Federal Reserve Board invites public comment on proposed principles providing a high-level framework for the safe and sound management of exposures to climate-related financial risks for large banking organizations

  • Source: federalreserve.gov

Treliant Takeaway:

Treliant’s Credit Solutions practice comprises former senior financial services risk executives and regulators who combine their extensive experience, qualifications, and know-how to assist financial institutions navigating today’s volatile market environment. We provide financial institutions consulting support on credit risk management and governance, portfolio management, climate stress testing, loan workouts,  and advice on portfolio risk-mitigation strategies. We also provide loan review services for financial institutions.

Highlights:

On December 2, 2022 the Federal Reserve Board invited public comment on proposed principles providing a high-level framework for the safe and sound management of exposures to climate-related financial risks for large banking organizations with more than $100 billion in assets. The proposed principles are in alignment with the proposals issued by the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation and the Board intends to work with those agencies to promote consistency in the supervision of large banks through final interagency guidance.

The proposed principles would cover six areas for large banking organizations:

  1. governance;
  2. policies, procedures, and limits;
  3. strategic planning;
  4. risk management;
  5. data, risk measurement and reporting; and
  6. scenario analysis.

The proposed principles would also require for large banking organizations to incorporate financial risks related to climate into their strategic planning. The proposed guidance includes a section on “management of risk areas,” which describes how climate-related financial risks can be addressed in certain risk categories such as credit, liquidity, other financial risks, operational, legal/compliance, and other non-financial risk. Lastly, large banking organizations would need to incorporate coverage of climate-related financial risks in their audit plans and include climate-related scenario analysis to traditional stress testing.

Additional Source:

Federal Register notice: Principles for Climate-Related Financial Risk Management for Large Financial Institutions (federalreserve.gov)

Author

Frank Morisano

Frank Morisano, Senior Managing Director, is an internationally recognized executive with over 30 years of proven accomplishments: globally growing businesses, steering profitable growth in new markets, guiding product and service development, leading the acquisition, divestment and restructuring of companies, developing companies’ risk and financial crime abilities, and implementing environmental, social,…