Compliance Blog

Apr 24, 2023

Let’s Talk About Risk: NCUA Examines Climate-Related Risk

NCUA recently released a research note (note) reviewing the exposure of the credit union industry to climate-related events. In its research note comparing Q4 2021 call report data with FEMA’s National Risk Index, the Office of the Chief Economist (OCE) found that “roughly one-quarter of federally insured credit unions, accounting for one-third of system-wide assets, are located in communities classified as having relatively high or very high risk of experiencing negative effects due to natural hazards.” This note also finds the risk threatens minority depository institutions more than the credit unions in the aggregate. The note indicates the frequency and the cost of these events such as hurricanes are on the rise. For example, 2022 was the eighth straight year with ten or more billion-dollar disaster events, with an estimated 15 billion-dollar worth of disasters that year.

The note highlights how climate-related risk may impact credit unions. It suggests natural disasters may have a ripple effect on communities and the industry in general.

For example, a natural disaster could drive down the value of affected real estate, impacting real estate loans and mortgage-backed securities, as well as the financial health of the households and/or businesses that occupy the affected property. This chain of events would, ultimately, influence the performance of the institution that holds the loan and bears credit risk.

The note highlights two credit unions that were directly impacted by natural disasters, Orleans Public Schools Federal Credit Union and Chalmette Refinery Federal Credit Union. Both federal credit unions closed their doors as a result of the impacts of natural disasters.

NCUA conducted this research by taking Q4 2021 call report data and compared it with FEMA’s National Risk Index to measure exposure to climate-related events. FEMA’s index uses a risk rating, assigning a five-risk rating, ranging from a very low risk to a very high risk on a five-level ordinal scale. NCUA’s note found some interesting data points. First, NCUA found 25 percent of credit unions, accounting for 34 percent of system-wide assets, “are headquartered in areas at relatively high or very high risk of experiencing negative effects due to natural hazards.” That is $750 billion in total assets for that quarter. The credit unions that fall under the first data point “…account for 32 percent of all credit union loans outstanding and 34 percent of credit union deposits.” This equals to $406 billion in total outstanding loans and $616 billion in total deposits. NCUA found similar risk exposure for minority depository institutions.

NCUA also found that credit unions labeled relatively high and very high risk are concentrated along the coast, such as in California, Texas, and Florida. The note maintains these three states combined account for “11 percent of credit unions located in communities that are at an elevated risk and 22 percent of credit union assets.” The note provides that these three states have 559 credit unions headquartered and $447 billion in total assets. It also highlights these states as having the most exposure to climate-related events. NCUA also outlines credit union exposure to specific natural disaster risks. In exploring the data, NCUA found half of credit union assets are in areas relatively high or very high risk of experiencing tornadoes and strong winds.

NCUA addresses some shortcomings in its analysis such as not using member-level and loan-level data. NCUA does note that this type of data is not “readily available.” In addition, they did not consider “the likelihood of specific disasters affecting credit unions or estimate what credit union losses might be given the occurrence of these disasters.” In addressing forecasting future-potential losses, NCUA suggests this may be difficult due to not always knowing if a government may intervene and how a government may intervene following a natural disaster. NCUA acknowledges that losses in the past were mitigated due to government intervention on all levels.  Following the release of NCUA’s research, NCUA’s Board approved a Request for Information on climate-related risk to credit unions.

If there are any additional questions, please do not hesitate to contact NAFCU’s Regulatory Compliance team at

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