We Applaud the Basel Committee for Its Commitment to Protect the Financial System from All Risks, Including from Climate

WASHINGTON, D.C.— Dennis Kelleher, President and CEO, issued the following statement in connection with the Basel Committee on Banking Supervision (Committee) affirming the need to understand all risks to the financial system, including from climate events.

“U.S. and global regulators are mandated to protect their citizens, financial system, and economy from financial risks regardless of source or origin, not to pick and choose which risks to address based on politics or ideology. Doing that—politicizing otherwise neutral risk analysis or ignoring risks for any reason—doesn’t eliminate the risks; it only temporarily hides them until the risks materialize, causing bank failures, crises, crashes, and bailouts. That’s what happened from 2000-2008 when Wall Street’s biggest financial institutions and their lobbyists convinced policymakers to deny and ignore the risks of derivatives, which were a key cause of the 2008 crash.

“Our economy, financial system, banks, and citizens face a wide variety of evolving risks, including those from severe weather and other climate-related events. Like any other risks, regulators must insist that banks identify, understand, analyze, and address risk arising from climate events. Understanding banks’ exposure to those risks is important and necessary for the safety, soundness, and stability of banks, the banking system, the broader financial system, and the entire economy. Thankfully, the Committee reaffirmed ‘further analysis on the financial risk implications of extreme weather events’ despite reports that the U.S. banking regulators are working to undermine the fundamental risk analysis of this vital international work.

“Better Markets has long supported the Committee’s focus on risk identification and analysis regardless of where the risk comes from, including the development of international standards that provide foundational principles for supervision and management of climate-related financial risks (see here and here). We applaud the Committee’s continued efforts in this direction, including the pursuit of plausible climate scenario analyses that are supported by internationally agreed-upon scientific projections.

“Unfortunately, unlike their international counterparts, the U.S. financial regulators have repeatedly injected politics into what should be unbiased, neutral risk analysis regarding climate risk, which is needlessly putting our banking system and economy at risk. For example, the Office of the Comptroller of the Currency (OCC) withdrew from the interagency guidance that holds the largest banks accountable for managing climate-related financial risk. Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) leadership also criticized the guidance. It is grossly irresponsible that these actions and statements come after the largest, most dangerous U.S. banks demonstrated their grossly deficient preparation and ability to manage climate risks.

“U.S. regulators should stop politicizing risk regulation and focus on all risks to the banking and financial systems, and require banks and financial institutions to address them regardless of the origin of the risks. While Wall Street’s mega banks reportedly have more recently started to recognize the potentially catastrophic risk of climate events – and say they are making changes to protect their profits – isolated individual words and actions are insufficient to prevent catastrophic crashes. That’s what regulators are for, and the Fed, FDIC, and OCC must require comprehensive actions to address climate risks, and they should support their international counterparts in their efforts to do so as well.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org.