Credit Unions Question NCUA Budget Boost
"We see it as cause for concern across the credit union community."
After all, if the agency has fewer credit unions to supervise, it should cost the agency less to do its job, right?
Not so fast, NCUA officials said. The number of credit unions may be decreasing, but those that are left generally tend to be larger and offer more services.
As a result, it’s more complicated to oversee them and it’s costing the agency more money to do its job.
That’s the debate that is playing out in the credit union community, following the October release of the NCUA’s proposed 2019 and 2020 budget plans. The agency held a public hearing on the budget on Oct. 17 and the document was available for comment until Oct. 24.
The NCUA board has proposed a $334.8 million budget for 2019, a 4.3% increase above the board-approved budget for this year.
The budget proposal calls for a $6.3 million increase of 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% in 2019, compared with 2018. The operating fee will be assessed to federal credit unions based on estimated year-end assets.
The agency’s personnel level will drop by 10 positions as a 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 operating budget has increased 78% since 2009, Paul Mercer, president of the Ohio Credit Union League, and Miriah Lee, the league’s regulatory counsel, said in comments on the budget.
“This is remarkable,” they wrote in a letter to the agency. “We see it as cause for concern across the credit union community. We believe rationalized smaller annual percentage increases obscure a larger problem that longer spans of time plainly reveal; a tremendous increase in credit union funding for ever-expanding NCUA spending.”
They added that while the NCUA has reorganized and restructured, the agency has not decreased its budget.
NAFCU Board of Directors Chair Jeanne Kucey agreed.
“The NCUA continues to cite the growth of credit union assets as a reason for year-over-year increases to its operating budget, while pointing out that the overall budget has decreased relative to federal credit union balance sheets,” Kucey, president/CEO of JetStream Federal Credit Union, told the NCUA board during the budget briefing. “However, the NCUA examines and supervises credit unions, not assets.”
JetStream is in Miami Lakes, Fla., and has assets of almost $200 million.
But Board Chairman J. Mark McWatters bristled at the notion that the agency’s budget should be cut simply because the number of credit unions is decreasing each year.
“The number of credit unions is going down, but the number of larger, more complex credit unions is rising and the system as a whole is expanding,” he said. “Consolidation is taking small credit unions with relatively simple business plans out of the industry.”
He said that during the year ending June 30, the number of credit unions with $100 million or less fell by 226. He added, however, that the number of credit unions with at least $1 billion in assets increased by 20. During that same period of time, assets in credit unions increased by almost $80 billion.
“Since the system is getting larger and the number of credit unions is going down, the remaining credit unions are larger,” he said, adding that they are engaging in more complex transactions.
Credit unions are “pushing the envelope” on several fronts, ranging from secondary capital to business lending.
He said that the failure of a large credit union is very different from the failure of even several small credit unions.
“So, the bottom line here is that [the] NCUA – with its regulations, internal systems, capital equipment and personnel – needs to keep pace with changes in the credit union system to maintain the safety and soundness of the whole system,” he said. “And that costs money.”
The agency outlined several projects it said would increase efficiency.
For instance, 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 are also 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 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 10 years,” the agency said.