Secretary Yellen, thank you for your leadership in naming climate change as an “existential threat” to our financial system and economy. The Treasury Department’s early efforts to address the climate crisis are encouraging. But to keep President Biden’s promise of meeting our climate goals and protecting the economy with an all-of-government effort, you and other financial regulators must act with greater urgency.

The report you are writing under the Executive Order on Climate-Related Financial Risk provides a critical opportunity to highlight the gravity of the climate threats to our financial system and to identify concrete steps that financial regulators should take to address them.

Right now, the largest US financial institutions aren’t just failing to prepare themselves for climate harms, they’re actively increasing the threats by aggressively financing fossil fuels. It’s similar to the runup to 2008. This time, financial institutions are churning out toxic fossil fuel financing instead of toxic subprime mortgages. The 2008 financial crisis and Great Recession showed what happens when regulators fail to rein in Wall Street’s excessive risk-taking.

Your report should, at a minimum:

1. Make clear the scale and urgency of the risk that climate change presents to financial stability, and establish that financial regulators must begin to act even as they continue to learn more about the issue. They must err on the side of safety and act before it is too late to prevent potentially grave harms, including ones that they believe won’t materialize until some time in the future. Ultimately, they will need to supervise a rapid but orderly transition away from fossil fuels.
2. Commit to a set of modest but important immediate actions: Requiring disclosure of climate-related information for all companies; integrating climate-related risk into bank supervision, examinations, and data calls; and starting to conduct scenario analyses or stress tests.
3. Make clear that, given the magnitude of the problem, all regulatory responses are “on the table” going forward. Regulators should plan to consider responses including the following: capital rules, concentration limits, portfolio limits, and designation of systemically important nonbanks.

Congress passed legislation after the last financial crash requiring the Treasury Secretary to lead federal regulators to identify and respond to growing threats to financial stability. Climate change is clearly one such threat. Regulators must do their jobs and make Wall Street assess, absorb, and reduce the additional risks it is pumping into our financial system. Secretary Yellen, I urge you to produce a strong action plan for how financial regulators will stop Wall Street from fueling greater climate risks. Thank you.