NCUA Vice Chairman Kyle S. Hauptman speaks during a meeting of the NCUA Board.
As Prepared for Delivery on April 20, 2023
Thank you, Lisa and Rachel, for the presentation and to the NCUA’s internal climate group, who worked on the Request for Information (RFI). I’d also like to thank our representatives in the broader working group convened by FSOC, the Financial Stability Oversight Council. I know it was a lot of effort to put this RFI together, including deciding on the 38 questions.
I understand why Chairman Harper assembled NCUA’s working group on climate financial risk to produce this RFI, and I understand why an insurer like NCUA would examine this important topic. Natural disasters and severe weather events cause massive damage every year. I grew up in two places, and both are islands in the Atlantic Ocean. I’ve seen this all first-hand.
I also know that today’s vote is technically just about the NCUA publishing a RFI. RFIs are a good-faith effort to gather information and may or not even result in any concrete actions. In fact, other agencies have put out similar RFIs that haven’t resulted in any actions.
So, I get it; this RFI may not result in any action at all, much less anything harmful. I can even think of some narrowly targeted positive results, such as credit unions educating us on new, profitable business lines we may not be familiar with, such as loans for electric vehicle charging stations. I know if I was an examiner, I’d be more comfortable if I understood new terminology and new financial products, and I’d also be more comfortable knowing that other examiners are dealing with similar things at other credit unions. I’m here to state that this RFI just might wind up being beneficial for all parties.
Essentially, I think there are some ways this can go well but also quite a few ways this effort can unintentionally windup doing harm to both the Share Insurance Fund and credit union members.
I’m going to vote no for the following reasons:
- Those closest to these natural disasters and changing markets are best positioned to understand and manage the risks. We in the DC area don’t need to tell folks in Puerto Rico about hurricanes. We’ve already had situations where a credit union is deciding on a loan to a member affected by a natural disaster, and the credit union employees themselves lost their homes in the disaster, and the office they are meeting in was also rendered uninhabitable by a hurricane. I feel that those people in that room have a better understanding than those of us here in the DC area.
- The history of unintended consequences of government interference in private markets. An easy example here is the National Flood Insurance Program (NFIP). It’s a useful comparison because the NFIP is the one government program which solely exists to manage the risks associated with severe weather events. NFIP has become a political football, with bi-partisan agreement that it fails at both of its core missions. Created in the late 1960s, NFIP was created with the good intentions of a) providing flood insurance at appropriate prices that protect the taxpayer and b) reducing unnecessary flood damage. Well, NFIP has lost over $50 billion dollars, and any insurance commissioner in the country would have shut it down. And per reducing damage from floods, it’s been widely criticized by environmental groups like the Sierra Club for subsidizing continual unsafe building in flood-prone areas, thereby increasing loss of life and property damage. Such is the history of well-intentioned government involvement in managing weather-related risks.
- Potential harm to credit union members. The only reason to put in the effort to produce the RFI is because there’s some chance that someday, the NCUA may take some action. That future action by the NCUA could manifest itself in rulemakings, guidance, examiner training, data collections, or other documents that signal NCUA’s priorities and approach. Those documents include our Strategic Plan, our Supervisory Priorities, our pre-exam questionnaires, and the call reports that credit unions submit. All of these communicate NCUA priorities and can influence behavior. Thus, any change in any of those communications has the potential to nudge credit unions towards – or away from – certain behaviors that may not be in their members’ best interests.
- FOM Expansion: Let’s say a local oil refinery expands, and the local credit union has the opportunity to expand membership and lending activity that is indirectly related to the oil and gas business. I foresee a scenario where NCUA’s words might give that credit union pause about increased exposure, even indirectly, to the fossil fuel industry. That NCUA-caused reticence could result in harm to those potential new members and to the credit union’s finances. Again, this is hypothetical; I’m just elucidating my apprehension about what might happen in the future.
- Auto Loans: For example, today’s RFI mentions risks related to the “shift from gasoline-powered vehicles to electric and hybrid vehicles.” I worry we might ask credit unions for data on the share of their lending for electric and hybrids. Someone out there might feel this is a nudge, indicating a shift towards those vehicles is the ‘better answer,’ the answer that gets examiners nodding their heads. Meanwhile, credit unions live and breathe the auto-lending market. This could result in tweaks to loan pricing to make some vehicles more desirable than others. That sort of ‘nudge’ would interfere with the credit union’s ability to price risk in the markets they know best and perhaps give a credit union member a less favorable deal than they otherwise would’ve gotten.
- All of these issues are already dealt with via existing workstreams, and the NCUA’s involvement could dull the market signals that make those workstreams function well. Credit unions are currently watching land prices in flood-prone areas. There are constantly shifting insurance markets for homes and vehicles. The NCUA already has sensible concentration limits and other regulations. And of course, there are a lot of entities writing checks before the NCUA’s deposit insurance kicks in. There is the potential here to view climate as a separate workstream or area of regulatory focus that could interfere with existing processes.
Thank you, Mr. Chairman. That concludes my remarks. I have a few questions.