Principles for Climate-Related Financial Risk Management for Large Financial Institutions, 75267-75271 [2022-26648]
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Federal Register / Vol. 87, No. 235 / Thursday, December 8, 2022 / Notices
The Board establishes the following
penalty rate structure for overnight
overdrafts:
1. An overnight overdraft penalty rate
of the primary credit rate plus 4
percentage points (annual rate).
2. A minimum penalty fee of 100
dollars, regardless of the amount of the
overnight overdraft. The minimum fee is
administered per each occasion.
3. A charge for each calendar day
(including weekends and holidays) that
an overnight overdraft is outstanding.
92 See n. 33, which defines the term
‘‘business day’’ for this purpose.
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By order of the Board of Governors of the
Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2022–26615 Filed 12–7–22; 8:45 am]
BILLING CODE 6210–01–P
FEDERAL RESERVE SYSTEM
[Docket No. OP–1793]
Principles for Climate-Related
Financial Risk Management for Large
Financial Institutions
The Board of Governors of the
Federal Reserve System (Board).
ACTION: Notice and request for comment.
AGENCY:
The Board is requesting
comment on draft principles that would
provide a high-level framework for the
safe and sound management of
exposures to climate-related financial
risks for Board-supervised financial
institutions with over $100 billion in
assets. Although all financial
institutions, regardless of size, may have
material exposures to climate-related
financial risks, these principles are
intended for the largest financial
institutions, i.e., those with over $100
billion in total consolidated assets. The
draft principles are intended to support
efforts by large financial institutions to
focus on key aspects of climate-related
financial risk management.
DATES: Comments on the draft
principles must be received on or before
February 6, 2023.
ADDRESSES: Interested parties are
encouraged to submit written
comments. When submitting comments,
please consider submitting your
comments by email or fax because paper
mail in the Washington, DC area and at
the Board may be subject to delay. You
may submit comments, identified by
Docket No. OP–1793, by any of the
following methods:
• Agency Website: https://
www.federalreserve.gov. Follow the
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SUMMARY:
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instructions for submitting comments at
https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
• Email: regs.comments@
federalreserve.gov. Include docket
number in the subject line of the
message.
• Fax: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
In general, all public comments will
be made available on the Board’s
website at www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm as
submitted, and will not be modified to
remove confidential, contact or any
identifiable information. Public
comments may also be viewed
electronically or in paper in Room M–
4365A, 2001 C St. NW, Washington, DC
20551, between 9:00 a.m. and 5:00 p.m.
during federal business weekdays.
FOR FURTHER INFORMATION CONTACT:
Anna Lee Hewko, Associate Director,
(202) 530–6260; Morgan Lewis,
Manager, (202) 452–2000; Matthew
McQueeney, Senior Financial
Institution Policy Analyst II, (202) 452–
2942 Katie Budd, Senior Financial
Institution Policy Analyst I, (202) 452–
2365; Susan Ali, Senior Financial
Institution Policy Analyst I, (202) 452–
3023; Division of Banking Supervision
and Regulation; or Asad Kudiya,
Assistant General Counsel, (202) 475–
6358; Kelley O’Mara, Senior Counsel
(202) 973–7497; Matthew Suntag, Senior
Counsel, (202) 452–3694; or David
Imhoff, Attorney, (202) 452–2249, Legal
Division. Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired and users of TTY–
TRS, please call 711 from any
telephone, anywhere in the United
States.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Board is requesting comment on
draft principles that would provide a
high-level framework for the safe and
sound management of exposures to
climate-related financial risks for
financial institutions with over $100
billion in assets. The financial impacts
that result from the economic effects of
climate change and the transition to a
lower carbon economy pose an
emerging risk to the safety and
soundness of financial institutions 1 and
1 In this issuance, the term ‘‘financial institution’’
or ‘‘institution’’ includes state member banks, bank
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the financial stability of the United
States. Financial institutions are likely
to be affected by both the physical risks
and transition risks associated with
climate change (collectively, ‘‘climaterelated financial risks’’). Physical risks
refer to the harm to people and property
arising from acute, climate-related
events, such as hurricanes, wildfires,
floods, and heatwaves, and chronic
shifts in climate, including higher
average temperatures, changes in
precipitation patterns, sea level rise, and
ocean acidification.2 Transition risks
refer to stresses to certain institutions or
sectors arising from the shifts in policy,
consumer and business sentiment, or
technologies associated with the
changes that would be part of a
transition to a lower carbon economy.3
Weaknesses in how financial
institutions identify, measure, monitor,
and control potential climate-related
financial risks could adversely affect
financial institutions’ safety and
soundness, as well as the stability of the
overall financial system. The Board is
therefore seeking comment on draft
principles that would promote a
consistent understanding of how
climate-related financial risks can be
effectively identified, measured,
monitored, and controlled among the
largest institutions, those with over
$100 billion in total consolidated assets.
Many financial institutions are
considering these risks and would
benefit from guidance as they develop
strategies, deploy resources, and make
necessary investments to manage
climate-related financial risks.
The draft principles would provide a
high-level framework for the safe and
holding companies, savings and loan holding
companies, foreign banking organizations with
respect to their U.S. operations, and non-bank
systemically important financial institutions (SIFIs)
supervised by the Board.
2 The Financial Stability Oversight Council has
described the impacts of physical risks as follows:
‘‘The intensity and frequency of extreme weather
and climate-related disaster events are increasing
and already imposing substantial economic costs.
Such costs to the economy are expected to increase
further as the cumulative impacts of past and
ongoing global emissions continue to drive rising
global temperatures and related climate changes,
leading to increased climate-related risks to the
financial system.’’ Report on Climate-Related
Financial Risk, Financial Stability Oversight
Council, page 10 (Oct. 21, 2021) (‘‘FSOC Climate
Report’’), available at https://home.treasury.gov/
system/files/261/FSOC-Climate-Report.pdf.
3 The Financial Stability Oversight Council has
described the impacts of transition risks as: ‘‘. . .
[Changing] public policy, adoption of new
technologies, and shifting consumer and investor
preferences have the potential to impact the
allocation of capital . . . . If these changes occur
in a disorderly way owing to substantial delays in
action or abrupt changes in policy, their impact on
firms, market participants, individuals, and
communities is likely to be more sudden and
disruptive.’’ FSOC Climate Report, page 13.
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Federal Register / Vol. 87, No. 235 / Thursday, December 8, 2022 / Notices
sound management of exposures to
climate-related financial risks,
consistent with the risk management
frameworks described in the Board’s
existing rules and guidance. The draft
principles are intended to support
financial institutions’ efforts to
incorporate climate-related financial
risks into financial institutions’ risk
management frameworks in a manner
consistent with safe and sound
practices.
