OCC Drafts Local weather Danger Administration Ideas For Massive Banks – Finance and Banking

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OCC Drafts Local weather Danger Administration Ideas For Massive Banks

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The OCC issued draft Ideas for Local weather-Associated Monetary Danger
Administration for Massive Banks. The draft ideas present banks
with “a high-level framework for the secure and sound administration
of exposures to climate-related monetary dangers, per
the present threat administration framework described in current OCC
guidelines and steering.”

The draft ideas are supposed to help efforts by banks to
deal with key facets of local weather threat administration and “assist financial institution
administration make progress towards answering key questions on
exposures and incorporating climate-related monetary dangers into
banks’ threat administration frameworks.” The OCC asserted that
banks are prone to be affected by each the bodily dangers
related to local weather change and the ensuing transition dangers.
The OCC outlined bodily dangers as dangers to folks and property
from local weather occasions, similar to hurricanes, wildfires, floods,
heatwaves and the rise in sea stage. Transition dangers, in the meantime,
have been recognized as dangers offered to the monetary sector arising
from modifications in “coverage, client and enterprise sentiment, or
applied sciences related to the modifications essential to restrict local weather

To deal with these considerations, the OCC set forth six basic
principals relating to the administration of climate-related monetary
dangers for banks to deal with, particularly focusing on these banks
with over $100 billion in consolidated property:

  • Governance:Basically, banks ought to “exhibit
    an applicable understanding of climate-related monetary threat
    exposures and their affect on threat urge for food to facilitate

  • Insurance policies:Financial institution administration “ought to incorporate
    climate-related dangers into insurance policies, procedures, and limits to
    present detailed steering on the financial institution’s strategy to those dangers
    in keeping with the technique and threat urge for food set by the

  • Strategic Planning:Banks ought to “contemplate
    materials climate-related monetary threat exposures when setting the
    financial institution’s general enterprise technique, threat urge for food, and monetary,
    capital, and operational plans.” Public communications about
    banks’ climate-change methods ought to be “constant
    with their inner methods and threat urge for food

  • Danger Administration:Banks ought to develop and implement
    “processes to determine, measure, monitor, and management
    climate-related monetary threat exposures inside the financial institution’s
    current threat administration framework.” Local weather-related monetary
    dangers ought to be assessed “throughout a variety of believable
    eventualities and beneath numerous time horizons.” Numerous instruments and
    approaches can be utilized, together with “publicity evaluation, warmth
    maps, local weather threat dashboards, and state of affairs evaluation.”

  • Knowledge, Danger Measurement:Local weather-related monetary threat
    info ought to be integrated into banks’ “inner
    reporting, monitoring, and escalation processes.” Administration
    ought to monitor developments in “knowledge, threat measurement,
    modeling methodologies, and reporting” and “incorporate
    them into their local weather threat administration.”

  • Situation Evaluation:  Banks ought to “develop
    and implement climate-related state of affairs evaluation frameworks in a
    method commensurate to the financial institution’s dimension, complexity, enterprise
    exercise, and threat profile.” Such frameworks ought to comprise
    “clearly outlined targets that replicate the financial institution’s
    general local weather threat administration methods.” For instance, such
    targets may embody “exploring the impacts of
    climate-related dangers on the financial institution’s technique and enterprise
    mannequin, figuring out and measuring vulnerability to related
    climate-related threat elements together with bodily and transition
    dangers, and estimating climate-related exposures and potential
    losses throughout a variety of believable eventualities.”

The OCC additionally outlined its views on incorporating climate-related
monetary dangers into banks’ threat evaluation processes,
using customary threat evaluation ideas of credit score threat,
liquidity threat, different monetary threat, operational threat,
authorized/compliance threat and different nonfinancial threat.

The OCC invited suggestions from the general public on the draft ideas
till February 14, 2022.


The OCC is clearly targeted not solely on direct
 from local weather change (similar to coastal flooding, and
modifications in insurance coverage prices), but in addition on transition
 that come up from efforts to mitigate and adapt to
local weather change, similar to modifications in client or investor sentiment,
new rules or worldwide accords, and the like. The OCC
leaves open the problem of the timeline for large banks to deal with
these dangers.

Banks searching for to adjust to the OCC’s ideas ought to
focus notably on documenting the method by which they monitor
occasions within the exterior world, talk internally and
up-the-chain as to these occasions, and set up processes for
assessing the potential affect of these occasions. The underwriting
and monitoring of actual property portfolios is one vital
space. Along with direct dangers on actual property which may
end result from meteorological occasions similar to flooding, banks ought to
additionally contemplate transition dangers to their actual property portfolios
ensuing from new municipal rules similar to New York Metropolis’s Native Regulation 97, which
imposes power effectivity necessities on constructing house owners.

Major Sources

  1. OCC Ideas for Local weather-Associated Monetary Danger
    Administration for Massive Banks

  2. OCC Bulletin: Danger Administration – Ideas for
    Local weather-Associated Monetary Danger Administration for Massive Banks; Request
    for Suggestions

  3. Home Monetary Companies Committee Press Launch:
    Waters Applauds FSOC and OCC Actions to Handle Local weather-Associated
    Monetary Danger

The content material of this text is meant to supply a basic
information to the subject material. Specialist recommendation ought to be sought
about your particular circumstances.

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