NCUA Takes the Temperature of Credit Unions

The question for the credit union industry wasn’t as much of a question as it was a conversation starter: Do you see “opportunities to enhance” any “supervision and regulation” by the NCUA concerning climate-related issues?

The issue was posed to industry and credit union-supporting organizations in April after the NCUA board voted 2-1 to approve an official request for information (RFI) as a way to take the temperature of the industry it regulates.

At the time of the vote, Board Chairman Todd Harper said, “Commenters are encouraged to discuss any relevant issues they believe the NCUA board should consider about the financial risks associated with climate. This includes but is not limited to risks posed, or stemming from issues around field of membership, lending, investments, other assets, deposits, underwriting standards, insurance coverage, liquidity and capital.”

Vice Chairman Kyle Hauptman was the lone vote against the RFI, citing other processes and agencies that exist and already have a focus on climate ­issues. “The only reason to put the RFI out is because there’s some chance that someday [the] NCUA may take some action,” he said.

Comments for the RFI in the Federal Register closed on June 26 and CU Times sorted through the 44 comments officially filed by the deadline.

For context, in the official RFI, the NCUA stated “as a prudential financial regulator, the NCUA does not have expertise in climate science. As set forth in the questions below, the NCUA is seeking input that would strengthen its ability to identify and assess credit unions’ current and future climate and natural disaster risk.”

The RFI included a total of 38 questions seeking comments “on the current and future climate and natural disaster risks faced by FICUs.” The RFI added, “The NCUA is broadly interested in understanding stakeholders’ views and experiences in this area. Commenters are also encouraged to discuss any and all relevant issues they believe the Board should consider with respect to the financial risks associated with climate change. This includes, but is not limited to, risks posed to, or stemming from, field of membership, lending, investments, other assets, deposits, underwriting standards, insurance coverage, liquidity and capital.”

In the analysis of the 44 comments, CU Times found six comments were filed by credit unions; six comments by credit union leagues; four comments by credit union lobbying groups; 17 comments by politically-funded organizations or organizations outside the credit union industry; four comments by individuals and three comments by anonymous individuals.

While this amount equaled 40 comments, the remaining four comments were repeated or double filings by individuals or organizations listed above, possibly submitted in error.

The analysis of the submissions completed by CU Times was an attempt to gauge the overall sense of where the topic of climate-related issues falls within the credit union industry. While reading, we attempted to categorize each submission into a “yes” or “no” category based on whether the submission was open or not open to the possibility of the NCUA looking into opportunities to enhance any kind of supervision or regulation as it relates to climate-related risks to credit unions. In this overly-simplified tally, there were 22 “yes” submissions and 18 “no” submissions. The vast majority of the submitters were open to the NCUA learning more about climate issues and risks. Few submissions came down undoubtedly on one side or the other of the climate issue.

As of this writing, a spokesperson for the NCUA stated it is in the process of reviewing the submissions and “there are no planned actions at this time.” It’s unclear when the NCUA board will address the findings of the RFI.

Below, we’ve published several of the comments filed in order for readers to get a better understanding of what information the NCUA has received. The public filings can be found by searching “Climate-Related Financial Risk” on the Regulations.gov website.

Clearwater Credit Union ($964 million, Missoula, Mont.) President/CEO Jack Lawson: “Climate change presents a wide array of physical and economic risks. Some are predictable, others will be a surprise. Risk management is a central part of credit unions’ business and there is a well-established framework for it, but this framework needs to be expanded to include climate risks. As a regulatory agency, (the) NCUA has a strong role to play in helping credit unions meet this challenge.”

California and Nevada Credit Union Leagues President/CEO Diana Dykstra: “While we recognize the need for an ongoing assessment of emerging risks and supervisory approaches, we firmly believe that additional regulations and supervisory measures specific to climate-related financial risks are unnecessary at this time. Climate change is a complex and evolving issue, and projecting its financial impacts over the long term can be challenging.”

USC Credit Union ($765 million, Los Angeles) President/CEO Gary Perez: “As more credit unions gain expertise in green lending and scale green loan portfolios, it is critical that the NCUA train examiners to understand and evaluate green loan portfolios and the specifics of green lending so that they can provide appropriate oversight, support and feedback for the credit unions they supervise.”

Minnesota Credit Union Network General Counsel Daniel Le: “We ask the NCUA to incorporate state mandated climate related surveys in formulating its regulatory rules on climate related financial risk requirements moving forward. Again, we are asking the agency to keep in mind that credit unions come in all different scales of assets and resources and that a one-size-fits-all rule could devastate smaller asset sized credit unions and the often low- to moderate- (income) communities which they serve.”

NASCUS CEO Brian Knight: The “NCUA must also consider the uncertainty of future climate-related public policy developments, trends related to consumer preference, fidelity to financial inclusion of communities with limited access to financial services, and the limiting nature of credit union common bond requirements. For these reasons, (the) NCUA should proceed with guidance designed to educate rather than regulate and designed for maximum flexibility.”

League of Southeastern Credit Unions & Affiliates Manager of Regulatory Advocacy David Pace: “LSCU supports the NCUA in taking proactive steps to understand and manage the risks posed by climate change. LSCU believes that the NCUA can play a key role in helping credit unions to become more resilient to climate change by providing guidance on how to assess and manage climate-related risks, developing standards for climate-related disclosures, and encouraging credit unions to invest in green initiatives. LSCU believes that by taking these steps, the NCUA can help to ensure that credit unions remain strong and vibrant in the face of climate change.”

Ohio Credit Union League President Paul Mercer and Director of Regulatory Affairs Sean Brown, Esq.: “Credit unions historically differentiate themselves from other financial institutions by their cooperative structure, member-driven focus and commitment to serving the needs of the very communities in which they operate. These differentiating factors ultimately cultivate where credit unions operate, who they serve, and most importantly, their strategic direction. That is why OCUL cautions (the) NCUA against prescribing future climate related rules that dictate or impair any credit union’s strategic direction.”

The Heritage Foundation Senior Fellow in Economic Policy David Burton: “Does the NCUA really think that it is in the public interest to drag every credit union in the country into this morass and make climate change-related financial risk, such as it is, central to examinations? Should the NCUA impose massive costs on credit unions so that they can guess the impact of climate change on their operations years into the future? I do not think so. The NCUA should exercise its independence from the Biden administration. For the sake of credit unions and those that use them, it should just stay out of this mess.”

United Nations Federal Credit Union ($8.1 billion, Long Island City, N.Y.) President/CEO John Lewis, EVP and Global Sustainability Program Co-Sponsor Pamela Agnone, and SVP/Chief Information Officer and Global Sustainability Program Co-Sponsor Prasad Surapaneni: “Just as (the) NCUA introduced its voluntary diversity self-assessment to help CUs evaluate and advance their diversity policies and practices, a self-assessment for climate risk could provide similar benefits. Likewise, incorporating fields for voluntary reporting of key metrics into the quarterly Call Report could foster active information sharing amongst all CUs to better understand and address physical risks, including any potential concentration risk.”