The Board developed the proposed
guidance in consultation with the Office
of the Comptroller of the Currency
(OCC) and Federal Deposit Insurance
Corporation (FDIC). The OCC and FDIC
requested comment on similar draft
principles in December 2021 and March
2022, respectively. The agencies seek to
promote consistency in their climate
risk management guidance and to
clearly articulate risk-based principles
on climate-related financial risks for
large financial institutions. Accordingly,
after reviewing comments received on
the proposed guidance, the Board
intends to coordinate with the OCC and
FDIC in issuing any final guidance.
II. Request for Comment
The Board welcomes comments on all
aspects of the draft principles, including
on the following questions.
Question 1: In what ways, if any,
could the draft principles be revised to
better address challenges a financial
institution may face in managing
climate-related financial risks?
Question 2: Are there areas where the
draft principles should be more or less
specific given the current data
availability and understanding of
climate-related financial risks? What
other aspects of climate-related financial
risk management, if any, should the
Board consider?
Question 3: What challenges, if any,
could financial institutions face in
incorporating these draft principles into
their risk management frameworks?
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III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(44 U.S.C. 3501–3521) (PRA) states that
no agency may conduct or sponsor, nor
is the respondent required to respond
to, an information collection unless it
displays a current valid Office of
Management and Budget (OMB) control
number.
These draft principles would not
revise any existing, or create any new,
information collections pursuant to the
PRA. Consequently, no submissions will
be made to the OMB for review.
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IV. Proposed Principles
The financial impacts that result from
the economic effects of climate change
and the transition to a lower carbon
economy pose an emerging risk to the
safety and soundness of financial
institutions 4 and the financial stability
of the United States. Financial
institutions are likely to be affected by
both the physical risks and transition
risks associated with climate change
(collectively referred to as ‘‘climaterelated financial risks’’). Physical risks
refer to the harm to people and property
arising from acute, climate-related
events, such as hurricanes, wildfires,
floods, and heatwaves, and chronic
shifts in climate, including higher
average temperatures, changes in
precipitation patterns, sea level rise, and
ocean acidification. Transition risks
refer to stresses to institutions or sectors
arising from the shifts in policy,
consumer and business sentiment, or
technologies associated with the
changes that would be part of a
transition to a lower carbon economy.
Physical and transition risks
associated with climate change could
affect households, communities,
businesses, and governments—
damaging property, impeding business
activity, affecting income, and altering
the value of assets and liabilities. These
risks may be propagated throughout the
economy and financial system. As a
result, the financial sector may
experience credit and market risks
associated with loss of income, defaults
and changes in the values of assets,
liquidity risks associated with changing
demand for liquidity, operational risks
associated with disruptions to
infrastructure or other channels, or legal
risks.5
Weaknesses in how a financial
institution identifies, measures,
monitors, and controls the physical and
transition risks associated with a
changing climate could adversely affect
a financial institution’s safety and
soundness. The adverse effects of
climate change could also include a
potentially disproportionate impact on
the financially vulnerable, including
low- to moderate-income (LMI) and
other disadvantaged households and
communities.6
4 In this issuance, the term ‘‘financial institution’’
or ‘‘institution’’ includes state member banks, bank
holding companies, savings and loan holding
companies, intermediate holding companies,
foreign banking organizations with respect to their
U.S. operations, and non-bank systemically
important financial institutions (SIFIs) supervised
by the Board.
5 FSOC Climate Report, page 13.
6 For further information, see Staff Reports,
Federal Reserve Bank of New York, Understanding
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These draft principles provide a highlevel framework for the safe and sound
management of exposures to climaterelated financial risks, consistent with
the existing risk management
frameworks described in the Board’s
existing rules and guidance.
The principles are intended to
support efforts by financial institutions
to focus on key aspects of climaterelated financial risk management. The
principles are designed to help financial
institutions’ boards of directors and
management make progress toward
incorporating climate-related financial
risks into financial institutions’ risk
management frameworks in a manner
consistent with safe and sound
practices. The principles are intended to
supplement existing risk management
standards and guidance on the role of
boards and management.7
Although all financial institutions,
regardless of size, may have material
exposures to climate-related financial
risks, these principles are intended for
the largest financial institutions, those
with over $100 billion in total
consolidated assets.8 Effective risk
management practices should be
appropriate to the size of the financial
institution and the nature, scope, and
risk of its activities. In keeping with the
Board’s risk-based approach to
supervision, the Board anticipates that
differences in financial institutions’
complexity of operations and business
models will result in different
approaches to addressing climaterelated financial risks. Some large
financial institutions are developing the
governance structures, processes, and
analytical methodologies to identify,
measure, monitor, and control for these
risks. The Board understands that
expertise in climate risk and the
incorporation of climate-related
financial risks into risk management
frameworks remains under development
in many financial institutions and will
continue to evolve over time. The Board
also recognizes that the incorporation of
the Linkages between Climate Change and
Inequality in the United States, No. 991 (Nov.
2021), available at https://www.newyorkfed.org/
research/staff_reports/sr991.html.
7 References to the board and senior management
throughout these principles should be understood
in accordance with their respective roles and
responsibilities, and is not intended to conflict with
existing guidance from the Board regarding the
roles of board and senior management or advocate
for a specific board structure. See, e.g., SR 21–3/CA
21–1: Supervisory Guidance on Board of Directors’
Effectiveness (Feb. 26, 2021) https://
www.federalreserve.gov/supervisionreg/srletters/
SR2103.htm.
8 The Board will consider the total consolidated
assets of a branch or agency itself for branches and
agencies of foreign banking organizations subject to
Board supervision.
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material climate-related financial risks
into various planning processes will be
iterative, as measurement
methodologies, models, and data for
analyzing these risks continue to
mature.
Through this and any subsequent
climate-related financial risk guidance,
the Board will continue to encourage
financial institutions to manage climaterelated financial risks in a manner that
will allow them to continue to
prudently meet the financial services
needs of their communities. The Board
encourages financial institutions to take
a risk-based approach in assessing the
climate-related financial risks associated
with individual customer relationships
and to take into consideration the
financial institution’s ability to manage
the risk.
