Courtesy of Henry Meier, Esq., SVP, General Counsel, New York Credit Union Association
Of course they do, but that’s not the appropriate question that regulators should be asking themselves. The real question is, whether or not financial regulators should mandate if how and when credit unions choose to address these challenges? My answer to this question is that credit unions should be left to address climate change in a way which best reflects a given institutions resources, risk profile, and membership base.
As luck would have it, I’m not the only one who feels this way. Earlier this week the FDIC released a draft of the principles it expects bankers to consider when addressing climate change issues. Crucially the proposed guidance only applies to institutions that have $100 billion or more in assets (yes, that’s billion with a B, Dr. Evil).
In a statement accompanying the proposal, FDIC chairman Martin J. Gruenberg explains that “all financial institutions, regardless of size, complexity, or business model, are subject to climate-related financial risks. However, smaller financial institutions, especially community banks, may lack the financial resources and expertise necessary to effectively identify and measure climate-related financial risks.”
What is true for community banks is certainly true for credit unions. After all, the small handful of institutions that will be subject to the FDIC’s framework, hold more assets then the entire credit union industry. This approach is similar to one taken by NCUA board members Hood and Hampton, who have stressed that at this point, individual credit unions are best positioned to respond to climate change without prodding by regulators.
What I like so much about the FDIC’s statement is that it underscores that you don’t have to be a climate change denier to recognize that imposing specific requirements on many financial institutions at this time would impose clear burdens without resulting in any clear benefits. Simply put, we are still years away from cost effectively identifying the cost associated with climate change on a micro level and integrating these costs into specific financial products. For example, without access to the most sophisticated computer modeling, can anyone really predict how many thirty-year mortgages are not appropriately priced given the risks posed by climate change in specific geographical areas? Imagine how much Fiserv would charge for adding this on to your core processer?
And even if we had cost effective technology in place, there are some complicated legal and policy tradeoffs that have to be considered. Most importantly there is no shortage of research indicating that the effects of climate change disproportionality impacts low-income communities. What is the best way to address climate change while at the same time ensuring that low-income communities have access to cost effective housing and basic financial services and products?