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Blog Post | January 21, 2021

Why the Comptroller of the Currency Must Be a Climate Leader

2020 Election/TransitionClimateFinancial Regulation
Why the Comptroller of the Currency Must Be a Climate Leader

The Wall Street Journal announced Wednesday that President Biden was expected to tap former Treasury Department official Michael Barr to lead the Treasury Department’s Office of the Comptroller of Currency (OCC), but no official announcement has been made yet. 

Considering the potential climate action the OCC could undertake and the severe consequences of their failure to do so, we are extremely concerned that a Barr-led OCC would not act with necessary urgency.

As Biden begins his term with promises to Build Back Better and environmental justice advocates push him to Build Back Fossil Free, the potential power of a climate-aware and action-oriented OCC cannot be overstated.

The OCC is technically part of the Treasury Department, but has typically operated with a great deal of independence. Its main jobs include distributing and managing charters for banks that operate across state lines, setting rules about how much risk banks can take on, and defining which activities are considered “banking” and thus subject to their regulation. Since the 2010 Dodd-Frank Act, the OCC has been one of the primary regulators of banks that operate across state lines, with a great deal of power to investigate and oversee actual balance sheets.

There are several actions a climate-forward OCC could immediately implement using only their existing powers. They could set and enforce rules that include climate impact as a factor in assessing banks’ current risk levels and exposure. Measured correctly, this would likely result in decreased financial investment in projects with high carbon emissions or which cause environmental destruction. The challenge will be implementing tools to accurately assess climate risk in quantifiable ways, but it is the necessary and non-negotiable task before Biden’s financial regulators. 

The OCC could also update the Comptroller’s Handbook to guide bank examiners to measure climate risk in their assessments, which would force banks to measure climate risk in their own internal stress tests. This would also push banks to make environmentally sound decisions, because they would be recontextualized as financially savvy decisions. The OCC should likewise work closely with the next FDIC to thoroughly investigate banks’ balance sheets and contextualize all major holdings through a climate lens (these two regulators have the most authority to look directly at a bank’s books.) Just as the OCC should update its Comptroller’s Handbook, the FDIC should be charging higher risk premiums on depositor insurance for banks with higher climate risk. It’s all about looking at the financial regulatory system’s existing powers and seeing how they apply to an understanding of climate change as a systemic risk. 

In a world where financial regulators truly embraced their responsibility to protect the financial sector and the world it exists in from climate chaos, the OCC could threaten to revoke charters from banks which haven’t yet ended their investments in climate-damaging projects or to banks whose investments were not in climate-neutral territory in alignment with scientific goals. They could also fine banks whose financing caused climate destruction or whose investments remain in dangerous projects. As long as charter revocations and fines were tied directly to a clear financial or systemic risk (and climate change should be designated a systemic risk,) the OCC has clear power in this jurisdiction.

Forcing banks to confront and take responsibility for their financing of climate destruction is absolutely essential to halting carbon emissions and protecting a livable environment. The power that each individual bank has to alter the direction of climate action is staggering; JP Morgan Chase, the world’s top banker of fossil fuels, has provided $196 billion in financing to fossil fuel companies since 2016. Without that financing, fossil fuel projects would be dead on arrival and would clear room for green energy, infrastructure, and jobs programs to move forward.

Any nominee to head up the OCC needs to be serious about confronting climate change via both existing and not yet established avenues. They should commit to the above actions as a bare minimum, and they should be surrounded by staff who are equipped to be leaders in the transition to a green economy and the resources with which to accomplish their goals. 

Michael Barr, an old-guard Treasury official who has now planted his roots firmly in the expansion of the FinTech industry, would be a deeply concerning pick. He currently serves on the advisory board of a non-profit trying to throw out the financial regulatory system and replace it with Silicon Valley culture; as we well know, venture capitalism has so far failed at any serious semblance of climate action. Perhaps even more concerning is that even after a quarter-century career in the financial industry, (which began in service to deficit hawk Robert Rubin,) Barr has had barely anything to say on the responsibility of the federal government to tackle climate change. In 2021, at this moment that demands immediate system-wide climate action, that is inexcusable. 

In contrast, if Biden wants to stay true to his promise to prioritize economic equity, the other leading candidate, Mehrsa Baradaran, is an expert on banking law, financial inclusion and equity, and the racial wealth gap. She is the leading intellectual architect behind the overdue creation of a postal banking system. She is also clearly aware of climate risk, the fact that we can “stop the status quo if we need to,” and subscribes to the simple, humane idea that human life should not be sacrificed for the sake of economic growth.

Yet no matter who it is, the next Comptroller of the Currency must center climate change in their work from the moment they walk into their office to the moment they walk out. Much more than buzzy fintech apps, the work of saving the financial system from its own investment in planet-destroying industries is the great test that will define Biden’s financial policy.

PHOTO: “Wall Street Bull” by thenails is licensed under CC BY 2.0

2020 Election/TransitionClimateFinancial Regulation

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