2023 Risk Review | 73

SECTION 7

Climate-Related Financial Risk

• Increased frequency and severity of severe weather and climate events present challenges and emerging 

risks to the banking industry.129

• In 2022, severe weather and climate events included three hurricanes, an extensive wildfire, and a 

prolonged drought in the West. Estimated damages from these events were among the most costly since 

reporting began.130

• The FDIC is expanding efforts to better understand climate-related financial risk in a thoughtful and 

measured approach that emphasizes collaboration with other supervisors and industry. 

• The FDIC will continue to encourage financial institutions to consider climate-related financial risk in a 

manner that allows banks to prudently meet the financial services needs of their communities.

129 Banks are likely to be affected by both the physical risks and transition risks associated with climate change, collectively referred to as “climate-related 

financial risk.” The Risk Review is a retrospective review of risks in 2022, and this section focuses solely on physical risk from severe climate and weather events 

that occurred in 2022 through early 2023. 

130 “Severe” weather and climate events in this report are those that caused at least $1 billion in damages. See NOAA, National Centers for Environmental Information, 

Billion-Dollar Weather and Climate Disasters (2023). Estimates are as of June 8, 2023, and are adjusted for inflation using the 2023 Consumer Price Index.

Severe weather and climate events in 2022 exposed banks to increased physical risk. 

Sources: NOAA National Centers for Environmental Information, Federal Emergency Management Agency (FEMA), National Interagency Fire Center,

U.S. Drought Monitor, and FDIC.

Note: Hurricane counties are FEMA disaster-declared counties eligible for individual assistance for Hurricanes Ian, Nicole, and Fiona. Wildfire counties

are counties within the perimeter of the Hermits Peak/Calf Canyon Fire in New Mexico, the largest and most destructive wildfire in 2022 in the

contiguous United States. All of the counties that were aected by the wildfire also experienced “exceptional drought” conditions in 2022.

Drought counties are counties that experienced 12 weeks of exceptional drought during 2022. Bank structure data as of first quarter 2023.

Regional Exposure to 2022 Severe Weather and Climate Events

Dots on the map represent the 353 banks headquartered in counties aected by severe hurricanes, wildfires, and drought in 2022.

• Eighteen severe weather and climate events (over $1 billion in estimated damages) occurred in the United States

in 2022, including three hurricanes, wildfires, and a major drought.

• The counties affected by those hurricanes, drought, and wildfires were home to 353 bank headquarters and

7,543 bank branches.

• Of the 353 institutions affected by the severe weather and climate events in 2022, 309 (87.5 percent) were

headquarters of community banks and 1,596 (21 percent) were community bank branches.

Legend

Bank Headquarters Location

Drought Counties

Drought and Wildfire Counties

Hurricane Counties

!
74 | 2023 Risk Review

Increased frequency and severity of climate and 

weather events present challenges and emerging 

risks to the banking industry. Historically, the 

financial industry and banks in particular have 

effectively managed the effects of severe weather 

events, such as hurricanes, wildfires, and drought. 

However, changes in climate conditions, including 

increasing frequency and intensity of severe climate 

and weather events and other natural disasters, will 

likely pose additional risks to the financial system and 

challenges to individual banks. 

The financial system, including banks, will likely be 

affected by both physical and transition risk associated 

with climate change. Together, these risks are referred 

to as climate-related financial risks. Physical risks 

generally refer to the financial losses resulting from 

harm to people and property from climate-related 

events, such as hurricanes, wildfires, and drought, 

and longer-term climate shifts such as sea level rise.

Transition risks generally refer to financial risks to 

131 Martin J. Gruenberg, “The Financial Risks of Climate Change,” American Bankers Association Annual Convention, October 3, 2022.

certain institutions or industry sectors that arise over 

time from the process of adjusting toward a lowercarbon economy, which may be prompted by changes 

in climate and environmental policy, technology, or 

market sentiment.131 The Risk Review is a retrospective 

review of risks in 2022, and this section focuses solely 

on physical risk from severe climate and weather 

events that occurred last year. As such, transition 

risks, which are prospective and may take longer 

to manifest, are not included in this retrospective 

discussion. 

