Climate Change is Bad: Now What?

October 25, 2021 at 8:54 am Leave a comment

As yours truly read through the Financial Stability Oversight Council’s (FSOC) climate risk report yesterday, I was bracing for a series of absurd mandates in which credit unions would have to join larger more sophisticated institutions in complying with a host of new requirements, and yet another loss by the New York Giants. I was pleasantly surprised on both counts. The report is an exercise in bureaucratic reasonableness, which gives NCUA plenty of flexibility to respond appropriately and not hysterically to the threats posed by climate change to the credit union industry.

The FSOC is comprised of 10 voting members, including the NCUA, and five non-voting members representing interested stakeholders such as state regulators. Its goal is to identify emerging risks within the financial system. At the time of its creation, there was a debate as to whether or not credit unions should even be included in a group which represented investment banks, the largest depository institutions in the world and the Securities and Exchange Commission.

When I heard that it was going to come out with a climate change risk report mandated by an executive order, I expected to see the outline of new regulations which would impose new reporting requirements on credit unions of all shapes and sizes. The report got the headline it was looking for when it proclaimed that climate change is an emerging and increasing threat to financial stability. But, the resulting action items included the following language:

“As part of their supervisory activities, the depository institution regulators expect to review within traditional prudential risk categories, as relevant, how effectively institutions incorporate climate-related financial risks into their risk management systems and frameworks, appropriate to their size, complexity, risk profile, and location.”

The biggest action item in the report is for bank regulators to augment their existing staff and develop greater expertise when it comes to assessing climate change risk. 

For its part, NCUA explained how it has established a series of working groups to address climate change. Its “ultimate goal” is to ensure that the system remains resilient in the face of climate related risk.

You can recognize climate change for the threat it is while also questioning the value of imposing additional mandates on depository institutions which do not engage in the type of activity that can mitigate climate change’s worst effects on a systemic level. If the FSOC’s report represents the approach ultimately taken by the NCUA and other depository regulators, we can all breathe a sigh of relief.

Entry filed under: Economy, Economy (?), General, Regulatory. Tags: , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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