GovernanceU.S. interagency climate risk principles for large banks
The Fed, OCC, and FDIC are not playing around with climate risk. Their joint principles require banks over $100B to bake climate into board governance, risk appetite, and scenario analysis—expect 2024 exams to check your work.
Accuracy-reviewed by the editorial team
The Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation jointly issued Principles for Climate-Related Financial Risk Management for Large Financial Institutions on 24 October 2023 (88 FR 75326). The principles apply to institutions with more than $100 billion in total consolidated assets. Supervisors expect boards and senior management to integrate climate risks into governance, risk management, strategic planning, and scenario analysis frameworks during 2024 examinations.
What governance teams should note
- Board oversight mandate. Boards must understand climate risk drivers, set risk appetite, and assign responsibilities for oversight and reporting.
- Senior management accountability. Management should implement policies, procedures, and internal controls to manage climate-related financial risks consistent with board direction.
- Data and reporting expectations. Institutions need reliable data, metrics, and management information systems to monitor exposures and inform decision-making.
Further reading
- Federal Register — Principles for climate-related financial risk management for large financial institutions
- Federal Reserve press release — Federal agencies issue principles for climate-related financial risk management
Scenario Analysis Integration
Climate scenario analysis under the interagency principles requires banks to integrate physical and transition risk scenarios across credit portfolios, market risk exposures, and operational resilience planning. Supervisors expect institutions to use both baseline and stress scenarios aligned with Network for Greening the Financial System (NGFS) pathways, with clear documentation of assumptions, time horizons, and limitations.
- Credit portfolio assessment: Evaluate borrower exposure to climate transition pathways by sector, geography, and time horizon. Map concentrated exposures in carbon-intensive industries and assess counterparty transition plans.
- Market risk integration: Incorporate climate scenarios into market risk models for fixed income, equity, and commodity positions. Document model limitations and validate assumptions against historical climate-related market disruptions.
- Operational resilience: Assess physical risk exposure for critical operations, data centers, and third-party service providers. Develop geographic concentration analyzes for facilities in flood zones, wildfire corridors, and hurricane-prone regions.
Data Infrastructure Requirements
Effective climate risk management demands improved data infrastructure spanning external climate databases, internal risk systems, and counterparty information. Banks should establish data governance frameworks that ensure consistency, accuracy, and auditability of climate-related metrics.
- External data sources: Integrate physical risk data from climate modeling providers, transition risk indicators from industry databases, and regulatory climate taxonomies for classification consistency.
- Internal system integration: Link climate data to credit origination, portfolio management, and stress testing platforms. Ensure data lineage documentation supports regulatory examination requests.
- Counterparty engagement: Develop questionnaires and data collection processes for material counterparties regarding their climate transition plans, emissions profiles, and physical risk exposures.
This brief helps U.S. large banks codify climate governance by aligning board reporting, scenario governance, and data management with interagency supervisory expectations.
Scenario Analysis Integration
Climate scenario analysis under the interagency principles requires banks to integrate physical and transition risk scenarios across credit portfolios, market risk exposures, and operational resilience planning. Supervisors expect institutions to use both baseline and stress scenarios aligned with NGFS pathways.
- Credit portfolio assessment: Evaluate borrower exposure to climate transition pathways by sector, geography, and time horizon. Map concentrated exposures in carbon-intensive industries.
- Market risk integration: Incorporate climate scenarios into market risk models for fixed income, equity, and commodity positions.
- Operational resilience: Assess physical risk exposure for critical operations and third-party service providers in flood zones and wildfire corridors.
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Coverage intelligence
- Published
- Coverage pillar
- Governance
- Source credibility
- 96/100 — high confidence
- Topics
- Climate risk principles · Federal Reserve · Board oversight · Large financial institutions
- Sources cited
- 3 sources (federalregister.gov, federalreserve.gov, iso.org)
- Reading time
- 5 min
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