General Principles
Governance. An effective risk
governance framework is essential to a
financial institution’s safe and sound
operation. A financial institution’s
board of directors (board) should
understand the effects of climate-related
financial risks on the financial
institution in order to oversee
management’s implementation of the
institution’s business strategy, risk
profile, and risk appetite. The board
should oversee the financial
institution’s risk-taking activities and
hold management accountable for
adhering to the risk governance
framework. A financial institution’s
board should acquire sufficient
information to understand the
implications of climate-related financial
risks across various scenarios and
planning horizons, which may include
those that extend beyond the
institution’s typical strategic planning
horizon. Sound governance by the board
should include allocating appropriate
resources to support climate-related
financial risk management and clearly
communicating to management the
information the board needs to oversee
the measurement and management of
climate-related financial risks to the
financial institution. The board should
assign accountability for climate-related
financial risks within existing
organizational structures or establish
new structures for climate-related
financial risks.
The board should oversee the
financial institution’s risk-taking
activities and hold management
accountable for adhering to the risk
governance framework. The board
should consider whether the
incorporation of climate-related
financial risks into the financial
institution’s overall business strategy
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and risk management frameworks may
warrant changes to its compensation
policies, taking into account that
compensation policies should be
aligned with the business, risk strategy,
objectives, values, and long-term
interests of the financial institution.
Management is responsible for
implementing the financial institution’s
policies in accordance with the board’s
strategic direction and for executing the
financial institution’s overall strategic
plan and risk governance framework.
This responsibility includes assuring
that there is sufficient expertise to
execute the strategic plan and
effectively managing all risks, including
climate-related financial risks. This also
includes management’s responsibility to
oversee the development and
implementation of processes to identify,
measure, monitor, and control climaterelated financial risks within the
financial institution’s existing risk
management framework. Management
should also hold staff accountable for
controlling risks within established
lines of authority and responsibility.
Management is responsible for regularly
reporting to the board on the level and
nature of risks to the financial
institution, including climate-related
financial risks. Management should
provide the board with sufficient
information for the board to understand
the impacts of climate-related financial
risks to the financial institution’s risk
profile and make sound, well-informed
decisions. Where dedicated climate risk
organizational structures are established
by the board, management should
clearly define these units’
responsibilities and interaction with
existing governance structures.
Policies, Procedures, and Limits.
Management should incorporate
climate-related financial risks into
policies, procedures, and limits to
provide detailed guidance on the
financial institution’s approach to these
risks in line with the strategy and risk
appetite set by the board. Policies,
procedures, and limits should be
modified when necessary to reflect (i)
the distinctive characteristics of climaterelated financial risks, such as the
potentially longer time horizon and
forward-looking nature of the risks, and
(ii) changes to the financial institution’s
operating environment or activities.
Strategic Planning. The board and
management should consider material
climate-related financial risk exposures
when setting the financial institution’s
overall business strategy, risk appetite,
and capital plan. As part of forwardlooking strategic planning, the board
and management should address the
potential impact of climate-related
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financial risk exposures on the financial
institution’s financial condition,
operations (including geographic
locations), and business objectives over
various time horizons. The board and
management should also consider
climate-related financial risk impacts on
the financial institution’s other
operational and legal risks, and
stakeholders, including low-to-moderate
income and other disadvantaged
households and communities. This
consideration should also include
assessing physical harm or access to the
financial institution’s products and
services.
Any climate-related strategies and
commitments should align with and
support the financial institution’s
broader strategy, risk appetite, and risk
management framework. In addition,
where financial institutions engage in
public communication of their climaterelated strategies, boards and
management should assure that any
public statements about their
institutions’ climate-related strategies
and commitments are consistent with
their internal strategies and risk appetite
statements.
Risk Management. Climate-related
financial risks can impact financial
institutions through a range of
traditional risk types. Management
should oversee the development and
implementation of processes to identify,
measure, monitor, and control climaterelated financial risk exposures within
the financial institution’s existing risk
management framework. Financial
institutions with sound risk
management practices employ a
comprehensive process to identify
emerging and material risks related to
the financial institution’s business
activities. The risk identification
process should include input from
stakeholders across the organization
with relevant expertise (e.g., business
units, independent risk management,
internal audit, and legal). Risk
identification includes assessment of
climate-related financial risks across a
range of plausible scenarios and under
various time horizons.
As part of sound risk management,
management should develop processes
to measure and monitor material
climate-related financial risks and to
communicate and report the materiality
of those risks to internal stakeholders.
Material climate-related financial risk
exposures should be clearly defined,
aligned with the financial institution’s
risk appetite, and supported by
appropriate metrics (e.g., risk limits and
key risk indicators) and escalation
processes. Management should
incorporate climate-related financial
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risks into the financial institution’s risk
management system, including internal
controls and internal audit.
Tools and approaches for measuring
and monitoring exposure to climaterelated financial risks include, among
others, exposure analysis, heat maps,
climate risk dashboards, and scenario
analysis. These tools can be leveraged to
assess a financial institution’s exposure
to both physical and transition risks in
both the shorter and longer term.
Outputs should inform the risk
identification process and the short- and
long-term financial risks to a financial
institution’s business model from
climate change.
Data, Risk Measurement, and
Reporting. Sound climate-related
financial risk management depends on
the availability of timely, accurate,
consistent, complete, and relevant data.
Management should incorporate
climate-related financial risk
information into the financial
institution’s internal reporting,
monitoring, and escalation processes to
facilitate timely and sound decisionmaking across the financial institution.
Effective risk data aggregation and
reporting capabilities allow
management to capture and report
material and emerging climate-related
financial risk exposures, segmented or
stratified by physical and transition
risks, based upon the complexity and
types of exposures. Data, risk
measurement, modeling methodologies,
and reporting continue to evolve at a
rapid pace; management should monitor
these developments and incorporate
them into the institution’s climaterelated financial risk management as
warranted.
Scenario Analysis. Climate-related
scenario analysis is emerging as an
important approach for identifying,
measuring, and managing climaterelated financial risks. For the purposes
of these draft principles, climate-related
scenario analysis refers to exercises
used to conduct a forward-looking
assessment of the potential impact on a
financial institution of changes in the
economy, changes in the financial
system, or the distribution of physical
hazards resulting from climate-related
financial risks. These exercises differ
from traditional stress testing exercises
that typically assess the potential
impacts of transitory shocks to nearterm economic and financial conditions.
An effective climate-related scenario
analysis framework provides a
comprehensive and forward-looking
perspective that financial institutions
can apply alongside existing risk
management practices to evaluate the
resiliency of a financial institution’s
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strategy and risk management to the
structural changes arising from climaterelated financial risks.
