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US Finalises Climate Risk Framework for Large Banks

US banking regulators have jointly completed a high-level framework for the management of exposures to climate-related financial risks for large financial institutions. The Federal Reserve Board, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC), have introduced the framework that comprises a set of principles intended to support climate-related financial risk management in six areas. These areas include governance, risk management, and data, risk measurement and reporting. The principles also describe how climate-related financial risks can be addressed in the management of traditional risk areas, including credit, market, liquidity, operational, and legal risks. The principles are substantively similar to the draft principles proposed in December 2022, with some clarifications. They are intended for the largest financial institutions, such as those with US$100 billion or more in total assets, to help them address the physical and transition risks associated with climate change. This includes foreign banking organisations with combined US operations of greater than US$100 billion, and any branch or agency of a foreign banking organisation that individually has total assets of greater than US$100 billion. Jerome Powell, Chair of the Federal Reserve Board, said: “Banks need to understand, and appropriately manage, their material risks, including the financial risks of climate change. The guidance issued today is squarely focused on prudent and appropriate risk management.” 

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