Federal regulators have removed a set of guidelines that required large banking institutions to assess the financial risks associated with the climate crisis when formulating business strategies, managing risk, and planning for the future. The decision was announced on Thursday by the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC), and the Federal Reserve Board.
The agencies immediately withdrew their “Principles for Climate-Related Financial Risk Management for Large Financial Institutions.” This framework had mandated that financial institutions with $100 billion or more in assets factor climate risks into their operations. The guidelines were first introduced in 2023, which was recorded as the hottest year on record. That year, the United States experienced a record number of weather and climate-related disasters, including severe droughts, historic wildfires in Hawaii, and widespread flooding, resulting in at least $92 billion in damages.
In October 2023, Federal Reserve Chair Jerome Powell emphasized the importance of banks understanding and managing material risks, including those linked to climate change. The OCC also highlighted that financial institutions face both physical and transition risks from climate change, such as damage from extreme weather events and policy shifts tied to the transition to a lower carbon economy.
However, these concerns appear not to align with the current administration’s stance. President Donald Trump has previously referred to climate change as a “con” and has sought to eliminate federal acknowledgment of the scientific consensus that human activity is driving it. He has also pursued policies to expand fossil fuel use.
In a joint statement, the agencies stated that they no longer consider specific principles for managing climate-related financial risks necessary, asserting that existing safety and soundness standards already require all supervised institutions to implement effective risk management. They added that all institutions should address material financial risks and remain resilient against emerging threats.
Elyse Schupak, a policy advocate with Public Citizen’s climate program, criticized the withdrawal, calling it an “irresponsible and politically motivated move.” She argued that the increasing frequency and severity of climate disasters, along with the growing property insurance crisis, necessitate greater efforts to understand and mitigate climate-related financial risks, rather than retreating from them.
Schupak emphasized that effective bank regulation must address all risks, including climate risks, before they lead to destabilizing effects. She warned that the Federal Reserve’s shift toward climate denial could undermine its legitimacy and effectiveness, especially given that Powell himself has acknowledged the agency’s minimal efforts on climate issues.
The decision comes amid escalating global climate concerns. Current global temperatures are between 1.3°C and 1.4°C above preindustrial levels and are expected to surpass the 1.5°C threshold within five years. At that point, many of the most severe impacts of climate change—such as more frequent heatwaves, rising sea levels, stronger storms, and prolonged droughts—will become unavoidable.
These changes carry significant financial implications. A December 2024 report by the Congressional Budget Office estimated that continued warming could reduce U.S. GDP by 4% compared to a stable temperature scenario. Sea level rise, projected to range from 1 to 4 feet by the end of the century, could result in losses of $250 billion to $930 billion for property owners, mortgage lenders, insurers, and the government. Additional costs would stem from increased mortality due to heat, reduced access to food and water, higher illness rates, and forced migration.
Powell testified earlier this year that banks and insurance companies are increasingly withdrawing from high-risk areas, such as coastal regions vulnerable to flooding and wildfire-prone zones. For example, State Farm recently canceled thousands of policies in Los Angeles’ Pacific Palisades neighborhood shortly before a major wildfire struck. Powell warned that, if climate conditions continue to deteriorate, financial institutions may find it too risky to serve large parts of the country.
He said, “If you fast forward 10 or 15 years, there will be regions of the country where you can’t get a mortgage, there won’t be ATMs, banks won’t have branches, and things like that.”
Schupak concluded that the Federal Reserve’s alignment with climate denial under the Trump administration threatens its credibility and effectiveness. She noted that Powell has admitted the Fed has done only the “bare minimum” on climate issues and warned that further inaction will place banks and the broader financial system at risk.
English 
Arabic 