The severe climate and weather events in 2022 

were among the most costly since reporting began.

The frequency and estimated cost of severe climate 

and weather events on an inflation-adjusted basis 

have steadily increased since the National Oceanic and 

Atmospheric Administration (NOAA) started tracking 

these events in 1980 (Chart 45). Since 1980, there have 

been 357 severe climate and weather events, defined 

as events with estimated inflation-adjusted 

Total Event Count

Number

Total Event Cost

$ Billions (inflation-adjusted)

Source: NOAA-NCEI.

Note: Natural disasters include droughts, floods, freezings, severe storms, tropical cyclones, wildfires, and winter storms that caused at least $1 billion in damages. Data are annual figures from 1980 through 2022.

CHART 45

Estimated Damages From United States Severe Climate and Weather-Related 

Events in 2022 Were Among the Most Costly 

0

50

100

150

200

250

300

350

400

0

5

10

15

20

25

1980 1985 1990 1995 2000 2005 2010 2015 2020

Total Event Count (Le Axis)

Total Event Cost (Right Axis)
2023 Risk Review | 75

direct damages of $1 billion or more.132 These events 

are estimated to have cumulatively cost more than 

$2.5 trillion. In 2022, NOAA reported 18 separate $1 

billion climate and weather events, slightly fewer than 

in the record years of 2020, when 22 events occurred, 

and 2021, when 20 events occurred. However, the 

$175.2 billion in estimated damages to structures and 

business interruptions from the 2022 severe climate 

and weather events was higher than in each of the 

previous two years and was the third-highest amount 

since 2000 on an inflation-adjusted basis. 

During the first five months of 2023, there were nine 

separate severe climate and weather events in the 

United States, resulting in estimated damages of 

$23.7 billion. These included seven separate rounds 

of thunderstorms and tornadoes in the South and 

Central United States, a flooding event in California, 

and a winter storm in the Northeast. Comparatively, 

only 2017 and 2020 had a greater number of severe 

climate and weather events in the first five months of 

the year than 2023.

In 2022, three severe hurricanes struck the 

continental United States and Puerto Rico, causing 

more overall estimated damages than hurricanes 

in the 2021 season. Hurricanes Ian, Nicole, and Fiona 

caused an estimated $117.6 billion in damages, an 

increase of 39 percent from the 2021 season. Estimated 

damages from the 2022 hurricanes were more costly 

than those reported in 2021 because two of the storms 

affected the highly populated and densely developed 

Florida coastline. Hurricane Ian in Florida was the 

most destructive of the 2022 hurricanes with $114 

billion in estimated damages and is estimated to be 

the third-costliest hurricane to hit the mainland United 

States to date. Shortly after Ian, Hurricane Nicole in 

Florida caused an estimated $1 billion in damages. 

Nicole was relatively mild in strength but covered a 

large geographic area, including several areas still 

recovering from Hurricane Ian, compounding the 

existing damage and the recovery timeline in those 

132 More than one dozen public and private sector data sources help capture NOAA’s estimates for the direct costs (both insured and uninsured) of weather 

and climate events. These costs include physical damage to residential, commercial, and municipal buildings; material assets (content) within buildings; time 

element losses such as business interruption or loss of living quarters; damage to vehicles and boats; public assets including roads, bridges, levees; electrical 

infrastructure and offshore energy platforms; agricultural assets including crops, livestock, and commercial timber; and wildfire suppression costs. See NOAA’s 

“Billion Dollar Weather and Climate Disasters FAQ.” 

133 Jim Carlton, “Wildfire Season in U.S. West Ends With Fewer Blazes, Less Damage,” Wall Street Journal, November 17, 2022.

