Efforts by global financial regulators to prioritize climate risk in worldwide banking oversight have been blocked by US authorities, including the Federal Reserve, sources reveal.
Despite the push from European central bankers for the Basel Committee on Banking Supervision to mandate banks to unveil their green transition strategies, US officials have resisted. They argue that such measures exceed the committee's scope and stress their limited mandate, insiders note.
The disagreement underscores a broader clash within the Basel Committee, which aims to harmonize global banking regulations. The divide is particularly sharp between the Federal Reserve and the European Central Bank (ECB), the latter being a proponent of stringent climate regulations.
This development is part of a larger trend in the US where there is opposition to incorporating environmental, social, and governance (ESG) considerations into financial and investment decisions. Federal Reserve Chair Jerome Powell has emphasized that the Fed's role does not extend to climate policy.
Amidst this backdrop, Michael Barr, nominated by President Joe Biden for a key regulatory role at the Fed, faces significant pushback on a proposal that would significantly increase capital requirements for major US banks by nearly 20%.
Since July, Barr has been grappling with industry resistance to these proposed Basel III Endgame rules. Following strong pushback, Powell has hinted at a potential scaling back of these plans.
The Basel Committee's ability to reach consensus often reflects a balance of national interests, with the US playing a pivotal role. The committee's mandate is to establish international standards, but it cannot compel countries to adopt them.
Recent efforts to include climate risk in the Basel Committee's financial regulations have met firm opposition from the US. This stance is consistent with broader skepticism towards climate initiatives, both within Europe and among certain US policymakers.
Despite previous acknowledgments by the Basel Committee of the financial risks posed by climate change, the US has resisted moves to make banks analyze how climate issues affect credit risk and to halt work on climate-related financial risk management standards.
In a recent meeting, the Basel Committee agreed to make guidelines on climate transition plans optional for banks, a proposal pushed by the US. This decision reflects ongoing debates over the role of financial regulation in addressing climate change.
