New York regulator offers incentives for climate-friendly loans

State-regulated banks and credit unions in New York can now earn state Community Reinvestment Act credit for helping low-income communities better adapt to a warming world.

Climate change disproportionately affects low-income communities and investments made to help reduce its impacts may receive credit under the state’s CRA rule, the New York State Department of Financial Services said in a letter issued Tuesday.

Eligible projects could run the gamut from community solar projects to infrastructure intended to address stormwater runoff. Poorer communities are especially vulnerable to hurricane flooding, so flood resilience measures incorporated into multifamily housing development could count for credit.

The Atlantic superstorm Sandy devastated many New York neighborhoods in 2012, including this one in the Breezy Point section of Queens.


“If you’re a financial institution and you’re going to invest in a community to help them with energy efficiency or renewable energy and other measures to help that community deal with climate change, that is a form of community reinvestment for which you ought to receive credit,” Superintendent Linda Lacewell told American Banker. “We’re not directing anyone to do it, we’re just saying you have an opportunity to get credit here. … It’s a win-win across the board.”

Federal financial regulators have not yet made a similar determination about the federal CRA rule, but Lacewell said “there’s no reason New York can’t” under its own rule. New York is one of a handful of states with its own CRA rule on the books, which it passed in 1978, one year after President Jimmy Carter signed the federal Community Reinvestment Act into law.

The New York State Department of Financial Services is the first regulator in the U.S. to formalize an incentive for banks to lend to projects addressing climate change in poorer communities. Its guidance on the state CRA rule is the latest action the regulator has taken with respect to climate change and the financial system. In October, it issued a letter calling on the banks it supervises to start incorporating climate risks into their strategy, risk management and corporate governance.

Last year the agency hired Dr. Yue (Nina) Chen as its first director of sustainability and climate initiatives. And in 2019 it became the first U.S. regulator to join the Network for the Greening of the Financial System, an international group of central bankers and supervisors focused on managing financial risks from climate change.

The moves by New York’s financial regulator come at a time when U.S. regulators have been thinking more seriously about climate change and its impact on the economy. A September report out of the Commodity Futures Trading Commission, for example, warned that climate change poses massive risks to the stability of the financial system.

The Federal Reserve Board also recently joined the NGFS in an effort to get a better understanding of how other financial regulators around the world are thinking about climate change.

Lacewell said that the department’s guidance on the state CRA “broadens the dialogue” in a way that’s consistent with its regulatory authority. Her reasoning also mirrors the argument laid out by researchers with the San Francisco Fed, who argued in a 2019 paper that banks should receive CRA credit for lending and investing activities that help strengthen low-income communities against climate change.

The guidance issued on Tuesday applies only to financial institutions regulated by the state department of financial services. Those include Bank of New York Mellon, Goldman Sachs Bank USA, M&T Bank and New York Community Bank. It also includes state-chartered credit unions, like Hudson Valley Credit Union, Municipal Credit Union and AmeriCU.

John Witkowski, the president and CEO of the Independent Bankers Association of New York, said his group has been working with Chen to organize round table discussions about the regulator’s expectations for its community bank members.

Lacewell stressed that the latest guidance is voluntary and intended to encourage bankers to think more carefully about the climate change mitigation efforts needed in their own communities. The department is not expecting a community bank upstate to create entirely new financing vehicles, in other words, but the CRA guidance might nudge it to finance more energy efficiency upgrades to affordable housing.

Clare Cusack, the president and CEO of the New York Bankers Association, said in an emailed statement that her group had worked with the department on some aspects of its work on climate change.

“As banks continue to work through pandemic response and recovery, we hope this high level and cooperative approach will ultimately lead to a set of best practices which will help banks manage and mitigate [climate] risks,” she said.

Witkowski said the timing of the department’s October letter had been less than ideal, largely because the group’s members were mostly preoccupied with the pandemic and Paycheck Protection Program lending. But he also said the state agency’s focus on climate was “the right thing to do” and that “there’s never a great time” to introduce a new challenge.

“We want to understand more about it and how it’s going to impact [community banks] and their customers,” he said. “People are recognizing it’s something that’s coming down the pike and something we need to take a look at and address as an important issue.”


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