Lawmakers demand urgent action on climate risk in banking
September 12, 2024 | Financial Services: House Committee, Standing Committees - House & Senate, Congressional Hearings Compilation
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In a recent government meeting, discussions centered on the intersection of regulatory authority, climate change, and the banking sector's preparedness for environmental risks. A key point of contention arose regarding whether regulatory agencies should address climate change as a safety and soundness issue. While some officials argued against this notion, citing that it falls outside their remit, others, including members of the Financial Stability Oversight Council (FSOC), expressed differing views.
Concerns were raised about the implications of the Dodd-Frank Act and its relevance to the ongoing implementation of Basel III regulations. Critics argued that US regulators may be overstepping their legal authority by relying on a 13-year-old statute to justify significant changes in banking structures, which could adversely affect small community banks and lead to a shift in banking activities to less regulated areas of the financial system.
The discussion also highlighted the lack of transparency in how international agreements, particularly those from the Basel task force, align with US domestic law. It was suggested that Congress needs better tools to demand accountability and justification from US banking agencies regarding their alignment with national interests.
Representative Ayanna Pressley emphasized the urgent financial implications of climate change, citing a study predicting that a child born today could incur costs of $500,000 over their lifetime due to climate-related impacts. She pointed to alarming findings from the Federal Reserve's climate risk scenario analysis, which revealed that major banks are inadequately prepared for climate-related risks, raising concerns about the stability of the financial system.
Pressley urged for a proactive approach from regulators and Congress to enhance the resilience of the financial sector against climate change. The meeting concluded with a consensus on the need for expanded climate risk scenario analyses for all large banks, reinforcing the call for a more robust regulatory framework to address these pressing challenges.
Concerns were raised about the implications of the Dodd-Frank Act and its relevance to the ongoing implementation of Basel III regulations. Critics argued that US regulators may be overstepping their legal authority by relying on a 13-year-old statute to justify significant changes in banking structures, which could adversely affect small community banks and lead to a shift in banking activities to less regulated areas of the financial system.
The discussion also highlighted the lack of transparency in how international agreements, particularly those from the Basel task force, align with US domestic law. It was suggested that Congress needs better tools to demand accountability and justification from US banking agencies regarding their alignment with national interests.
Representative Ayanna Pressley emphasized the urgent financial implications of climate change, citing a study predicting that a child born today could incur costs of $500,000 over their lifetime due to climate-related impacts. She pointed to alarming findings from the Federal Reserve's climate risk scenario analysis, which revealed that major banks are inadequately prepared for climate-related risks, raising concerns about the stability of the financial system.
Pressley urged for a proactive approach from regulators and Congress to enhance the resilience of the financial sector against climate change. The meeting concluded with a consensus on the need for expanded climate risk scenario analyses for all large banks, reinforcing the call for a more robust regulatory framework to address these pressing challenges.
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