Federal Reserve and FDIC Withdraw From the Network for Greening the Financial System

On January 17 and 21, the Board of Governors of the US Federal Reserve System (Federal Reserve) and Federal Deposit Insurance Corporation (FDIC) announced that they were withdrawing as members of the Network for Greening the Financial System (NGFS). The stated reason for withdrawal is that NGFS expanded the scope of its activities beyond the Federal Reserve's and the FDIC's mandate under US law. Several other US agencies are members of the NGFS, and it is expected that the other US federal agency members will reevaluate their membership and withdraw from the NGFS in the near future.

Background

The NGFS is a global, voluntary organization made up of central banks and financial supervisors. The NGFS was formed in December 2017 at the Paris “One Planet Summit” to define, promote, and contribute to the development of practices within and outside of the NGFS and to conduct or commission analytical work on green finance.

The Federal Reserve joined the NGFS in December 2020 in anticipation of several climate-related initiatives from the Biden Administration. The FDIC followed in 2022. The Office of the Comptroller of the Currency, Federal Housing Finance Agency, and Federal Insurance Office also became members of the NGFS, as did the New York Department of Financial Services. Over time, the Federal Reserve incorporated NGFS efforts in its work, such as by using NGFS scenarios in its pilot climate scenario analysis exercise.

Impetus for Withdrawal

US regulator participation in international organizations that are not formed pursuant to a Senate-approved treaty has become increasingly controversial. In 2024, Congress held hearings to discuss the lack of transparency and delegation of authority associated with US regulator participation in non-treaty organizations like the NGFS and the Basel Committee on Banking Supervision.

In particular, Congress raised concerns that addressing the effects of climate change was beyond the statutory mandate of US financial regulators. These concerns were echoed by some agency principals, who noted that even climate-related financial risks lacked the materiality and relevance to warrant unique supervisory treatment. There also was a concern that purported supervision of climate-related risk management practice of financial institutions could result in climate policymaking, such as urging banks to make net-zero financings and investments.

Later in 2024, Congress proposed legislation to restrict US regulator participation in a wide range of international organizations that are not formed pursuant to a Senate-approved treaty. It would apply to all of the federal banking regulators, the Federal Insurance Office, and the Securities and Exchange Commission. Covered organizations expressly include the NGFS and the Basel Committee on Banking Supervision, as well as the international organizations for accounting standards, securities markets regulation, payments, and financial stability.

Among other requirements, it would prohibit an agency from joining or participating in new international organizations in any manner unless it notified Congress and Congress did not disapprove. While agencies could remain members of organizations that they had joined prior to the bill’s effective date, they would be required to provide regular reporting to Congress and notify Congress before negotiating or finalizing any policies or standards at the international organization. They also could not implement international standards as US legal requirements without providing notice to Congress and preparing a detailed cost-benefit analysis.

The 2024 bill has not been enacted into law, but it may become part of the 2025 legislative agenda and executive reevaluation of US participation in international climate change organizations that will occur in the near future. Notably, in January 2025, the then-vice chair of the FDIC stated that “greening the financial system” is not within the agency’s statutory mandate and that he expected that the agency would withdraw from the NGFS shortly after the change in presidential administrations. This came to pass a few weeks later when he became the acting chair of the agency.

Therefore, it is not surprising that the Federal Reserve would also read the room and decide now was the right time to withdraw from the NGFS.