Feds Warn California Climate Rules Could Drive Banks Out of State

The Trump administration's Treasury Department has warned California that its new climate reporting laws may not apply to federally chartered banks and could lead to adverse consequences for consumers if enforced. The Office of the Comptroller of the Currency (OCC), part of the U.S. Treasury, sent a letter to the California Air Resources Board (CARB) expressing concerns over two state laws enacted in 2023 that require companies to disclose their carbon emissions and climate-related financial risks.

The OCC stated that these disclosure laws "are likely to decrease competition, drive up prices, and reduce Californians’ access to financial services, all of which will harm residents and main street businesses." The federal agency warned that the costly regulations could potentially compel some banking firms to cease operations in the state.

The laws in question are Senate Bill 253, which mandates that companies with revenues of $1 billion or more disclose their greenhouse gas emissions, and Senate Bill 261, requiring businesses with revenues exceeding $500 million to report on climate-related financial risks biennially. California Democrats championed these bills as part of an effort to position the state as a leader in reducing carbon emissions and to enhance corporate accountability.

Business groups had previously challenged these laws, arguing they constituted compelled speech in violation of the First Amendment and infringed upon interstate commerce rules. A federal appeals court issued a temporary injunction against the enforcement of SB 261, while SB 253 remained active pending further legal proceedings. CARB is currently developing regulations for the emissions disclosures.

Businesses contend that the mandated disclosures represent a significant logistical and financial undertaking, requiring substantial investment in tracking emissions and securing third-party audits. The OCC echoed these concerns, asserting that the burden would fall on banks as well, potentially resulting in increased costs, diminished services, or even market withdrawal.

"Smaller banks may withdraw from doing business in the state," the OCC's letter stated. "Banks that cannot withdraw, including banks headquartered in California, will be disadvantaged. They will face substantial compliance obligations that could materially affect their operations."

The OCC asserted its authority over federally regulated banks, urging CARB to exempt these institutions from the disclosure requirements. The agency cited the Supremacy Clause of the U.S. Constitution, which holds that federal laws preempt conflicting state laws. The OCC cautioned that disregarding this authority could destabilize the U.S. banking system and divert banks' focus from managing financial risks to compliance efforts.