Your bank just got new rules. Or rather, lost them.
On October 16, 2025, the FDIC and Federal Reserve rescinded climate risk management principles for America’s largest financial institutions—those with over $100 billion in assets. The same banks and insurers holding your deposits, mortgages, and policies no longer face specific requirements to track how hurricanes, floods, and wildfires threaten their balance sheets.
What changed? The agencies announced that existing safety and soundness standards already cover climate risks, making separate climate-focused guidelines unnecessary. Translation: banks don’t need special climate rules when general risk management supposedly handles it.
But here’s what they’re not saying: this marks a complete reversal from just two years ago, when these same regulators insisted climate change posed unique financial risks requiring dedicated oversight. The sudden U-turn raises questions about what happens to your financial security when regulators stop watching one of the century’s biggest economic threats.
What Were These Climate Risk Principles Anyway?
Back in October 2023, three federal banking regulators—the FDIC, Federal Reserve, and Office of the Comptroller of the Currency (OCC)—jointly issued principles requiring large financial institutions to:
- Identify climate-related financial risks in their operations, from coastal real estate loans vulnerable to sea level rise to agricultural lending in drought zones.
- Measure potential losses from extreme weather events, changing regulations, and shifting market conditions as the economy transitions away from fossil fuels.
- Monitor risk concentrations like heavy exposure to flood-prone commercial real estate or fossil fuel company debt.
- Control and report these risks to boards of directors and regulators through formal governance structures.
The rules applied only to institutions with over $100 billion in consolidated assets. Think JPMorgan Chase, Bank of America, Wells Fargo, and the insurance giants like MetLife and Prudential Financial.
The logic? Climate risks don’t show up in traditional credit or market risk models. A $500 million commercial loan portfolio might look healthy today but faces catastrophic losses if coastal properties become uninsurable or California vineyards lose water access. Regulators wanted banks to see around corners.
The Rescission: What Happened October 16
Then came the reversal. The FDIC announced that all three agencies agreed the 2023 principles were “unnecessary” because general risk management requirements already force banks to handle material risks—climate-related or otherwise.
The agencies went further, arguing that singling out climate risks might actually harm safety by distracting management from other material threats. In their view, focusing specifically on climate could mean neglecting cybersecurity, liquidity crunches, or credit deterioration in other sectors.
Effective immediately. No transition period. The guidance simply disappeared from regulatory books on October 16, 2025.
Notably, the OCC had already withdrawn from the climate principles earlier in 2025, signaling regulatory disagreement months before the formal rescission. That early exit preview what was coming: a wholesale abandonment of climate-specific oversight for the largest US financial institutions.
Your Money: How This Hits Your Wallet and Coverage
You don’t have an account at the FDIC. But you probably bank somewhere affected by this decision, and the ripple effects will touch your financial life in ways most consumers won’t see coming.
Mortgage availability in climate-risk zones: Without regulatory pressure to quantify climate exposure, banks may continue lending heavily in flood zones, wildfire corridors, and coastal areas vulnerable to hurricanes. That sounds good if you want to buy property there—until the inevitable disaster hits and lenders abruptly exit entire markets, crashing home values. We’ve already seen this with property insurers fleeing California and Florida.
Insurance availability: Large insurers with banking operations (think MetLife, Prudential) face less regulatory scrutiny on climate risk aggregation. That could mean continued coverage in high-risk areas short-term, but catastrophic losses and sudden market exits long-term. When State Farm or Allstate pulls out of a state, premiums for remaining carriers spike 30-50% overnight.
Your deposits: Banks with heavy exposure to climate-vulnerable sectors—agriculture, real estate, energy—face potential massive losses when disasters strike. While FDIC insurance protects deposits up to $250,000, bank failures still disrupt access to your money, freeze accounts temporarily, and create financial chaos.
| Financial Product | Potential Impact Without Climate Oversight |
|---|---|
| Home Mortgages | Continued lending in high-risk zones until sudden market exits |
| Homeowners Insurance | Less regulatory pressure to maintain coverage in wildfire/flood areas |
| Commercial Loans | Concentration risk in climate-vulnerable real estate and agriculture |
| Investment Portfolios | Hidden exposure to fossil fuel assets and stranded resources |
Why Federal Regulators Changed Course (The Stated Reasons vs. Reality)
The agencies offered two official justifications:
First justification: Existing risk management frameworks already require banks to identify and manage all material risks, regardless of source. Climate risks aren’t special—they’re just another category of operational, credit, and market risk that general oversight captures.
Second justification: Focusing too narrowly on climate might cause banks to neglect other critical risks. Resources are finite. If management obsesses over sea level rise projections, they might miss the next cyberattack or liquidity crisis.
Sound reasonable? Maybe. But here’s what the agencies didn’t say:
- Traditional risk models famously miss climate impacts. Standard credit analysis doesn’t price in a 100-year flood becoming a 10-year flood, or California’s insurance crisis making coastal properties effectively unmarketable. Climate risks are non-linear and unprecedented in modern banking history.
- This reverses two years of work. Financial institutions spent considerable resources building climate risk frameworks to comply with the 2023 principles. The sudden rescission suggests political or ideological pressure rather than evidence-based policy evolution.
- Other global regulators are going the opposite direction. The European Central Bank, Bank of England, and other international supervisors are increasing climate risk scrutiny, not eliminating it. US banks now face competitive disadvantage and potential regulatory arbitrage.
The reality? This looks like a politically motivated rollback during an administration skeptical of climate policy, not a data-driven regulatory improvement.
