks are being pressured to address loosely defined or studied climate-related financial risks.
Much of this pressure stems from an FSOC report which concluded climate change is an “emerging threat to the financial stability of the United States” and recommended the regulators issue additional regulation and guidance on climate risks including using scenario analysis, where appropriate, as a tool for assessing climate-related financial risks.
In response, the OCC, FDIC and Fed proposed a set of principles to support the identification and management of climate-related financial risks for large national banks with $100B or more in assets. The New York Dept. of Financial Services finalized a similar framework that does not contain any exemptions for community banks. Additionally, the SEC has proposed mandatory climate change disclosures for publicly held banks.