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Climate-Risk: Are Financial Regulators Politically Independent?

House Committee on Financial Services

Subcommittee on Financial Institutions & Monetary Policy

Climate-Risk: Are Financial Regulators Politically Independent?

Tuesday, July 18, 2023

Topline

  • Democrats asked panelists if they believe climate change is a valid concern in the financial realm and who has authority to create policies regarding climate change.
  • Republicans voiced concerns that the Federal Reserve has too much power and argued financial regulators should not create policies that are politically driven, including environment.

Witnesses

  • Michael Gibson, Director, Division of Supervision and Regulation, Board of Governors of the Federal Reserve System
  • Greg Coleman, Senior Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency
  • Doreen Eberley, Director, Division of Risk Management and Supervision, Federal Deposit Insurance Corporation
  • The Honorable Sarah Benatar, Treasurer, Coconino County, Arizona
  • Rendell L. Jones, Deputy Executive Director, National Credit Union Administration

Opening Statements

Subcommittee Chairman Andy Barr (R-Ky.)

In his opening statement, Barr discussed how the Federal Reserve’s mandatory supervisory climate scenario analysis and formal collaboration with the Treasury’s Office of Financial Research on Climate Data and Analysis. He noted FSOC Chair Yellen repeatedly identified climate change as an existential crisis and called climate change “an emerging and increasing threat to financial stability.” He closed by saying there is little transparency about regulators’ efforts in administration-led climate working groups or international global governance organizations.

 

Subcommittee Ranking Member Bill Foster (D-Ill.)

In his opening statement, Foster noted that it’s important that participants in the US financial system remain well appraised of new and emerging risks, including climate change. He noted that systemic financial risks do not come from politically driven overreaction to emerging risk, but rather from regulatory capture. Foster said it is scientifically unsustainable to continue putting greenhouse gases into our atmosphere without suffering severe economic consequences. He closed by applauding the SEC’s recent regulations to address investor-level risks.

 

Representative Bill Huizenga (R-Mich.)

In his opening statement, Huizenga said that recent government mandates are misguided, even though they are well-intentioned. He concluded that federal regulators continued push for the disclosure of climate-related information will cause families across the country continue to be crushed by soaring costs stemming from President Biden’s failed economic agenda.

Testimony

Dr. Michael Gibson, Director, Division of Supervision and Regulation, Board of Governors of the Federal Reserve System

In his testimony, Gibson said the Federal Reserve’s has narrow, but important, responsibilities with respect to climate change. He noted that climate change could pose challenges for the financial system and said it’s important that the Fed better understands these risks. Gibson noted that the Fed’s primary focus is to evaluate whether banks operate in a safe and sound manner and manage all material risks, including climate-related financial risks.

 

Mr. Greg Coleman, Senior Deputy Comptroller for Large Bank Supervision, Office of the Comptroller of the Currency

In his testimony, Coleman noted that his mission is to ensure that national banks and federal savings associations operate in a safe and sound manner, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations. He stressed that the OCC does not tell bankers what customers or legal businesses they may bank with. Coleman said the OCC is committed to staying focused on banks’ risk management of climate-related financial risks. He closed by stressing that community banks are not the focus of the OCC’s climate-related financial risk effort.

 

Ms. Doreen Eberley, Director, Division of Risk Management and Supervision, Federal Deposit Insurance Corporation

In her testimony, Eberley said the FDIC is not responsible for climate policy, adding that the FDIC will not be involved in determining which firms or sectors with which financial institutions should do business with. She closed by noting that her approach is centered around having financial institutions fully consider climate-related financial risks and pledged to continue to take a risk-based approach in assessing individual credit and investment decisions.

 

The Honorable Sarah Benatar, Treasurer, Coconino County, Arizona

In her testimony, Benatar said she spends days and nights worrying about potential risks that would cost taxpayers money and could jeopardize our ability to pay for the hard-working first responders, road crews, and other public servants in our communities. She said it’s important to always put the safety of public dollars first, followed by addressing liquidity needs, while working towards a positive rate of return. She closed by noting that new bills have raised costs to taxpayers in every jurisdiction.

 

Mr. Rendell L. Jones, Deputy Executive Director, National Credit Union Administration          

In his testimony, Jones discussed how he issued a request for information seeking input from stakeholders and subject matter experts to strengthen the agency’s ability to identify and understand credit unions’ current and future climate-related financial risks. He noted that the agency seeks to improve its understanding of climate-related financial risks, and how credit unions can best support the industry in mitigating them. He closed by noting that the agency also aims to better understand the products and services credit unions can offer to leverage opportunities presented by any related key economic sectors.

 

Question & Answer

Financial Greening and ESG Legislation

Barr asked what the OCC knows about funding at the network of central banks and supervisors for the greening of the financial system. Coleman said he isn’t aware of the funding structure for that type of organization.

Rep. Maxine Waters (D-Cali.) asked Benatar about the impacts would anti-ESG legislation would have on her work as a county treasurer. Benatar said she has heard from other states that anti-ESG legislation has increased their costs and it has also reduced the number of companies they can do business with.

Rep. Bill Posey (R-Fla.) asked all panelists if they could identify an example where a hurricane or a wildfire has resulted in a financial institution’s failure. Jones said that there were two credit unions that failed as a result of the impact of Hurricane Katrina.

Posey then asked panelists if they could give an example of a credible material and imminent financial risk of climate change that warrants government imposing a climate-risk management discipline on financial institutions. Coleman said a financial risk relies upon the collateral value of some type of property that was impacted by a climate-related financial risk. Eberley said institutions have relied on insurance for weather events and are now experiencing increasing costs of insurance.

Rep. Barry Loudermilk (R-Ga.) asked if any Fed Board members voted on the ESG policies and proposals. Gibson said no members voted.

Rep. Sean Casten (D-Ill.) asked the panelists if they believe that financial institutions face a threat with an increase in climate change. All panelists agreed.

Rep. William Timmons (R-S.C.) asked if the Fed is going to follow the climate-related policies made by the European Central Bank. Gibson said that the Fed is not going to follow the European Central Bank.

 

Politicization and Responsibility

Barr asked if the Fed has concerns about politics creeping into its climate work given that the current senior advisor to the president for clean energy innovation was an influential member of the Board of Climate Works for years. Gibson said that the only time that the Fed is involved in climate-related issues is while working with and learning from global counterparts.

Rep. Bill Foster (D-Ill.) asked if the US is considered a leader or somewhere in the mainstream on responding to climate change. Gibson said that we are a leader on working with other nations on climate change.

Rep. Blaine Luetkemeyer (R-Mo.) asked if the Fed is committed to not promoting green energy, as Chairman Powell claims. Gibson said that the Fed makes policies based on its own domestic mandates.

Rep. Brad Sherman (D-Cali.) asked if the US should be concerned with rising temperatures. Gibson said yes and warned that the US needs to continue to learn more about climate change to be fully prepared.

Rep. Roger Williams (R-Tex.) asked if the Fed should be a climate regulator. Gibson said that he agrees with Chairman Powell that the Fed is not a climate regulator or policymaker.

Rep. Ayanna Pressley (D-Mass.) asked Coleman if the OCC has the authority and obligation to address climate risks. Coleman agreed that they do.

 

For more information on this meeting, please click here.

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