Management should develop and
implement climate-related scenario
analysis frameworks in a manner
commensurate to the financial
institution’s size, complexity, business
activity, and risk profile. These
frameworks should include clearly
defined objectives that reflect the
financial institution’s overall climaterelated financial risk management
strategies. These objectives could
include, for example, exploring the
impacts of climate-related financial
risks on the financial institution’s
strategy and business model, identifying
and measuring vulnerability to relevant
climate-related financial risk factors
including physical and transition risks,
and estimating climate-related
exposures and potential losses across a
range of scenarios, including extreme
but plausible scenarios. A climaterelated scenario analysis framework can
also assist management in identifying
data and methodological limitations and
uncertainty in climate-related financial
risk management and informing the
adequacy of the institution’s climaterelated financial risk management
framework.
Climate-related scenario analyses
should be subject to oversight,
validation, and quality control
standards that would be commensurate
to the financial institution’s risk.
Climate-related scenario analysis results
should be clearly and regularly
communicated to the board and all
relevant individuals within the financial
institution, including an appropriate
level of information necessary to
effectively convey the assumptions,
limitations, and uncertainty of results.
Management of Risk Areas
A risk assessment process is part of a
sound risk governance framework, and
it allows management to identify
emerging risks and to develop and
implement appropriate strategies to
mitigate those risks. Management
should consider and incorporate
climate-related financial risks when
identifying and mitigating all types of
risk. These risk assessment principles
describe how climate-related financial
risks can be addressed in various risk
categories.
Credit Risk. Management should
consider climate-related financial risks
as part of the underwriting and ongoing
monitoring of portfolios. Effective credit
risk management practices could
include monitoring climate-related
credit risks through sectoral, geographic,
and single-name concentration analyses,
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including credit risk concentrations
stemming from physical and transition
risks. As part of concentration risk
analysis, management should assess
potential changes in correlations across
exposures or asset classes. Consistent
with the financial institution’s risk
appetite statement, management should
determine credit risk tolerances and
lending limits related to these risks.
Liquidity Risk. Consistent with sound
oversight and liquidity risk
management, management should
assess whether climate-related financial
risks could affect its liquidity position
and, if so, incorporate those risks into
their liquidity risk management
practices and liquidity buffers.
Other Financial Risk. Management
should monitor interest rate risk and
other model inputs for greater volatility
or less predictability due to climaterelated financial risks. Where
appropriate, management should
include corresponding measures of
conservatism in their risk measurements
and controls. Management should
monitor how climate-related financial
risks affect the financial institution’s
exposure to risk related to changing
prices. While market participants are
still researching how to measure
climate-related price risk, management
should use the best measurement
methodologies reasonably available to
them and refine them over time.
Operational Risk. Management should
consider how climate-related financial
risk exposures may adversely impact a
financial institution’s operations,
control environment, and operational
resilience. Sound operational risk
management includes incorporating an
assessment across all business lines and
operations, including material thirdparty operations, and considering
climate-related impacts on business
continuity and the evolving legal and
regulatory landscape.
Legal/Compliance Risk. Management
should consider how climate-related
financial risks and risk mitigation
measures affect the legal and regulatory
landscape in which the financial
institution operates. This consideration
includes, but is not limited to, possible
changes to legal requirements for, or
underwriting considerations related to,
flood or disaster-related insurance, and
possible fair lending concerns if the
financial institution’s risk mitigation
measures disproportionately affect
communities or households on a
prohibited basis such as race or
ethnicity.
Other Nonfinancial Risk. Consistent
with sound oversight, the board and
management should monitor how the
execution of strategic decisions and the
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Federal Register / Vol. 87, No. 235 / Thursday, December 8, 2022 / Notices
operating environment affect the
financial institution’s financial
condition and operational resilience as
discussed in the strategic planning
section. Management should also
consider the extent to which the
financial institution’s activities may
increase the risk of negative financial
impact from other operational risk,
liability, or litigation. Management
should implement adequate measures to
account for these risks where material.
By order of the Board of Governors of the
Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2022–26648 Filed 12–7–22; 8:45 am]
all of Cleveland, Ohio; Benjamin
Mackovak, Bratenahl, Ohio, and Martin
Adams, Naples, Florida, each a
managing member of Strategic Value
Bank Partners, LLC and Strategic Value
Private Partners, LLC; as a group acting
in concert, to acquire additional voting
shares of Bay Community Bancorp, and
thereby indirectly acquire additional
voting shares of Community Bank of the
Bay, both of Oakland, California.
Board of Governors of the Federal Reserve
System.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.
[FR Doc. 2022–26708 Filed 12–7–22; 8:45 am]
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FEDERAL TRADE COMMISSION
Change in Bank Control Notices;
Acquisitions of Shares of a Bank or
Bank Holding Company
Agency Information Collection
Activities; Proposed Collection;
Comment Request; Extension
The notificants listed below have
applied under the Change in Bank
Control Act (Act) (12 U.S.C. 1817(j)) and
§ 225.41 of the Board’s Regulation Y (12
CFR 225.41) to acquire shares of a bank
or bank holding company. The factors
that are considered in acting on the
applications are set forth in paragraph 7
of the Act (12 U.S.C. 1817(j)(7)).
The public portions of the
applications listed below, as well as
other related filings required by the
Board, if any, are available for
immediate inspection at the Federal
Reserve Bank(s) indicated below and at
the offices of the Board of Governors.
This information may also be obtained
on an expedited basis, upon request, by
contacting the appropriate Federal
Reserve Bank and from the Board’s
Freedom of Information Office at
https://www.federalreserve.gov/foia/
request.htm. Interested persons may
express their views in writing on the
standards enumerated in paragraph 7 of
the Act.
Comments regarding each of these
applications must be received at the
Reserve Bank indicated or the offices of
the Board of Governors, Ann E.
Misback, Secretary of the Board, 20th
Street and Constitution Avenue NW,
Washington, DC 20551–0001, not later
than December 23, 2022.
A. Federal Reserve Bank of San
Francisco (Joseph Cuenco, Assistant
Vice President, Formations &
Transactions) 101 Market Street, San
Francisco, California:
1. Strategic Value Investors, LP;
Strategic Value Bank Partners, LLC;
Strategic Value Private Investors, LP;
Strategic Value Private Partners, LLC,
VerDate Sep<11>2014
17:36 Dec 07, 2022
Jkt 259001
Federal Trade Commission.
Notice.
AGENCY:
ACTION:
The Federal Trade
Commission (‘‘FTC’’ or ‘‘Commission’’)
is seeking public comment on its
proposal to extend for an additional
three years the Office of Management
and Budget clearance for information
collection requirements of its Affiliate
Marketing Rule, which applies to
certain motor vehicle dealers, and its
shared enforcement with the Consumer
Financial Protection Bureau (‘‘CFPB’’) of
the provisions (subpart C) of the CFPB’s
Regulation V regarding other entities
(‘‘CFPB Rule’’). The current clearance
expires on February 28, 2023.
