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FDIC abstained from climate change report over lack of 'nuanced analysis'

The Federal Deposit Insurance Corp. did not sign off on an interagency report about the risks of climate change to the financial sector because the report lacked sufficiently "nuanced analysis," said Jelena McWilliams, chairperson of the FDIC.

The Financial Stability Oversight Council, or FSOC, issued the report Oct. 21, finding that climate change represented "an emerging and increasing threat to U.S. financial stability." The report called on agencies to assess climate-related financial risks, enhance climate disclosures and improve related data to better track the risks.

The FSOC comprises the leaders of financial regulators, including McWilliams, Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell, as well as the heads of the SEC, the Office of the Comptroller of the Currency and more. McWilliams was the only FSOC member to not support the report in the FSOC meeting, abstaining from the vote.

"What I wanted to see in the FSOC report was a little bit more nuanced analysis as to what exactly kind of a risk [that climate change] presents," McWilliams said Oct. 25 in an interview on the sidelines of the Money20/20 conference in Las Vegas. McWilliams said the FSOC report lacked sufficient analysis, evidence and recognition of how banks and regulators have handled the issue thus far.

In the FDIC's experience, the regulator has found that banks have been managing climate risk for a long time, McWilliams said. Community banks, in particular, know exactly where they are lending and the state of the collateral backing the loan, with appropriate protections for that collateral, she said.

The FDIC has also conducted an analysis looking at the five most catastrophic weather events in the last two to three decades, "and we didn't find a single thing that failed as [a] result of that," McWilliams said.

Still, the agency will continue its work to assess and address climate-related risks. "I'm more than happy to work with the FSOC members and individual agencies as we move forward with the recommendations," McWilliams said.