Regulators rescind Biden-era climate principles

• Key insight: Bank regulators are rescinding principles that toughened large banks’ oversight of financial climate risk. 
• Forward look: Expect the Trump administration to continue to pull back guidance and actions that address the issue. 
• Expert quote: “Good riddance” — Fed Gov. Chris Waller.

WASHINGTON — Bank regulators are withdrawing a set of principles designed to mitigate climate-related financial risks at large banks. 

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said that guidance finalized by bank regulators in 2023 is unnecessary because of existing safety and soundness requirements. 

“All supervised institutions are expected to consider and appropriately  address all material financial risks and should be resilient to a range of  risks, including emerging risks,” the agencies said in a statement. 

The move comes as the Trump administration moves away generally from considering climate change events and their impact on bank business models. 

At the time bank regulators published the guidance in 2023, Fed Chair Jerome Powell said the central bank has “narrow but important” responsibilities for mitigating such risks, but he emphasized that the Fed should not assert itself as a climate policymaker.

“Decisions about policies to address climate change must be made by the elected branches of government. Over time, we must be vigilant to avoid crossing or blurring that line,” Powell said in a statement. “It is not the Fed’s role to tell banks which businesses they can and cannot lend to, and this guidance is not intended to do so.”

Fed Gov Chris Waller, at the time the guidance was originally passed, said that while climate change is a real phenomenon, it poses no specific threat to the soundness of the banking system.

He was more pointed in his statement in rescinding the principles: “Good riddance.” 

Gov. Michael Barr dissented, while Gov. Lisa Cook abstained from the vote. 

“I would expect that large banks would seek to be proactive in monitoring, assessing, and appropriately addressing such risks,” she said. “I also  believe it is advantageous for the banking industry to have stable, well-understood supervisory expectations. Notwithstanding the Board’s decision to rescind these principles, I expect large banks will continue to find value in monitoring their weather-related risks.” 

The speed at which bank regulators have undone climate financial risk monitoring and other actions is striking for a group of people that just two years ago said that climate change is a real phenomenon that could, at the very least, impact financial markets. 

Earlier in the day, Gov. Stephen Miran, who is on leave from President Donald Trump’s top economic advisory council to fill a temporary spot on the Fed board, referenced climate finance risk as an issue that, before Miran himself sat on the board as a member of the White House administration, made the Fed board politicized. 

“When the central bank gets involved in issues like climate change, when the central bank gets involved in highly charged political issues like racial politics, and people start arguing that those sort of policy issues are interfering with our ability to achieve our employment mandate, that is politicization of the central bank,” Miran said at a speech before the Institute for International Finance conference. “That convinces parts of the … voting public that the central bank is in one corner or the other, and that’s incompatible with independence.”