NCUA Proposes 4.3% Boost in Budget for 2019

The NCUA board on Wednesday proposed a $334.8 million budget for 2019, a 4.3% increase above the board-approved budget for this year.

“The NCUA remains committed to a fully transparent and accountable budget process,” NCUA Board Chairman J. Mark McWatters said. “We appreciate thoughtful, specific suggestions from stakeholders on making the most efficient and effective use of the resources credit unions provide. While final decisions always remain with the Board, receiving and reviewing public comments is an important part of our process.”

The budget announcement coincided with the agency’s announcement that it will accept public comment on the budget plan until Oct. 26 and will hold a budget briefing on Oct. 17. That briefing will be webcast.

The agency has posted the budget on its website.

The budget proposal calls for a $6.3 million increase for the agency’s operating budget, which amounted to $298.1 million this year. The operating budget estimate for 2020 is $316.2 million.

Based on the Overhead Transfer Rate methodology, the overall increase for the operating fee is 2.2 percent in 2019, compared with 2018. The Operating Fee will be assessed to federal credit unions based on estimated year-end assets.

Since 2017, the NCUA budget has grown slower than the rate of inflation, agency officials said.

Agency officials said that it is notable that the agency’s operations have become more efficient relative to the size of the credit union system since consolidation in the industry has resulted in the growth of large credit unions, specifically those with more than $10 billion in assets.

In the budget, NCUA officials outlined several projects that they said will help make the agency more efficient.

The agency reported that a pilot program, FLEX, which was tested in the Southeast Region, shows promise for expansion of offsite testing.

In some FLEX reviews, 35% of the total exam hours were conducted offsite, with the majority of credit unions giving positive feedback to the new approach. The pilot program demonstrated the need to have a secure file transfer system, which is now being tested.

Agency officials also are participating in a working group with state regulators to evaluate a system of alternate-year examinations for Federally Insured-State Chartered Credit Unions.

The working group is developing a pilot program that is likely to run about three years.

In a separate project, the agency’s virtual examination team is expected to deliver by the end of 2020 a report that discusses the alternative ways to remotely analyze the operations and financial condition of credit unions.

“For credit unions that are compatible with this approach, the agency’s goal is to transform the examination and supervision program into a predominately virtual one within the next five to ten years,” the agency said.

As part of its budget proposal, the NCUA outlined several challenges the credit union industry is expected to face.

For instance, the agency said that while overall credit union membership continues to grow, half of the federally insured credit unions had fewer members at the end of the second quarter of 2018 than a year ago.

“Demographic and field of membership changes are likely to continue to result in declining membership at many credit unions,” the NCUA said.

The agency went on to say that all credit unions must consider whether their product mix is consistent with member needs and the institution’s demographic profile.

“For example, in some areas, to be effective, credit unions may need to explore how to meet the needs of an aging population or of a growing Hispanic population,” the agency said.

The agency also said that small credit unions face challenges to their long-term viability.

“If current consolidation trends persist, there will be fewer credit unions in operation and those that remain will be considerably larger and more complex,” the agency said.

Larger credit unions offer more complex products, posing challenges to both the institions and the NCUA, the budget warns.

Under the budget proposal:

• The agency’s personnel level will drop by 10 positions, the result of the agency’s reorganization plan. The reorganization plan resulted in the elimination of 15 positions, but the agency is proposing five new positions.
• The capital budget would increase $6.6 million above the 2018 level.
• The Share Insurance Fund’s administrative budget would increase $300,000 above the 2018 level. The agency said that the increase is primarily for the increased use of consultants and contractor support for credit union stress testing.
• Based on the Overhead Transfer Rate methodology the share of the budget funded by the operating fee will be almost $141 million.