While the FDIC requires banks to carry bankers’ environmental risk insurance, that isn’t the only reason to have the policy. Many people don’t associate financial institutions with negative environmental impacts. Unfortunately, banks can take on the liabilities posed by assets they take on making the insurance a must to protect the bank’s financial assets.
When a customer invests in a property by taking out a loan, they may not follow through on their commitments when they learn about environmental issues with the asset. Even if they do meet their obligations to comply with the standards, the added cost could mean that they are unable to meet their financial obligations to the bank.
According to FGIB, environmental risk varies with each loan made. Commercial investors use the loan to purchase properties in varying locations and in a variety of sizes.
Negative publicity surrounding a given property with environmental issues does not help the bank’s reputation. With many consumers still struggling to trust that banks have their best interests at heart following the recent financial crisis, it is imperative to limit the amount of negative publicity.
Bankers environmental risk insurance helps the bank stay in regulatory compliance and protect their financial assets. Understanding the environmental risks before loaning the money can help the bank mitigate some risks.