DATES: Comments must be received on
or before February 6, 2023.
ADDRESSES: Interested parties may file a
comment online or on paper by
following the instructions in the
Request for Comments part of the
SUPPLEMENTARY INFORMATION section
below. Write ‘‘Paperwork Reduction Act
Comment: FTC File No. P072108’’ on
your comment, and file your comment
online at https://www.regulations.gov by
following the instructions on the webbased form. If you prefer to file your
comment on paper, mail your comment
to the following address: Federal Trade
Commission, Office of the Secretary,
600 Pennsylvania Avenue NW, Suite
CC–5610 (Annex J), Washington, DC
20580, or deliver your comment to the
following address: Federal Trade
Commission, Office of the Secretary,
Constitution Center, 400 7th Street SW,
5th Floor, Suite 5610 (Annex J),
Washington, DC 20024.
SUMMARY:
PO 00000
Frm 00056
Fmt 4703
Sfmt 4703
75271
FOR FURTHER INFORMATION CONTACT:
David Walko, Attorney, Division of
Privacy and Identity Protection, Bureau
of Consumer Protection, Federal Trade
Commission, 600 Pennsylvania Avenue
NW, Washington, DC 20580, (202) 326–
2880.
SUPPLEMENTARY INFORMATION:
Title: Affiliate Marketing Rule (16
CFR part 680).
OMB Control Number: 3084–0131.
Type of Review: Extension of
currently approved collection.
Background:
As required by section 3506(c)(2)(A)
of the PRA, 44 U.S.C. 3506(c)(2)(A), the
FTC is providing this opportunity for
public comment before requesting that
the Office of Management and Budget
extend the existing clearance for the
information collection requirements
contained in the Affiliate Marketing
Rule.
The Dodd-Frank Wall Street Reform
and Consumer Protection Act (‘‘DoddFrank Act’’) was enacted on July 21,
2010.1 The Dodd-Frank Act transferred
to the CFPB most of the FTC’s
rulemaking authority for the Affiliate
Marketing provisions of the Fair Credit
Reporting Act (‘‘FCRA’’).2 The FTC
retained rulemaking authority for its
Affiliate Marketing Rule (16 CFR part
680) solely for motor vehicle dealers
described in section 1029(a) of the
Dodd-Frank Act as predominantly
engaged in the sale and servicing of
motor vehicles, the leasing and
servicing of motor vehicles, or both.3
Additionally, the FTC shares
enforcement authority with the CFPB
for provisions of Regulation V subpart C
(12 CFR 1022.20 through 1022.27) that
apply to entities other than those
specified above.4
As mandated by section 214 of the
Fair and Accurate Credit Transactions
Act (‘‘FACT Act’’), Public Law 108–159
(Dec. 6, 2003), the Affiliate Marketing
1 Public
Law 111–203, 124 Stat. 1376 (2010).
U.S.C. 1681 et seq.
3 See Dodd-Frank Act, at section 1029 (a), (c).
4 While the FTC shares enforcement authority
with the Federal Reserve System, Commodity
Futures Trading Commission, National Credit
Union Administration, Office of the Comptroller of
the Currency, and the Federal Deposit Insurance
Corporation, for the Consumer Financial Protection
Bureau’s counterpart affiliate sharing rule,
Regulation V (subpart C), 12 CFR 1022.20 through
1220.27, the CFPB has assumed 95% of the burden
associated with its affiliate sharing rule. See
Consumer Financial Protection Bureau, Agency
Information Collection Activities: Submission for
OMB Review; Comment Request, 85 FR 52559
(2020); CFPB Supporting Statement, Fair Credit
Reporting Act (Regulation V) 12 CFR 1022, OMB
Control Number: 3170–0002 (2020). In addition, the
CFPB has estimated that the burden associated with
Regulation V’s affiliate sharing provisions is de
minimis.
2 15
E:\FR\FM\08DEN1.SGM
08DEN1
]]>Agencies
[Federal Register Volume 87, Number 235 (Thursday, December 8, 2022)]
[Notices]
[Pages 75267-75271]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-26648]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1793]
Principles for Climate-Related Financial Risk Management for
Large Financial Institutions
AGENCY: The Board of Governors of the Federal Reserve System (Board).
ACTION: Notice and request for comment.
-----------------------------------------------------------------------
SUMMARY: The Board is requesting comment on draft principles that would
provide a high-level framework for the safe and sound management of
exposures to climate-related financial risks for Board-supervised
financial institutions with over $100 billion in assets. Although all
financial institutions, regardless of size, may have material exposures
to climate-related financial risks, these principles are intended for
the largest financial institutions, i.e., those with over $100 billion
in total consolidated assets. The draft principles are intended to
support efforts by large financial institutions to focus on key aspects
of climate-related financial risk management.
DATES: Comments on the draft principles must be received on or before
February 6, 2023.
ADDRESSES: Interested parties are encouraged to submit written
comments. When submitting comments, please consider submitting your
comments by email or fax because paper mail in the Washington, DC area
and at the Board may be subject to delay. You may submit comments,
identified by Docket No. OP-1793, by any of the following methods:
Agency Website: https://www.federalreserve.gov. Follow the
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Email: [email protected]. Include docket
number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Ann E. Misback, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551.
In general, all public comments will be made available on the
Board's website at www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, and will not be modified to remove
confidential, contact or any identifiable information. Public comments
may also be viewed electronically or in paper in Room M-4365A, 2001 C
St. NW, Washington, DC 20551, between 9:00 a.m. and 5:00 p.m. during
federal business weekdays.
FOR FURTHER INFORMATION CONTACT: Anna Lee Hewko, Associate Director,
(202) 530-6260; Morgan Lewis, Manager, (202) 452-2000; Matthew
McQueeney, Senior Financial Institution Policy Analyst II, (202) 452-
2942 Katie Budd, Senior Financial Institution Policy Analyst I, (202)
452-2365; Susan Ali, Senior Financial Institution Policy Analyst I,
(202) 452-3023; Division of Banking Supervision and Regulation; or Asad
Kudiya, Assistant General Counsel, (202) 475-6358; Kelley O'Mara,
Senior Counsel (202) 973-7497; Matthew Suntag, Senior Counsel, (202)
452-3694; or David Imhoff, Attorney, (202) 452-2249, Legal Division.
