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US Bank Climate Change Regulation Poised to Catch Up to Global Peers

Fitch Ratings-New York-12 February 2021: Fitch Ratings expects U.S. financial regulators will expand early-stage efforts to incorporate climate change into macroprudential regulation, given the increased prioritization and stated goals of the new administration.

Greater attention to climate change risks, including incorporation into stress testing, would bring the U.S. closer to regulatory peers in other major developed countries, but is likely to proceed gradually over a two to three-year period and center on the largest U.S. global systemically important banks.

Regulation that incorporates growing climate-related risks could be supportive of bank credit profiles over the long term. Portfolios incorporating sustainable investments may result in a higher capital and or liquidity requirements for non-green investments of the portfolio, and lead to more difficult choices on industries or client selection.

For some systemic U.S. banks though, the transition to a lower-carbon economy could provide additional revenue streams.

To date, climate-related events have not resulted in material losses for U.S. banks. However, more extreme weather-related physical risks, as well as uncertain transition risks from future policy decisions, can pose complex risks and vulnerabilities to abrupt repricing events.

The U.S. has been a notable laggard among developed market governments in addressing these vulnerabilities.
Under the new administration, […]

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