W GUEST ARTICLE By Rebeca Romero Rainey, President and CEO, ICBA While several federal regulatory agencies are working to finalize proposals on climate-related financial risk management that purportedly target the nation’s largest financial institutions, the proposals would inevitably subject community banks and the communities they serve to new and expensive regulatory burdens. Rather than rush to impose new standards on community banks, the agencies must ensure their climate risk regulatory efforts mitigate the downstream costs their proposals will impose on community banks and the communities they serve. New climate risk regulations would require some community bank customers to collect and disclose greenhouse gas emissions data as a condition of banking. The proposals also would require community banks to pay myriad expenses to comply with climate risk management frameworks – including hiring subject matter experts and compliance specialists to implement these complicated frameworks. Ultimately, these proposals would cut off local communities from the community banks that best understand and best serve local environments. Community banks have decades of experience managing concentration risks and responding to extreme weather events and natural disasters in their communities — meaning new, onerous, and expensive climate risk management frameworks are counterproductive. Federal Deposit Insurance Corp. Acting Chairman Martin Gruenberg recently noted community bank risk management strategies — which are based on firsthand perspectives and experiences — include consulting weather, agricultural, and other non‑financial data; managing exposures within flood plains; and assessing the impact of extreme weather events. But Gruenberg’s call for regulators not to have “unreasonable expectations” for small and midsize banks contrasts with the series of proposals the FDIC and other regulators are working to finalize in the months ahead. For instance, the Securities and Exchange Commission’s proposal to institute climate-related investor disclosures contains no exemption for community banks, threatening to impose unprecedented costs and potential liabilities that would drive local institutions out of the public capital markets. While separate climate risk management frameworks proposed by the FDIC and Office of the Comptroller of the Currency would target banks over $100 billion in assets, regulators have signaled the policies will ultimately trickle down to community banks. Gruenberg himself said in releasing the FDIC framework that all financial institutions are subject to climate-related financial risks, and Acting Comptroller of the Currency REGULATORS SHOULDRETHINK CLIMATEPROPOSALS TOELIMINATE COMMUNITYBANK IMPACT 22 The Community Banker mibonline.org
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