Fossil-Free Finance Rules for Banks

Summary#

The Fossil Free Finance Act of 2026 would amend the Bank Holding Company Act of 1956 and the Financial Stability Act of 2010. Its stated goal is to reduce financial-sector emissions to protect financial stability. It is an introduced bill, not law.

  • Bank holding companies with at least $50 billion in consolidated assets would have to submit emissions-reduction plans to the Federal Reserve at least every two years. They would have to carry out a plan if the Board accepts it.
  • Plans would have to target a 50% emissions reduction by January 1, 2035, and zero financial-sector emissions by January 1, 2050. They would also have to plan to end thermal coal financing and facilitation immediately, all fossil-fuel financing and facilitation by 2035, and financing and facilitation of deforestation-risk commodities.
  • Plans would have to set a date no later than 60 days after enactment to discontinue new or expanded fossil-fuel projects. Plans could not use carbon offsets.
  • The Federal Reserve would review plans and could require revisions. If a company failed to submit a plan or meet its plan’s requirements, the Board would have to impose penalties and require asset divestiture to bring emissions into compliance. The FDIC could take further action, including ending deposit insurance for an affected bank.
  • The bill would add a company’s contribution to financial-sector emissions as a factor in certain FSOC decisions about nonbank financial companies, and add emissions-related provisions to financial standards for certain companies.
  • The Federal Reserve would have to report to Congress on emissions, progress, data gaps, and transition impacts, and collect data from bank holding companies.

What it means for you#

  • Large bank holding companies: Covered companies would have to prepare and submit plans, meet the targets and other plan requirements, and carry out plans accepted by the Federal Reserve. “Financial-sector emissions” includes emissions linked to financing and financial services, including loans, investments, and some facilitated transactions.
  • Nonbank financial companies: Their contribution to financial-sector emissions would become a factor in certain FSOC decisions and financial standards. The bill does not automatically designate a nonbank company for Federal Reserve supervision.
  • Workers and communities: Plans would have to prioritize lending for worker severance, retraining, and other transition benefits, and prioritize withdrawing funding from companies and projects with disproportionate health and well-being impacts on low-income and minority communities. These priorities do not guarantee particular loans or benefits.
  • The public: The bill does not create a direct individual benefit, application process, or ban on personal fossil-fuel use.

Money#

No cost information is in the available material.

  • The bill requires Federal Reserve regulations, data collection, plan reviews, and reports, but gives no cost estimate or funding amount.
  • Covered companies may face costs to prepare and carry out plans. The bill provides no estimates.
  • The bill requires divestiture for noncompliance; it does not specify the value of assets that could be affected.

What is unclear#

  • The bill does not specify how companies must measure and report emissions across its broad list of financing and facilitated activities.
  • “Science-based targets” is not defined in the plan requirements. The bill defines it for the reports section, but does not clearly say whether that definition governs plan review.
  • The bill allows proven negative-emissions technologies in a plan by reference to a requirement about selecting a baseline year. It is unclear how that wording is meant to apply to emissions targets.
  • The bill does not set out detailed procedures for plan revisions, appeals, or oversight of whether plans are being carried out.
  • The parent Acts were not supplied, so the existing legal powers and standards, and how the amendments would interact with current law, could not be verified.

Case for#

  • The bill appears intended to address the risk that financial institutions’ funding and financial services contribute to emissions and related financial instability.
  • Requiring regular plans and measurable reduction targets could give the Federal Reserve a way to track progress and respond to plans it finds inadequate.
  • The bill bars offsets and sets deadlines for ending fossil-fuel financing, which could make the required reductions more direct.
  • Requiring attention to worker and community impacts could make transition planning part of the financial rules rather than an afterthought.

Case against#

  • The emissions definition covers many kinds of finance, including public debt and loans to governments. The bill does not explain how those emissions would be calculated consistently.
  • The Federal Reserve would have authority to require asset divestiture, and the FDIC could end deposit insurance for an affected bank. Those are serious consequences, while the bill leaves important measurement and review details unsettled.
  • The bill sets broad targets and deadlines but does not estimate the costs or explain how financial institutions would manage potential effects on borrowers and communities.
  • The bill’s plan language on negative-emissions technologies appears to refer to baseline-year selection rather than an emissions target, leaving uncertainty about how that provision would work.