Board of Governors of the Federal Reserve System, 20th and C Streets
NW, Washington, DC 20551. For the hearing impaired and users of TTY-
TRS, please call 711 from any telephone, anywhere in the United States.
SUPPLEMENTARY INFORMATION:
I. Introduction
The Board is requesting comment on draft principles that would
provide a high-level framework for the safe and sound management of
exposures to climate-related financial risks for financial institutions
with over $100 billion in assets. The financial impacts that result
from the economic effects of climate change and the transition to a
lower carbon economy pose an emerging risk to the safety and soundness
of financial institutions \1\ and the financial stability of the United
States. Financial institutions are likely to be affected by both the
physical risks and transition risks associated with climate change
(collectively, ``climate-related financial risks''). Physical risks
refer to the harm to people and property arising from acute, climate-
related events, such as hurricanes, wildfires, floods, and heatwaves,
and chronic shifts in climate, including higher average temperatures,
changes in precipitation patterns, sea level rise, and ocean
acidification.\2\ Transition risks refer to stresses to certain
institutions or sectors arising from the shifts in policy, consumer and
business sentiment, or technologies associated with the changes that
would be part of a transition to a lower carbon economy.\3\
---------------------------------------------------------------------------
\1\ In this issuance, the term ``financial institution'' or
``institution'' includes state member banks, bank holding companies,
savings and loan holding companies, foreign banking organizations
with respect to their U.S. operations, and non-bank systemically
important financial institutions (SIFIs) supervised by the Board.
\2\ The Financial Stability Oversight Council has described the
impacts of physical risks as follows: ``The intensity and frequency
of extreme weather and climate-related disaster events are
increasing and already imposing substantial economic costs. Such
costs to the economy are expected to increase further as the
cumulative impacts of past and ongoing global emissions continue to
drive rising global temperatures and related climate changes,
leading to increased climate-related risks to the financial
system.'' Report on Climate-Related Financial Risk, Financial
Stability Oversight Council, page 10 (Oct. 21, 2021) (``FSOC Climate
Report''), available at https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf.
\3\ The Financial Stability Oversight Council has described the
impacts of transition risks as: ``. . . [Changing] public policy,
adoption of new technologies, and shifting consumer and investor
preferences have the potential to impact the allocation of capital .
. . . If these changes occur in a disorderly way owing to
substantial delays in action or abrupt changes in policy, their
impact on firms, market participants, individuals, and communities
is likely to be more sudden and disruptive.'' FSOC Climate Report,
page 13.
---------------------------------------------------------------------------
Weaknesses in how financial institutions identify, measure,
monitor, and control potential climate-related financial risks could
adversely affect financial institutions' safety and soundness, as well
as the stability of the overall financial system. The Board is
therefore seeking comment on draft principles that would promote a
consistent understanding of how climate-related financial risks can be
effectively identified, measured, monitored, and controlled among the
largest institutions, those with over $100 billion in total
consolidated assets. Many financial institutions are considering these
risks and would benefit from guidance as they develop strategies,
deploy resources, and make necessary investments to manage climate-
related financial risks.
The draft principles would provide a high-level framework for the
safe and
[[Page 75268]]
sound management of exposures to climate-related financial risks,
consistent with the risk management frameworks described in the Board's
existing rules and guidance. The draft principles are intended to
support financial institutions' efforts to incorporate climate-related
financial risks into financial institutions' risk management frameworks
in a manner consistent with safe and sound practices.
The Board developed the proposed guidance in consultation with the
Office of the Comptroller of the Currency (OCC) and Federal Deposit
Insurance Corporation (FDIC). The OCC and FDIC requested comment on
similar draft principles in December 2021 and March 2022, respectively.
The agencies seek to promote consistency in their climate risk
management guidance and to clearly articulate risk-based principles on
climate-related financial risks for large financial institutions.
Accordingly, after reviewing comments received on the proposed
guidance, the Board intends to coordinate with the OCC and FDIC in
issuing any final guidance.
II. Request for Comment
The Board welcomes comments on all aspects of the draft principles,
including on the following questions.
Question 1: In what ways, if any, could the draft principles be
revised to better address challenges a financial institution may face
in managing climate-related financial risks?
Question 2: Are there areas where the draft principles should be
more or less specific given the current data availability and
understanding of climate-related financial risks? What other aspects of
climate-related financial risk management, if any, should the Board
consider?
Question 3: What challenges, if any, could financial institutions
face in incorporating these draft principles into their risk management
frameworks?
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521) (PRA)
states that no agency may conduct or sponsor, nor is the respondent
required to respond to, an information collection unless it displays a
current valid Office of Management and Budget (OMB) control number.
These draft principles would not revise any existing, or create any
new, information collections pursuant to the PRA. Consequently, no
submissions will be made to the OMB for review.
IV. Proposed Principles
The financial impacts that result from the economic effects of
climate change and the transition to a lower carbon economy pose an
emerging risk to the safety and soundness of financial institutions \4\
and the financial stability of the United States. Financial
institutions are likely to be affected by both the physical risks and
transition risks associated with climate change (collectively referred
to as ``climate-related financial risks''). Physical risks refer to the
harm to people and property arising from acute, climate-related events,
such as hurricanes, wildfires, floods, and heatwaves, and chronic
shifts in climate, including higher average temperatures, changes in
precipitation patterns, sea level rise, and ocean acidification.
Transition risks refer to stresses to institutions or sectors arising
from the shifts in policy, consumer and business sentiment, or
technologies associated with the changes that would be part of a
transition to a lower carbon economy.
---------------------------------------------------------------------------
\4\ In this issuance, the term ``financial institution'' or
``institution'' includes state member banks, bank holding companies,
savings and loan holding companies, intermediate holding companies,
foreign banking organizations with respect to their U.S. operations,
and non-bank systemically important financial institutions (SIFIs)
supervised by the Board.
---------------------------------------------------------------------------
Physical and transition risks associated with climate change could
affect households, communities, businesses, and governments--damaging
property, impeding business activity, affecting income, and altering
the value of assets and liabilities. These risks may be propagated
throughout the economy and financial system. As a result, the financial
sector may experience credit and market risks associated with loss of
income, defaults and changes in the values of assets, liquidity risks
associated with changing demand for liquidity, operational risks
associated with disruptions to infrastructure or other channels, or
legal risks.\5\
---------------------------------------------------------------------------
\5\ FSOC Climate Report, page 13.