What Happens Now: The Regulatory Vacuum
With climate-specific principles gone, what actually governs how banks handle climate risks?
The answer: general safety and soundness standards that were written decades before climate change became a measurable financial threat. These rules require banks to maintain adequate capital, manage risk exposures, and avoid concentrations that threaten solvency. But they don’t specifically mandate:
- Climate scenario analysis (testing how portfolios perform under different temperature rise scenarios)
- Disclosure of climate risk concentrations to regulators or investors
- Governance structures dedicated to climate risk management
- Physical risk mapping for real estate and infrastructure loans
In practice, expect large institutions to quietly scale back climate risk teams, reduce reporting, and integrate climate considerations into general enterprise risk management—where they’ll compete for attention with dozens of other priorities and likely get deprioritized.
Some banks will voluntarily continue climate risk analysis because investors demand it, European regulators require it for international operations, or internal management sees the business case. But mandatory, consistent, comparable climate risk management across the US banking system? That just ended.
International Perspective: US Falls Behind Global Standards
While US regulators retreat from climate oversight, international peers are accelerating:
- The European Central Bank now requires climate stress tests for all major banks and is incorporating climate risks into capital requirements.
- The Bank of England mandates detailed climate scenario analysis and public disclosure of climate-related financial risks.
- The Network for Greening the Financial System (NGFS)—a coalition of 127 central banks—continues developing climate risk frameworks that most developed economies are adopting.
This creates a two-tier system. US banks operating globally must still comply with international climate risk standards for their European and Asian operations. But domestic US lending and investment? No specific climate oversight.
The risk: US financial institutions become less competitive internationally as global investors prefer banks with transparent, rigorous climate risk management. Meanwhile, domestic customers face hidden exposures that foreign-regulated competitors are required to disclose and manage.
Should You Change Your Banking or Insurance Decisions?
Probably not immediately, but awareness matters.
If you’re buying property in climate-vulnerable areas: Don’t rely on mortgage approval as proof of safety. Banks may still lend in flood zones or wildfire corridors because they’re no longer required to formally assess climate risk concentration. Do your own due diligence on insurance availability, historical disaster frequency, and climate projections for the area.
If you hold large deposits above FDIC limits: Consider spreading funds across multiple institutions to ensure full insurance coverage. Without climate risk oversight, some banks may unknowingly build concentrated exposure to climate-vulnerable sectors.
If you’re choosing insurance carriers: Look for companies that voluntarily disclose climate risk management practices and maintain strong financial ratings from agencies like A.M. Best. The absence of regulatory requirements doesn’t mean climate risks disappeared—just that they’re less visible.
If you invest in bank stocks: Ask about climate risk exposure in earnings calls and investor presentations. Banks that continue robust climate risk analysis despite the rescission may be better positioned long-term than those abandoning these practices.
Frequently Asked Questions
Why did the FDIC rescind climate risk guidelines in October 2025?
The FDIC, Federal Reserve, and OCC jointly determined that existing safety and soundness regulations already require banks to manage all material risks, including climate-related ones. The agencies argued that separate climate-specific principles were unnecessary and might distract management from other important risks. The rescission became effective immediately on October 16, 2025, reversing guidance issued just two years earlier in October 2023.
Which banks and insurers are affected by this rescission?
The rescinded principles applied to financial institutions with over $100 billion in total consolidated assets. This includes major banks like JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, as well as large insurers with banking operations such as MetLife and Prudential Financial. Smaller regional banks and credit unions were never subject to these specific climate risk principles.
Does this mean banks don’t have to manage climate risks anymore?
Not exactly. Banks still must manage all material risks under general safety and soundness regulations. However, they’re no longer required to have specific climate risk identification, measurement, monitoring, and control processes. In practice, this means climate risks will compete for attention with dozens of other priorities and likely receive less dedicated focus and resources than under the rescinded principles.
How does this affect my mortgage or insurance coverage?
The immediate impact is minimal, but long-term risks increase. Without regulatory pressure to assess climate exposure, banks may continue lending in flood zones, wildfire areas, and coastal regions vulnerable to hurricanes—until sudden disasters force abrupt market exits. This pattern already happened with property insurers leaving California and Florida. For consumers, this could mean continued access to mortgages and insurance in high-risk areas short-term, but sudden unavailability and property value crashes when reality catches up.
Are US banks behind international standards now?
Yes. The European Central Bank, Bank of England, and over 127 central banks in the Network for Greening the Financial System continue requiring or developing climate risk frameworks. US banks operating internationally must still comply with those standards for foreign operations, but domestic US lending faces no specific climate oversight. This creates competitive disadvantages as global investors increasingly prefer financial institutions with transparent, rigorous climate risk management.
Bottom Line: Regulatory Retreat, Consumer Risk
The October 2025 rescission of climate risk principles represents a significant regulatory retreat at precisely the moment when climate impacts on financial stability are accelerating. Hurricanes, floods, and wildfires cost the US economy over $150 billion annually in recent years, with losses concentrated in real estate, agriculture, and infrastructure—core lending sectors for major banks.
For consumers, the message is clear: don’t assume regulatory oversight protects you from climate-related financial risks. Whether you’re buying a home, choosing insurance, or keeping deposits in a large bank, the absence of specific climate risk requirements means you need to do your own homework.
The good news? Many institutions will continue robust climate risk analysis because business fundamentals demand it. The bad news? You can no longer rely on consistent, comparable, mandatory climate risk management across the US banking system.
Welcome to the new normal: climate risks aren’t going away, but regulatory scrutiny just did.