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FSOC Principals Meeting

Financial Stability Oversight Council (FSOC)

Principals Meeting

Thursday, July 28, 2022

Topline

  • FSOC members discussed the need to address climate-related financial risk and highlighted member agencies’ efforts to do so.

Update from the Climate-Related Financial Risk Committee

Janet L. Yellen, Secretary, U.S. Department of Treasury

Yellen opened her remarks by saying the Council and regulatory agencies have made significant progress on the recommendations from the FSOC Report on Climate-Related Financial Risk which was issued on November 2, 2021. Yellen said climate disasters are impacting the financial services industry by way of raising premiums for homeowners’ insurance and making some properties unsellable. She called upon FSOC’s member to continue expanding capacity, improving the availability of data, and bettering the disclosure process for the public. She expressed her gladness with the process the Council has made and thanked the staff for their efforts.

Sandra Lee, Deputy Assistant Secretary, U.S. Department of Treasury

Lee began by acknowledging the Council’s work to advance the recommendations in last year’s report, especially expanding capacity across FSOC and its members, enhancing information through company disclosures, and making progress on climate-related financial risk assessments.

Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System

Powell expressed the Federal Reserve’s commitment to ensuring that financial institutions mitigate and manage this risk efficiently. He concluded by saying he looks forward to continuing the work of the CFRC and the Council to identify the risks that climate change imposes on the U.S. financial industry.

Gary Gensler, Chairman, Securities and Exchange Commission

Gensler noted that for the last 90 years, capital markets have relied upon investors being able to decide the risk they take and that the Securities and Exchange Commission (SEC) ensures this through a disclosure-based regime, not a merit-based one. He highlighted the SEC’s climate risk proposal and said the Commission received 14,500 comments, all of which are available on the proposal’s website. He concluded by declaring the SEC’s commitment to ensure that statements made by public companies to investors are not misleading and expressed how greatly the Commission’s proposals benefit from public comment.

Michael Hsu, Acting Comptroller, Office of the Comptroller of the Currency

Hsu said the Office of the Comptroller of the Currency (OCC) continues to carefully review and make observations on the public feedback from the draft principles designed to support the identification and management of climate-related financial risks, which were issued on December 16, 2021. He noted that a recurring theme in the feedback was a call for cooperation with other domestic and international regulators. He added that the OCC received detailed comments on the specific questions posed in the principles, specifically on scenario analysis and data availability. 

Martin J. Gruenberg, Acting Chairman, Board of Directors of the U.S. Federal Deposit Insurance Corporation

Gruenberg said that addressing climate-related financial risk is a key priority of the Federal Deposit Insurance Corporation (FDIC). He added that the FDIC is devoting an abundance of attention and resources to this issue, and that an internal working group has been developed as well. He stated that the FDIC is seeking to understand the transmission channels between this risk and our financial institutions and U.S. financial system. He referenced the recently issued notice of proposed rulemaking by the FDIC and the OCC that amended the regulations implementing the Community Reinvestment Act of 1977 and concluded by saying that he looks forward to working with the OCC to finalize their draft principles. 

Rostin Behnam, Acting Chairman, Commodity Futures Trading Commission

Behnam recognized that the Commodity Futures Trading Commission (CFTC) is one of the regulators at the forefront of this risk management, and reported great progress being made in understanding their role to help derivatives markets address this risk. He highlighted the Climate Risk Unit, which has focused on engaging with both internal and external stakeholders to support the mitigation of this risk. He also referred to the Voluntary Carbon Markets Convening, which included a discussion among representatives from the White House, Department of Treasury, Department of State, Department of Transportation, and Department of Agriculture about carbon offset standards. He concluded by speaking to the Request for Information (RFI) on climate-related financial risk, seeking responses on questions related to data, scenario analysis, disclosure, as well as several other issues. 

Sandra L. Thompson, Director, Federal Housing Finance Agency

Thompson said the Federal Housing Finance Agency (FHFA) is working to ensure that its regulated entities account for climate risk and is committed to making tangible progress to address the consequences of climate change. She added that she established a steering committee and internal working groups to address the wide range of climate-related work. She reaffirmed the FHFA’s focus on the impact of addressing the threat of this risk and safeguarding the housing industry, saying the U.S. must adapt to these consequences.

Steven E. Seitz, Director, Federal Insurance Office, U.S. Department of Treasury

Seitz opened his remarks by explaining that the Federal Insurance Office (FIO) must combat climate change and its consequences because the availability of insurance is critical. He added that the FIO will publish a report by the end of this year that addresses these risks and their effects on financial stability. He stated that to continue conducting quantitative analyses on the potential transition risk for insurer asset portfolios, the FIO needs relevant, viable, and granular data. He concluded by noting that the FIO recently joined the Network of Central Banks and Supervisors for Greening the Financial System and that the FIO continues to engage with both their domestic and international colleagues in their efforts to mitigate this risk. 

James Martin, Acting Director, Office of Financial Research, U.S. Department of the Treasury

Martin acknowledged that addressing climate-related financial risk is a challenge because it is difficult both to model and to forecast. He said that the Office of Financial Research (OFR) needs a unique lens where climate-related data and financial data can be analyzed, saying OFR is uniquely positioned to provide this information to FSOC. He noted that OFR recently partnered with the Federal Reserve System to pilot the Climate Data and Analytics Hub, which will provide tools needed to merge climate-related data with financial data. He concluded by adding that this project exemplifies how the OFR can provide member agencies with necessary data and information and provide access to a high-powered analytical environment.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.