Financial regulators roll back crucial safeguards for banks — and the long-term consequences could be severe

The Office of the Comptroller of the Currency — a regulatory bureau within the Department of the Treasury — announced that it was withdrawing climate-risk guidance for large financial institutions. Critics fear the move could lead to collapse in the event of an emergency.

What's happening?

On March 31, the OCC announced that it was rolling back "overly burdensome and duplicative" principles aimed at supporting climate-related risk management for financial institutions with more than $100 billion in consolidated assets.

The regulatory bureau first issued the guidance in 2023 — the same year in which there were a record number of billion-dollar climate and weather disasters.

Why is this important?

Strong guidance principles can help banks manage climate-related risks. Without them, banks may not be able to properly manage emergency situations, which could "lead [them] to reduce essential services to consumers in times of crisis, or even to bank failures or larger systemic collapses," the Natural Resources Defense Council wrote.

Critics of the latest move are also on edge because it came as the country is in the process of backing out of climate-related commitments and discussions that look to avoid the worst impacts of rising global temperatures, from supercharged extreme weather to the devastation of coastal communities to food insecurity to more favorable conditions for disease spread.

In January, President Donald Trump signaled that the United States would withdraw from the Paris Agreement, a global treaty intending to limit Earth's warming to 2.7 degrees Fahrenheit above preindustrial levels. His administration also blocked federal scientists from participating in the Intergovernmental Panel on Climate Change, as Reuters noted.

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What can be done about this?

Rodney E. Hood, acting comptroller of the currency, suggested that the OCC would continue to fine-tune its regulations — which still account for the possibility of extreme weather.

"The OCC's existing guidance for banks to maintain a sound risk management framework applies to all activities conducted by supervised institutions and includes potential exposures to severe weather events or natural disasters," Hood said in the release. "I will continue to look for appropriate opportunities to calibrate regulatory requirements to be effective, not excessive, while ensuring the safety, soundness and fairness of the federal banking system."

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