134 Office of Governor Gavin Newsom, “Governor Newsom and Cal Fire Announce the End of Peak Wildfire Season for Most of California,” news release, 

November 17, 2022.

135 The number of wildfires and acres burned during the 2022 western wildfire season were higher than the ten-year average. “Mild” refers to the resulting 

economic impact of these fires, which was considerably lower in 2022 than in the previous two seasons.

areas. Hurricane Fiona in Puerto Rico disrupted power 

to the entire island, severely damaging its power 

grid, which remained in a fragile state after Hurricane 

Maria in 2017 caused the largest blackout in U.S. 

history. Fiona is estimated to have caused $2.6 billion 

in damages and is expected to weigh on the island’s 

ongoing recovery from long-running fiscal issues.

The 2022 wildfire season in the western United 

States caused an estimated $3.2 billion in damages, 

making it less costly than the previous two seasons. 

Wildfires are historically common in the western 

United States, but they have become more severe 

in recent years. The most destructive wildfire of the 

2022 season occurred in northern New Mexico. The 

fire destroyed more than 900 structures and burned 

more than 340,000 acres, making it the largest fire by 

acres burned in New Mexico’s history. The burn scar 

left by the fire contributed to flooding that significantly 

affected residents in the area as well as the entire 

city of Las Vegas, New Mexico. The city’s water supply 

continued to be threatened by debris and ash through 

early 2023 and could take years to fully resolve. The 

three western states highly susceptible to wildfires—

California, Oregon, and Washington—all experienced 

a milder wildfire season. Despite having one of their 

warmest summers on record in 2022, well-timed 

precipitation kept fires from spreading and resulted 

in a lower economic impact.133 California’s wildfire 

season in particular was moderate compared to the 

2021 and 2020 seasons, which rank as two of the most 

severe in the state’s history.134 Although the 2022 

wildfire season was relatively mild compared to the 

past few years, ongoing drought in the West and hotter 

temperatures created conditions favorable for wildfire 

formation.135

Excessive heat in 2022 exacerbated drought 

conditions and reduced agriculture production. 

According to NOAA, 2022 ranked as the third-hottest 

summer on record. Higher temperatures and 

persistent drought conditions affected large portions 
76 | 2023 Risk Review

of the United States. Nearly half (49.6 percent) of the 

continental United States reported some degree of 

drought late last year, the highest percentage since 

the Drought Monitor was established 20 years ago. In 

five states—New Mexico, Texas, Oregon, Nevada, and 

California—the worst drought conditions affected 

almost 30 percent of counties in each state.136 Although 

this is down from nine states with more than 30 

percent of counties in exceptional drought in 2021, 

the combination of drought severity and duration is 

causing increased losses for agricultural producers and 

a shortage of water supplies. For example, in Texas, 

cotton production in 2022 declined 60.3 percent from 

the prior year.137 Further, the 2022 drought reduced the 

number of cattle produced in Texas, across the Central 

Plains, and in the western half of the United States.138

Drought conditions have also reduced water supplies. 

Three successive years of drought in California have 

caused water allocations for agriculture to decline, 

forcing many of the state’s cattle producers to reduce 

their herds, rice producers to cut back on planting, and 

fruit growers to remove whole sections of orchards. 

Some reservoirs in the state reached critically low 

levels last year, but strong precipitation in late 2022 

and early 2023 helped replenish some water levels. 

However, almost none of the storms reached the 

Colorado River basin, which supplies water to several 

western states and remained low at the start of 2023.

While insurance policies may cover some or all 

of the loss associated with many severe climate 

and weather events, policies may become more 

expensive or unavailable. Access to private 

insurance protection to cover losses for a particular 

geographic area or business activity, particularly 

residents and businesses in areas facing increasing 

severity and frequency of severe weather events, 

has begun to evolve and become less accessible.139

In addition, while government support may provide 

assistance with costs associated with many severe 

weather events, it may not always fully cover losses. 

