NCUA Research examines credit union exposure to climate-related physical risks
ALEXANDRIA, VA (April 19, 2023) — The National Credit Union Administration’s Office of the Chief Economist today released a Research Note finding that roughly one-quarter of all federally insured credit unions are in communities classified as having a relatively high or very high risk of experiencing negative effects due to natural hazards.
“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 M. 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.”
Using year-end 2021 credit union Call Report data and the Federal Emergency Management Agency’s National Risk Index, staff from the Office of the Chief Economist estimated credit union exposure to climate-related physical risks.
The NCUA’s research showed:
- The 25 percent of credit unions that are in communities at relatively high or very high risk of experiencing negative outcomes from natural hazards accounted for 34 percent of system-wide assets, or approximately $750 billion, at the end of 2021.
- Minority depository institutions face a substantially higher risk than the credit union system in aggregate.
- Credit unions most at risk of negative outcomes due to natural hazards tend to be located in coastal areas, particularly in California, Texas, and Florida. Together, these three states account for 11 percent of credit unions located in communities with an elevated risk and 22 percent of credit union assets.
The research also examined the exposure of the credit union system to specific natural disaster risks, focusing on the 10 most costly natural disasters based on FEMA’s estimates of expected annual losses. Roughly half of credit union assets are in areas at a relatively high or very high risk of experiencing a natural disaster due to tornado, and a similarly large share of credit union assets are in areas exposed to strong winds.
The NCUA Board will consider a request for information on climate-related financial risk at its April meeting on Thursday.
About National Credit Union Administration (NCUA)
The NCUA is the independent federal agency created by the U.S. Congress to regulate, charter and supervise federal credit unions. With the backing of the full faith and credit of the United States, the NCUA operates and manages the National Credit Union Share Insurance Fund, insuring the deposits of more than 135 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions. The NCUA also protects consumers and educates the public on consumer protection and financial literacy issues.
