Washington, D.C. – BPI released the following statement today in anticipation of the House Financial Services Subcommittee on Consumer Protection and Financial Institutions hearing entitled “Addressing Climate as a Systemic Risk: The Need to Build Resilience within Our Banking and Financial System”:
“Banks are responding to the demands of the low-carbon transition by helping clients evolve their business models, supporting client financing needs, developing new risk management tools and providing greater transparency of climate-related risks to investors,” said BPI Senior Vice President and Associate General Counsel Lauren Anderson. “However, policymakers should keep in mind that some policies and requirements currently under discussion could stifle these efforts and in particular, restrict finance flowing to businesses’ necessary investments in the journey to a lower-carbon economy. A flexible policy environment enables banks to make the necessary investments to support that transition.
“Banks are helping businesses adapt to a changing climate and transition to a greener economy, but overly prescriptive approaches or the blunt use of tools like the capital framework hinder their ability to participate in the economic transformation that is taking place,” Anderson continued. “What banks need now is a policy landscape that allows banks to help their clients invest in new technologies and a consistent lexicon to talk about these risks and their impacts.”
In a recent blog post, BPI has argued that regulators and lawmakers should ensure that they are not thwarting the green transition they seek to support by imposing prescriptive requirements that would force banks to curtail credit to carbon-intensive companies. In particular, climate-related capital charges would increase the cost of loans needed to finance companies’ transition to greener business models. Policymakers should also avoid taking a simplistic black-and-white – or in this case, “brown” vs. “green” – approach to labeling businesses’ emissions profiles.
Last year, BPI published an infographic explaining the difference between climate stress testing and the Dodd-Frank Act stress tests, which the Federal Reserve uses to ensure U.S. banks have enough capital to weather downturns. Climate stress testing is handicapped relative to its micro-prudential counterpart because it relies on a decades-long time horizon, suffers from material data gaps and oversimplifies bank behavior over the planning horizon. BPI also published a blog post outlining the challenges of climate stress testing, which limits its usefulness as a tool to manage climate-related risk.
About Bank Policy Institute.
The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth
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