---------------------------------------------------------------------------
Weaknesses in how a financial institution identifies, measures,
monitors, and controls the physical and transition risks associated
with a changing climate could adversely affect a financial
institution's safety and soundness. The adverse effects of climate
change could also include a potentially disproportionate impact on the
financially vulnerable, including low- to moderate-income (LMI) and
other disadvantaged households and communities.\6\
---------------------------------------------------------------------------
\6\ For further information, see Staff Reports, Federal Reserve
Bank of New York, Understanding the Linkages between Climate Change
and Inequality in the United States, No. 991 (Nov. 2021), available
at https://www.newyorkfed.org/research/staff_reports/sr991.html.
---------------------------------------------------------------------------
These draft principles provide a high-level framework for the safe
and sound management of exposures to climate-related financial risks,
consistent with the existing risk management frameworks described in
the Board's existing rules and guidance.
The principles are intended to support efforts by financial
institutions to focus on key aspects of climate-related financial risk
management. The principles are designed to help financial institutions'
boards of directors and management make progress toward incorporating
climate-related financial risks into financial institutions' risk
management frameworks in a manner consistent with safe and sound
practices. The principles are intended to supplement existing risk
management standards and guidance on the role of boards and
management.\7\
---------------------------------------------------------------------------
\7\ References to the board and senior management throughout
these principles should be understood in accordance with their
respective roles and responsibilities, and is not intended to
conflict with existing guidance from the Board regarding the roles
of board and senior management or advocate for a specific board
structure. See, e.g., SR 21-3/CA 21-1: Supervisory Guidance on Board
of Directors' Effectiveness (Feb. 26, 2021) https://www.federalreserve.gov/supervisionreg/srletters/SR2103.htm.
---------------------------------------------------------------------------
Although all financial institutions, regardless of size, may have
material exposures to climate-related financial risks, these principles
are intended for the largest financial institutions, those with over
$100 billion in total consolidated assets.\8\ Effective risk management
practices should be appropriate to the size of the financial
institution and the nature, scope, and risk of its activities. In
keeping with the Board's risk-based approach to supervision, the Board
anticipates that differences in financial institutions' complexity of
operations and business models will result in different approaches to
addressing climate-related financial risks. Some large financial
institutions are developing the governance structures, processes, and
analytical methodologies to identify, measure, monitor, and control for
these risks. The Board understands that expertise in climate risk and
the incorporation of climate-related financial risks into risk
management frameworks remains under development in many financial
institutions and will continue to evolve over time. The Board also
recognizes that the incorporation of
[[Page 75269]]
material climate-related financial risks into various planning
processes will be iterative, as measurement methodologies, models, and
data for analyzing these risks continue to mature.
---------------------------------------------------------------------------
\8\ The Board will consider the total consolidated assets of a
branch or agency itself for branches and agencies of foreign banking
organizations subject to Board supervision.
---------------------------------------------------------------------------
Through this and any subsequent climate-related financial risk
guidance, the Board will continue to encourage financial institutions
to manage climate-related financial risks in a manner that will allow
them to continue to prudently meet the financial services needs of
their communities. The Board encourages financial institutions to take
a risk-based approach in assessing the climate-related financial risks
associated with individual customer relationships and to take into
consideration the financial institution's ability to manage the risk.
General Principles
Governance. An effective risk governance framework is essential to
a financial institution's safe and sound operation. A financial
institution's board of directors (board) should understand the effects
of climate-related financial risks on the financial institution in
order to oversee management's implementation of the institution's
business strategy, risk profile, and risk appetite. The board should
oversee the financial institution's risk-taking activities and hold
management accountable for adhering to the risk governance framework. A
financial institution's board should acquire sufficient information to
understand the implications of climate-related financial risks across
various scenarios and planning horizons, which may include those that
extend beyond the institution's typical strategic planning horizon.
Sound governance by the board should include allocating appropriate
resources to support climate-related financial risk management and
clearly communicating to management the information the board needs to
oversee the measurement and management of climate-related financial
risks to the financial institution. The board should assign
accountability for climate-related financial risks within existing
organizational structures or establish new structures for climate-
related financial risks.
The board should oversee the financial institution's risk-taking
activities and hold management accountable for adhering to the risk
governance framework. The board should consider whether the
incorporation of climate-related financial risks into the financial
institution's overall business strategy and risk management frameworks
may warrant changes to its compensation policies, taking into account
that compensation policies should be aligned with the business, risk
strategy, objectives, values, and long-term interests of the financial
institution.
Management is responsible for implementing the financial
institution's policies in accordance with the board's strategic
direction and for executing the financial institution's overall
strategic plan and risk governance framework. This responsibility
includes assuring that there is sufficient expertise to execute the
strategic plan and effectively managing all risks, including climate-
related financial risks. This also includes management's responsibility
to oversee the development and implementation of processes to identify,
measure, monitor, and control climate-related financial risks within
the financial institution's existing risk management framework.
Management should also hold staff accountable for controlling risks
within established lines of authority and responsibility. Management is
responsible for regularly reporting to the board on the level and
nature of risks to the financial institution, including climate-related
financial risks. Management should provide the board with sufficient
information for the board to understand the impacts of climate-related
financial risks to the financial institution's risk profile and make
sound, well-informed decisions. Where dedicated climate risk
organizational structures are established by the board, management
should clearly define these units' responsibilities and interaction
with existing governance structures.
Policies, Procedures, and Limits. Management should incorporate
climate-related financial risks into policies, procedures, and limits
to provide detailed guidance on the financial institution's approach to
these risks in line with the strategy and risk appetite set by the
board. Policies, procedures, and limits should be modified when
necessary to reflect (i) the distinctive characteristics of climate-
related financial risks, such as the potentially longer time horizon
and forward-looking nature of the risks, and (ii) changes to the
financial institution's operating environment or activities.
Strategic Planning. The board and management should consider
material climate-related financial risk exposures when setting the
financial institution's overall business strategy, risk appetite, and
capital plan. As part of forward-looking strategic planning, the board
and management should address the potential impact of climate-related
financial risk exposures on the financial institution's financial
condition, operations (including geographic locations), and business
objectives over various time horizons. The board and management should
also consider climate-related financial risk impacts on the financial
institution's other operational and legal risks, and stakeholders,
including low-to-moderate income and other disadvantaged households and
communities. This consideration should also include assessing physical
harm or access to the financial institution's products and services.
Any climate-related strategies and commitments should align with
and support the financial institution's broader strategy, risk
appetite, and risk management framework. In addition, where financial
institutions engage in public communication of their climate-related
strategies, boards and management should assure that any public
statements about their institutions' climate-related strategies and
commitments are consistent with their internal strategies and risk
appetite statements.
Risk Management. Climate-related financial risks can impact
financial institutions through a range of traditional risk types.
