NCUA Chairman Todd M. Harper’s Remarks at the International Credit Union Regulators’ Network Annual Meeting

As Prepared for Delivery on July 17, 2023

Thank you, Kelly, for that warm introduction.

And, good morning, everyone, and welcome to the NCUA’s offices. It’s an honor to address this gathering of regulators and supervisors from around the world. I would like to recognize and thank the Chair of the International Credit Union Regulators’ Network, Elaine Byrne, with the Central Bank of Ireland, and its Board of the Directors for the invitation to join you today during your annual conference. I also want to thank everyone who planned this event, including staff from NASCUS, ICURN, and the NCUA.

Interesting Times

In January 2021, during the height of the COVID-19 pandemic, I became the NCUA Chairman. At the time, I was reminded of the proverb, “may you live in interesting times.” While seemingly a blessing, the expression is normally used ironically. Life is often better in “uninteresting times” of peace and tranquility than in “interesting” ones, which are usually times of trouble.

No doubt you have also experienced interesting times over the last four years in your respective countries with the institutions you regulate and supervise, and the insurance funds you oversee. As an example of recent “interesting times,” the issue of financial stability and liquidity at depository institutions has dominated news cycles in the U.S. and Europe. The recent failures of Silicon Valley, Signature, and First Republic banks in the United States, and the collapse of Credit Suisse in Switzerland, illustrate how quickly problems in institutions can escalate. These examples also illustrate the importance of rapid and decisive regulatory action to stem the tide of fear when consumers’ hard-earned savings hang in the balance, and to maintain confidence in the global financial system.

So, let’s focus on the factors that have made these times so “interesting,” as well as their potential implications for us as regulators and for the credit unions and cooperatives we oversee.

A Challenging Rate Environment

Economies across the globe are still experiencing the effects of the pandemic, as well as supply chain disruptions from Russia’s war in Ukraine. Interest rates have also increased sharply across the globe. The ongoing monetary tightening to combat high inflation by various central banks has created new challenges, and banking sector stress in some economies is expected to lead to weaker financial conditions.¹

Fortunately, inflation is starting to recede in the U.S. and in many countries around the world, but it is still well above pre-pandemic levels. Data compiled by the Organization for Economic Cooperation and Development, show that in April, annual inflation was running close to 10 percent in Chile; higher than 100 percent in Argentina; around 8 percent in the United Kingdom and the Eurozone; and just over 7 percent in South Africa. The OECD expects global growth to slow considerably in the months ahead as tighter monetary conditions weigh on credit growth and investment.²

Therefore, it essential that we all prepare for potential economic and financial stress on our regulated institutions. For our part, the NCUA is well positioned to address issues that may arise from broader market concerns about liquidity in the financial services sector here in the U.S. We continue to monitor credit union performance through the examination process, offsite monitoring, and tailored supervision. In addition, the NCUA is coordinating with other U.S. financial institution regulators to ensure the overall resiliency and stability of our nation’s financial services system.

However, it’s not just regulators who need to act to maintain the strength and resiliency of our institutions. Credit union executives, managers, and boards must also remain diligent in managing the potential risks on their balance sheets and continue to monitor economic conditions and the interest rate environment. Because the ability of our credit unions and cooperative institutions to proactively manage interest rate, liquidity, capital, and credit risks will be essential to their success moving forward.

Being Prepared for Credit Risk

With persistent inflation and tighter monetary conditions likely to continue into next year, the issue of credit risk is especially important. In the U.S., we are starting to see signs of financial stress in households. For example, we saw several things in the financial performance data for U.S. credit unions in the first quarter of 2023, including the rise in home equity lines of credit, as consumers began to access the equity and value of their homes and property to pay expenses; higher delinquency rates; and elevated credit card balances.³

These are warning signs of rising household financial stress that could ultimately affect credit union performance in the U.S. You may be seeing similar trends in the performance data of your institutions or the financial conditions of the memberships and communities they serve. As such, all of us should carefully monitor the financial well-being of our individual nation’s consumers, so we are prepared to respond to any signs of trouble.

Growing Cybersecurity Risk

Another area of concern for all of us is cybersecurity risk and the protection of data and systems at the heart of our organizations and the global financial system. Cybersecurity keeps me awake at night, and I’m sure I am not alone.

The potential for cyberattacks on our nations’ financial services sectors is high and will likely be that way for the foreseeable future. Even though the credit unions and cooperatives we oversee are relatively small compared to large global and systemically critical financial institutions, they are still potential targets for cybercriminals across the globe.

What concerns me the most are the countless threats we do not know about and cannot foresee. These risks are likely to continue and accelerate as technology evolves and becomes more sophisticated. Therefore, all of us — regulators and supervisors, technology and product vendors, and credit unions and financial cooperatives of all asset sizes — have a responsibility to protect our systems, improve our ability to recover from cyber incidents, educate our teams, share information, and report and address potential vulnerabilities in technology, networks, and systems.

