NCUA: Credit Union System at High Risk of Climate Change Impact

Agency report finds more than a third of all credit union assets are held by institutions vulnerable to climate change.

One quarter of all federally insured credit unions are in communities that have a relatively high or very high risk of experiencing the negative effects of natural hazards, the NCUA Office of the Chief Economist said, in a report issued Wednesday.

Together, those credit unions account for 34% of system-wide assets—or about $750 billion at the end of 2021, the report stated.

“The risks posed to credit unions are not hypothetical,” the agency said. “Natural disasters have caused considerable losses for credit unions and resulted in liquidations.”

The NCUA released the report one day before the agency board is scheduled to issue a request for information on the subject of climate change.

Inside the Report

“This insightful research by the NCUA’s Office of the Chief Economist shows that credit unions are not immune to climate-related financial risks and that the costs and number of climate-related natural disasters is accelerating, often hitting disadvantaged communities the hardest,” said NCUA Chairman Todd Harper. “By measuring, monitoring, and mitigating such risks, the NCUA can fulfill its core obligations of maintaining the safety and soundness of credit unions, protecting consumers, and safeguarding the National Credit Union Share Insurance Fund.”

The research further revealed that the credit unions most at risk of natural hazards are located in coastal areas, particularly California, Texas and Florida. Those states account for 11% of the credit unions with elevated risk—amounting to 22% of credit union assets.

The NCUA also found that MDIs face a substantially higher risk than the rest of the credit union system.

Additionally, focusing on the ten most costly natural disasters, the agency said roughly half of credit union assets are held in areas that are at either relatively or very high risk of experiencing a tornado.

Further, in California, 48% of credit union headquarters and branches are located in very high-risk communities and 44% are in relatively high-risk communities.

These credit unions together account for over 90 percent of all members, assets, loans, and deposits of California-based credit unions. All MDIs and low-income designated credit unions in the state are at an elevated risk as well.

Backstory

The issue of climate change has been a politically divisive one for the NCUA board. Harper, a Democrat, has supported attempts by financial regulators to encourage credit unions and banks to consider the impact climate change may have on their businesses.

However, Republicans still control the majority on the board and those members—Kyle Hauptman and Rodney Hood—have made it clear that regulators have little role to play in the issue.

But Hood’s term expires in August and, presumably, President Biden will nominate a Democrat, who may advocate for a more activist approach, a stance that was already included in the NCUA’s strategic plan from last year.

Meanwhile, as Biden Administration regulators were adopting a stronger position, Republican lawmakers insisted that financial regulators were implementing a radical environmental agenda that could lead to financial institutions choking off legitimate industries’ access to capital.