Management should oversee the development and implementation of
processes to identify, measure, monitor, and control climate-related
financial risk exposures within the financial institution's existing
risk management framework. Financial institutions with sound risk
management practices employ a comprehensive process to identify
emerging and material risks related to the financial institution's
business activities. The risk identification process should include
input from stakeholders across the organization with relevant expertise
(e.g., business units, independent risk management, internal audit, and
legal). Risk identification includes assessment of climate-related
financial risks across a range of plausible scenarios and under various
time horizons.
As part of sound risk management, management should develop
processes to measure and monitor material climate-related financial
risks and to communicate and report the materiality of those risks to
internal stakeholders. Material climate-related financial risk
exposures should be clearly defined, aligned with the financial
institution's risk appetite, and supported by appropriate metrics
(e.g., risk limits and key risk indicators) and escalation processes.
Management should incorporate climate-related financial
[[Page 75270]]
risks into the financial institution's risk management system,
including internal controls and internal audit.
Tools and approaches for measuring and monitoring exposure to
climate-related financial risks include, among others, exposure
analysis, heat maps, climate risk dashboards, and scenario analysis.
These tools can be leveraged to assess a financial institution's
exposure to both physical and transition risks in both the shorter and
longer term. Outputs should inform the risk identification process and
the short- and long-term financial risks to a financial institution's
business model from climate change.
Data, Risk Measurement, and Reporting. Sound climate-related
financial risk management depends on the availability of timely,
accurate, consistent, complete, and relevant data. Management should
incorporate climate-related financial risk information into the
financial institution's internal reporting, monitoring, and escalation
processes to facilitate timely and sound decision-making across the
financial institution. Effective risk data aggregation and reporting
capabilities allow management to capture and report material and
emerging climate-related financial risk exposures, segmented or
stratified by physical and transition risks, based upon the complexity
and types of exposures. Data, risk measurement, modeling methodologies,
and reporting continue to evolve at a rapid pace; management should
monitor these developments and incorporate them into the institution's
climate-related financial risk management as warranted.
Scenario Analysis. Climate-related scenario analysis is emerging as
an important approach for identifying, measuring, and managing climate-
related financial risks. For the purposes of these draft principles,
climate-related scenario analysis refers to exercises used to conduct a
forward-looking assessment of the potential impact on a financial
institution of changes in the economy, changes in the financial system,
or the distribution of physical hazards resulting from climate-related
financial risks. These exercises differ from traditional stress testing
exercises that typically assess the potential impacts of transitory
shocks to near-term economic and financial conditions. An effective
climate-related scenario analysis framework provides a comprehensive
and forward-looking perspective that financial institutions can apply
alongside existing risk management practices to evaluate the resiliency
of a financial institution's strategy and risk management to the
structural changes arising from climate-related financial risks.
Management should develop and implement climate-related scenario
analysis frameworks in a manner commensurate to the financial
institution's size, complexity, business activity, and risk profile.
These frameworks should include clearly defined objectives that reflect
the financial institution's overall climate-related financial risk
management strategies. These objectives could include, for example,
exploring the impacts of climate-related financial risks on the
financial institution's strategy and business model, identifying and
measuring vulnerability to relevant climate-related financial risk
factors including physical and transition risks, and estimating
climate-related exposures and potential losses across a range of
scenarios, including extreme but plausible scenarios. A climate-related
scenario analysis framework can also assist management in identifying
data and methodological limitations and uncertainty in climate-related
financial risk management and informing the adequacy of the
institution's climate-related financial risk management framework.
Climate-related scenario analyses should be subject to oversight,
validation, and quality control standards that would be commensurate to
the financial institution's risk. Climate-related scenario analysis
results should be clearly and regularly communicated to the board and
all relevant individuals within the financial institution, including an
appropriate level of information necessary to effectively convey the
assumptions, limitations, and uncertainty of results.
Management of Risk Areas
A risk assessment process is part of a sound risk governance
framework, and it allows management to identify emerging risks and to
develop and implement appropriate strategies to mitigate those risks.
Management should consider and incorporate climate-related financial
risks when identifying and mitigating all types of risk. These risk
assessment principles describe how climate-related financial risks can
be addressed in various risk categories.
Credit Risk. Management should consider climate-related financial
risks as part of the underwriting and ongoing monitoring of portfolios.
Effective credit risk management practices could include monitoring
climate-related credit risks through sectoral, geographic, and single-
name concentration analyses, including credit risk concentrations
stemming from physical and transition risks. As part of concentration
risk analysis, management should assess potential changes in
correlations across exposures or asset classes. Consistent with the
financial institution's risk appetite statement, management should
determine credit risk tolerances and lending limits related to these
risks.
Liquidity Risk. Consistent with sound oversight and liquidity risk
management, management should assess whether climate-related financial
risks could affect its liquidity position and, if so, incorporate those
risks into their liquidity risk management practices and liquidity
buffers.
Other Financial Risk. Management should monitor interest rate risk
and other model inputs for greater volatility or less predictability
due to climate-related financial risks. Where appropriate, management
should include corresponding measures of conservatism in their risk
measurements and controls. Management should monitor how climate-
related financial risks affect the financial institution's exposure to
risk related to changing prices. While market participants are still
researching how to measure climate-related price risk, management
should use the best measurement methodologies reasonably available to
them and refine them over time.
Operational Risk. Management should consider how climate-related
financial risk exposures may adversely impact a financial institution's
operations, control environment, and operational resilience. Sound
operational risk management includes incorporating an assessment across
all business lines and operations, including material third-party
operations, and considering climate-related impacts on business
continuity and the evolving legal and regulatory landscape.
Legal/Compliance Risk. Management should consider how climate-
related financial risks and risk mitigation measures affect the legal
and regulatory landscape in which the financial institution operates.
This consideration includes, but is not limited to, possible changes to
legal requirements for, or underwriting considerations related to,
flood or disaster-related insurance, and possible fair lending concerns
if the financial institution's risk mitigation measures
disproportionately affect communities or households on a prohibited
basis such as race or ethnicity.
Other Nonfinancial Risk. Consistent with sound oversight, the board
and management should monitor how the execution of strategic decisions
and the
[[Page 75271]]
operating environment affect the financial institution's financial
condition and operational resilience as discussed in the strategic
planning section. Management should also consider the extent to which
the financial institution's activities may increase the risk of
negative financial impact from other operational risk, liability, or
litigation. Management should implement adequate measures to account
for these risks where material.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2022-26648 Filed 12-7-22; 8:45 am]
BILLING CODE 6210-01-P