Overreliance on insurance and government support 

136 The areas most affected by drought in 2022 were those with the worst drought conditions—what the U.S. Drought Monitor calls “exceptional”—for at least 12 

weeks in 2022. See https://droughtmonitor.unl.edu/.

137 U.S. Department of Agriculture, Cotton and Wool Outlook, June 2023 Table 10 Cotton Production Compared to June 2022 Table 10 Cotton Production.

138 Elena Bruess, “In Texas Drought, Hay Shortage Hits San Antonio-Area Ranchers,” San Antonio Express News, December 14, 2022.

139 State Farm General Insurance Company, “State Farm General Insurance Company: California New Business Update,” news release, May 26, 2023; California 

Department of Insurance, "Insurance Commissioner Dave Jones Releases Report Addressing Fire Insurance Availability Issues," news release, January 4, 2018; 

and California Department of Insurance, "Wildfire Survivors Now Covered by New Insurance Protections," news release, July 27, 2021. 

140 Gruenberg, “The Financial Risks of Climate Change.”

may therefore present additional risks, as these types 

of assistance may not be able to compensate for losses 

to the same extent as they have in the past, which may 

affect the ability of smaller institutions to mitigate 

climate-related financial risk.

The FDIC is in the early stages of understanding and 

addressing financial risks posed by climate change 

and intends to expand efforts in a thoughtful and 

measured approach that emphasizes collaboration 

with other supervisors and industry. The FDIC is 

working with domestic and international financial 

regulatory counterparts to better understand and 

address climate-related financial risks. The FDIC is 

also working with banking industry stakeholders to 

maintain a meaningful dialogue on climate-related 

risks and to support institutions as they develop plans 

to identify, monitor, and manage these risks.

To enhance the understanding of climate-related 

financial risks, the FDIC in 2022 established an 

internal cross-disciplinary working group to assess 

the safety and soundness and financial stability 

considerations associated with climate-related 

financial risks and to develop broad understanding 

of climate-related financial risk in all of its forms. The 

FDIC is also coordinating with interagency peers and 

is participating on the Financial Stability Oversight 

Council’s Climate-Related Financial Risk Committee. 

Further, as climate change is a global issue, the 

FDIC joined the Network of Central Banks and 

Supervisors for Greening the Financial System to foster 

collaboration and share best practices for addressing 

climate-related financial risk globally.140

The FDIC recognizes that risk management 

practices in this area are evolving and will continue 

to encourage banks to consider climate-related 

financial risk in a manner that allows them to 

prudently meet the financial services needs of 

their communities. As an initial step to promote a 

consistent understanding of effective management 

of this emerging risk, in March 2022 the FDIC issued 
2023 Risk Review | 77

a proposed Statement of Principles for ClimateRelated Financial Risk Management for Large Financial 

Institutions. The principles provide a high-level 

framework for the safe and sound management 

of exposures to climate-related financial risk and 

are intended to support efforts by large financial 

institutions to focus on key aspects of climate-related 

financial risk management.141 The draft principles 

141 Federal Deposit Insurance Corporation, “FDIC Issues Request for Comment on Statement of Principles for Climate-Related Financial Risk Management for 

Large Financial Institutions,” news release, March 30, 2022. 

142 Board of Governors of the Federal Reserve System, “Federal Reserve Board Invites Public Comment on Proposed Principles Providing a High-Level Framework 

for the Safe and Sound Management of Exposures to Climate-Related Financial Risks for Large Banking Organizations,” news release, December 2, 2022. The news 

release states that the Board’s proposed principles are substantially similar to proposals issued by the FDIC and the OCC. 

are substantially similar to the principles issued by 

the Office of the Comptroller of the Currency (OCC) 

in December 2021 and the Federal Reserve Board 

in December 2022.142 After reviewing comments 

received on the proposed principles, the FDIC intends 

to coordinate with the OCC and Federal Reserve in 

issuing any final guidance.