Acting Chairman of the Federal Deposit Insurance Corp. Martin Gruenberg told bankers that their institutions shouldn't be "wholly dependent" on government financial assistance in the event of severe weather.
In a speech on climate risk at the American Bankers Association's annual convention in Austin, Texas, Gruenberg emphasized the importance of banks considering the risk posed by increasingly severe weather events. Gruenberg in his comments, particularly germane given the damage that Hurricane Ian has dealt to Gulf Coast businesses and communities, said that as government assistance for severe weather events gets potentially more expensive, banks should "explore new ways in managing these risks."
"While current insurance policies may cover some or all of the loss associated with many severe weather events, policies may over time become more expensive or unavailable to cover losses for a particular geographic area or business activity, particularly if faced with increasing severity and frequency of severe weather events," he said. "Additionally, while the U.S. government may provide assistance with the costs associated with many severe weather events, financial institutions should not be wholly dependent on this assistance, whether directly or indirectly."
The FDIC is not, however, going to tell banks what industries they should or shouldn't consider for investment, Gruenberg said. Regulators singling out industries for special consideration has been a big concern of congressional Republicans, who raised points along this topic repeatedly during the
"We will not be involved in determining which firms or sectors financial institutions should do business with," Gruenberg said. "These types of credit allocation decisions are responsibilities of financial institutions. We want financial institutions to fully consider climate related financial risks — as they do all other risks — and continue to take a risk-based approach in assessing individual credit and investment decisions."
Gruenberg also addressed one of the industry's biggest fears related to climate risk and how regulators will consider incorporating it into their examinations: scenario analysis. He said that climate risk scenario analysis would be intended for large institutions, particularly those that serve multiple communities, rather than smaller ones.
He added that he views scenario analysis as an "exploratory risk management tool," rather than a stress test that could have regulatory capital implications.
The Federal Reserve last week announced a
Further moderating for community banks, Gruenberg said that supervisory expectations would vary for banks based on size.
"Heightened exposures and increased uncertainty must not result in unreasonable expectations on the part of regulators," he said. "We understand that smaller and mid-size banks have limited resources relative to larger banks. Similar to other risk areas, supervisory expectations are tailored based on size, complexity and business operations — we do not expect a community bank to manage credit risk the same way as the largest institution and we would not expect the same for climate-related financial risk."
