#2021-18, May 28, 2021

President Signs Executive Order on Climate-Related Financial Risk

Late last week, President Biden signed an executive order to address climate-related financial risk in the US financial system.  The order requires the financial regulators to ensure the appropriate measurement and mitigation of these risks and directs the treasury secretary to work with the members of the Financial Stability Oversight Council to consider “assessing, in a detailed and comprehensive manner, the climate-related financial risk, including both physical and transition risks, to the financial stability of the federal government and the stability of the U.S. financial system.”

The Treasury Department must also issue a report within 180 days on current efforts by the regulators to incorporate climate-related financial risk into their policies and programs. The report will include recommendations on how “identified climate-related financial risks can be mitigated, including through new or revised regulatory standards as appropriate,” according to the order.   In  addition, the secretary of labor must take actions to address climate-related financial risks that could affect retirement savings and pension funds by considering proposals to “suspend, revise or rescind” the Trump administration’s finalized rules on ESG investing and proxy voting. DOL already has suspended enforcement of these rules and is in the process of re-examining them for revision.

To read more, click here.

Fed Focusing on Digital Currency Research

In a speech this week, Federal Reserve Governor Lael Brainard said the central bank is enhancing its focus on central bank digital currencies (CBDC) and that it is working on  research about the technology.  She also noted the potential benefits of a CBDC, including improved efficiencies, increased competition and diversity and lower transaction costs, reduced cross-border frictions, and an increase in financial inclusion.

Governor Brainard noted that as part of the Fed’s initiative, it is important to be clear about what benefits a CBDC would offer over and above current and emerging payments options, what costs and risks a CBDC might entail, and how it might affect broader policy objectives.  The Fed is currently working with the Massachusetts Institute of Technology to build and test a hypothetical digital currency platform to research the feasibility of the core processing of a CBDC.  The Fed hopes to continue to work with MIT to explore how addressing additional requirements, including resiliency, privacy and anti-money laundering features, will affect core processing performance and design.

To explore the broader issues around CBDC, the Federal Reserve is also undertaking research on financial inclusion through a Federal Reserve Bank of Atlanta special committee on payments inclusion.  The committee will help ensure that cash-based and vulnerable populations can safely access and benefit from digital payments.  In addition, the Federal Reserve Bank of Cleveland is launching an initiative to explore the prospects for CBDC to increase financial inclusion.

To read Governor Brainard’s speech, click here.

FFIEC Issues Final Call Report Changes

The Federal Financial Institutions Examination Council (FFIEC) recently finalized changes to the Call Report to allow the Federal Deposit Insurance Corporation (FDIC) to implement proposed amendments to address the temporary deposit insurance assessment effects resulting from the CECL transition and to address the exclusion of sweep deposits and certain other deposits from reporting as brokered deposits.  The CECL-related provisions are effective with the June 30, 2021, report date while the brokered deposit provisions take effect with the September 30, 2021, report date.

To read more, click here.