According to CNBC, three federal banking regulators announced Thursday the withdrawal of principles requiring large banks to manage climate-related financial risks. The Federal Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency jointly rescinded the October 2023 guidelines. The agencies stated that existing safety and soundness standards already require institutions to maintain effective risk management. The principles applied to financial institutions with more than $100 billion in total consolidated assets.

The joint statement explained that supervised institutions must consider all material financial risks and remain resilient to emerging threats. The regulators expressed concern that separate climate-focused principles could distract from other potential risks. The OCC had already withdrawn from the interagency principles in March 2025. The Federal Register notice takes effect immediately.

Why This Decision Matters

This policy reversal affects how the nation's largest banks address potential climate-related losses. Bloomberg reports that the decision follows pressure from President Donald Trump and Republican lawmakers who argue climate risk has excessively influenced financial regulation. Banks will no longer need to detail their climate risk management strategies to regulators.

Fed Governor Michael Barr, the former vice chair for supervision, issued a dissenting statement. He argued that rescinding the principles is shortsighted and will increase financial system risk as climate-related threats grow. The move eliminates specific guidance on governance structures, strategic planning, and scenario analysis related to climate exposure. Banks must still address material risks under general supervisory standards, but without climate-specific frameworks.

Governor Michelle Bowman, a Trump appointee who succeeded Barr as Fed banking supervisor, praised the rescission. She argued the climate guidance created confusion about supervisory expectations and increased compliance costs without improving financial institution safety. Bowman stated the Fed's mission does not extend to climate policymaking, though she acknowledged climate change poses risks.

Broader Industry Implications

The regulatory shift reflects a fundamental debate about central bank mandates and climate risk management. The original 2023 principles addressed both physical risks from extreme weather events and transition risks from moving toward a lower-carbon economy. Financial institutions were expected to incorporate these factors into credit, market, liquidity, operational, and legal risk assessments.

According to the ABA Banking Journal, the agencies emphasized that their existing standards require banks to have effective risk management matching their size and complexity. This approach treats climate risk as one of many emerging threats rather than requiring dedicated oversight frameworks.

Critics argue that without specific guidance, banks may inadequately assess climate-related vulnerabilities in their loan portfolios and operations. The Trump administration has pursued a broader rollback of climate-focused regulations across federal agencies. This includes efforts to eliminate carbon emissions reporting requirements and rescind vehicle emissions standards. The banking sector withdrawal represents the financial regulatory component of this policy shift.

Proponents of the rescission contend that market forces and general risk management practices sufficiently address climate concerns. They argue that climate-specific mandates impose unnecessary burdens on financial institutions. The debate continues over whether central banks should actively manage climate-related financial stability risks or focus solely on traditional monetary policy and bank supervision objectives.

Further Reading

For deeper insights into how regulatory frameworks affect adoption patterns across different jurisdictions, the Alternative Financial Systems Index provides comprehensive analysis. The index tracks policy developments and implementation metrics across 50 countries, offering perspective on how regulatory approaches shape financial system evolution.