Federal Regulators Rescind Climate Risk Management Guidelines for Banks

On October 17, 2025, the Federal Reserve Board (Fed), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) announced the immediate withdrawal of the "Principles for Climate-Related Financial Risk Management for Large Financial Institutions." This framework, established in October 2023, required banks with over $100 billion in assets to consider climate risks in their strategic planning and risk management. The agencies argued that existing safety and soundness standards were sufficient to address all material risks, including those related to climate change.

U.S. Federal Reserve, FDIC Scrap Climate Risk Management Framework for BanksScotsman GuideFederal Reserve, FDIC Withdraw Climate Risk Rules for Large BanksCommon DreamsNew York Times

The guidelines were introduced during a period marked by increasing climate-related disasters, including severe droughts, wildfires, and flooding, which collectively caused over $92 billion in damages in 2023. Federal Reserve Chair Jerome Powell had previously emphasized the importance of banks understanding and managing climate-related risks. However, the recent decision reflects a broader shift in U.S. policy under the Trump administration, which has sought to diminish federal acknowledgment of climate change and its financial implications.

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The decision was supported by several members of the Fed Board, including Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, who described the guidelines as "distracting" and unnecessary. In contrast, Governor Michael Barr, nominated by President Joe Biden, criticized the withdrawal, stating it defies logic and sound risk management practices. Elyse Schupak, a policy advocate with Public Citizen, condemned the move as politically motivated and detrimental to financial stability.

New York Times

The rescission of the climate risk guidelines raises concerns about regulatory uncertainty for large banks. While institutions must still adhere to traditional risk management rules, the absence of specific climate-related expectations may complicate their alignment with international standards, such as those from the International Sustainability Standards Board (ISSB). Critics warn that without dedicated oversight, U.S. banks may struggle to adapt to the increasing physical and transition risks posed by climate change.

Federal Reserve, FDIC Withdraw Climate Risk Rules for Large Banks

Critics of the decision argue that it undermines the financial system's resilience in the face of escalating climate risks. Schupak stated that the withdrawal reflects a capitulation to climate denial politics, jeopardizing the legitimacy and efficacy of the Federal Reserve. Barr emphasized the need for a rational, evidence-based explanation for the rescission, which he felt was lacking.

Common Dreams

While the Fed and other regulatory agencies assert that existing standards are adequate, dissenting voices within the Fed highlight concerns about the potential economic consequences of neglecting climate risks. The lack of a dedicated framework for climate-related financial risk management raises questions about how effectively banks will address these emerging threats.

U.S. Federal Reserve, FDIC Scrap Climate Risk Management Framework for Banks

• “revoking the principles as climate-related financial risks increase defies logic and sound risk management practices.” — Michael Barr, Federal Reserve Governor

U.S. Federal Reserve, FDIC Scrap Climate Risk Management Framework for Banks

• “This guidance was not additive; it was redundant.” — Austin Anton, Bank Policy Institute Spokesman

New York Times

The withdrawal of the climate risk management guidelines marks a significant shift in U.S. financial regulation, moving away from proactive climate risk integration. As global temperatures rise and climate-related disasters become more frequent, the long-term implications of this decision for the financial system and broader economy remain uncertain.

Common Dreams