Creating an Environment for the Equitable Use of Technology

Indeed, today’s interconnected financial system has seen the accelerated growth in new technology and new financial products and services. For example, cryptocurrency, digital assets, blockchain, and decentralized finance are no longer solely used in Silicon Valley or high finance. Global markets have quickly embraced these tools and products, altering the way people perceive and engage in financial services transactions and commerce. And the COVID-19 pandemic has accelerated the rate of adoption of these products and technologies.

In the U.S., financial regulators are beginning to address the emergence of these tools and products from a legal and regulatory perspective. Many of the countries you represent may be further ahead or in a similar position when it comes to understanding their application and creating legal and regulatory frameworks for their use.

While we should recognize and harness the potential opportunities these products and technologies offer, we must also recognize the risks they pose to our cooperative institutions and the broader financial services sector and develop appropriate guardrails. For example, there are concerns associated with these technologies, including those related to criminal and terrorist financing, consumer financial protection, equity and fairness, and even potential coverage of these products by the various deposit insurance funds that guarantee the deposits of our nations’ institutions.

The pace of technological change means that our legal and supervisory structures often lag behind the industry’s development of new products and services or the pace in which consumers adopt those products and services. Therefore, any regulatory action by the U.S. or others risks inadvertently stifling innovation, creating regulatory arbitrage and non-competitive environments, and preventing credit unions and cooperatives from embracing this technology or competing with non-bank actors gaining market share.

Forums like this meeting are beneficial as they provide a forum for all of us to share information and lessons learned from across the globe. From this dialogue and other actions, we can develop a regulatory regime that allows our institutions to embrace emerging technology, protects the rights of our members, deters exploitation by bad actors, and ensures cooperatives can continue to meet the needs of members and communities, now and in the future.

Addressing Climate-related Financial Risk

Global dialogue is especially essential in the area of climate-related financial risk, an issue from which no country or financial institution is immune.

The U.S.’s National Oceanic and Atmospheric Administration estimates that the Earth’s temperature has risen by an average of 0.08 degrees Celsius, per decade since 1880, or about 1.1 degrees Celsius in total. The rate of warming since 1981 is more than twice as fast rising 0.18 degrees Celsius over the last four decades.⁴

These rising temperatures have made natural disasters and climate-related events more frequent, intensive, and costly, both in lives and financial losses. For example, in the U.S., we experienced 20 separate billion-dollar-plus weather-related disasters in 2021, causing more than $156 billion in damage.⁵ And last year, there were 18 billion-dollar-plus disaster events costing more than $171 billion in damages, making it the eighth straight year with 10 or more billion-dollar-plus disaster events in the U.S. Other regions of the world have seen similar climate-related disasters, with more severe flooding, deadly heat waves, and rising sea levels.

These trends and loss numbers are eye-opening and cannot be ignored. Regulators and insurers of federal financial institutions, like the NCUA and those in this room, have a duty to ensure the institutions they oversee remain resilient against all material risks including financial risks due to climate-related events.

The U.S. Financial Stability Oversight Council, or FSOC, has taken several steps over the last two years to assess climate-related financial risk to the stability of the federal government and the stability of the U.S. financial system. These activities include issuing a report with recommendations for each member agency in the U.S. government to better assess climate-related financial stability risks, enhance climate-related disclosures, improve access to and the quality of climate-related financial data, and build capacity and expertise regarding climate-related financial risk. The council has created internal working groups focused on information sharing and implementation of the report’s findings, as well as an external advisory committee to improve the council’s understanding of the impact of climate change on the financial sector.

For our part, the NCUA Board in April approved a request for information to better understand stakeholders’ views and experiences on climate-related financial risk affecting federally insured credit unions in the U.S.⁶

I recognize that the U.S. is behind other countries when it comes to the issue of climate-related financial risk. However, I hope there are nations that find our efforts helpful as they formulate their own plans to understand and address this challenge.

The issue of climate-related financial risk and the measures we have — and should — implement to mitigate that risk have taken on greater urgency in recent years. And I look forward to learning from others on how you are addressing this issue in your nations and with your financial institutions.

Looking to the Future

In closing, I want to return to where we started, the proverb “may you live in interesting times.” And many of the challenges facing us are daunting, not only for us as regulators, but for our teams and our regulated institutions, and certainly, meet the proverb’s definition of “interesting times.”

However, I am, by my nature, an optimist first and foremost. So instead, I prefer to view these challenges and obstacles as an opportunity. The pandemic has accelerated several long-standing trends, such as the adoption of digital services and mobile apps and the emergence of fintech competitors in areas our institutions compete in. And, it has highlighted long-standing inequities in the U.S., and across the globe.

But, as Albert Einstein once said, “In the midst of every crisis, lies great opportunity.” Let us seize that opportunity, through dialogue, information sharing, and cooperation to build a stronger and more equitable global financial system that promises greater access to safe, fair, and affordable financial products and services under the cooperative model.

On behalf of the NCUA Board, welcome to Alexandria, and I hope you have an enjoyable and productive conference these next three days.

Thank you.