The New York State Department of Financial Services ("NYDFS") encouraged New York financial institutions to "prudently manage" climate change-related financial risks.
In an industry letter, NYDFS Superintendent Linda A. Lacewell stated that regulated organizations should start changing their government frameworks, risk management processes and business strategies to reflect the increasing financial risks of climate change. Ms. Lacewell also stated that regulated non-depositories should conduct risk assessments that consider the "disruptive consequences" of climate change on their customers and in the communities they serve. The NYDFS underscored that it expects a "proportionate approach" from each entity, depending on the structure of its business and level of access to resources to manage risks.
Ms. Lacewell pointed to the Bitcoin network's consumption of energy as an example of concerning environmental impact. She suggested that virtual currency firms increase the transparency of their Bitcoin mining operations.
The NYDFS emphasized that this is the "first time an American state or federal regulator has set a holistic set of expectations on climate for banking organizations, asset management functions of banks and limited purpose trust companies, and virtual currency firms."
Commentary
It is not clear what specific measures New York financial institutions should take to comply with Superintendent Lacewell's statement.
The NYDFS letter cites a study concluding that "single and multi-family residential homes with $334 billion of reconstruction value are at high risk of storm surges." In the context of the letter, which requires regulated organizations to take account of various risks that include market risk arising from climate change, the Superintendent seems to suggest that New York banking organizations should reduce their lending to New York residential homes or should, at least, take account of the potential negative effects of storm surges caused by climate change in assessing home mortgage values.
NYDFS also cites a study finding that "[C]ommunity banks . . . are more vulnerable to regionally concentrated physical risk." While more specific directives may be coming from NYDFS, it seems that Superintendent Lacewell is advocating that banks, particularly community banks, can make themselves safer by lending on a more geographically diversified basis, perhaps shifting their mortgage loans to states not along the coast.
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