As bank regulators cut costs, NCUA forecasting higher expenses

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The National Credit Union Administration is eyeing further increases to its budget.

The agency’s latest budget proposal, released Tuesday, projects a 1.1% increase to the previously approved 2020 budget, while the 2020 budget is expected to rise by 3% compared to 2020 revisions, and 3.9% over what the board approved for 2019. NCUA divides its overall budget into three categories: operating budget, capital budget and the National Credit Union Share Insurance Fund administration budget. The operating budget makes up the lion’s share of the total amount.

Increases to the budget are a continued trend at NCUA, and the agency’s cost structure has continued to rise in recent years even as it has made efforts to curtail its spending, including restructuring its regional offices and moving toward less frequent on-site examinations of the institutions it oversees. Industry groups have long praised the regulator for its transparency but continue to call on it to reduce costs. NCUA stands in contrast to other federal banking regulators, including the Federal Deposit Insurance Corp., whose budgets have gone down in recent years.

The revised 2020 budget, totaling more than $347 million, reflects a $6.4 million (34%) increase in the agency’s capital budget for the year. NCUA said that includes an increase in the mandatory contributions federal agencies must make for the Office of Personnel Management’s Federal Employee Retirement System.

The National Credit Union Share Insurance Fund administration budget is projected to decline by $2.6 million (29.3%) in the revised 2020 budget, though the agency noted those reductions reflect the fact that the operating budget will cover costs related to the oversight of credit union-run stress testing.

No changes are expected for the 2020 operating budget.

At $358 million, the proposed 2021 budget increases are driven primarily by a $9.7 million (3.1%) increase in the agency’s operating budget and a $482,000 increase (7.5%) to the share insurance fund administration budget. Despite the changes in the operating budget, NCUA is not expecting any additional staffing expenses, and the budget proposal indicates sustaining the number of full-time employees at 1,185 through 2021.

NCUA is predicting a 3.8% increase ($8.5 million) to pay and benefits for 2020, and over half of that is the result of mandatory increases to FERS contributions, which apply to nearly all employees at the agency. Without those payments, NCUA said, total compensation growth would stand at just 1.6%, and the operating budget would only be up by 2.2%.

Travel costs at the agency are expected to rise by $590,000 (2.2%) for a total budget of $27.4 million, in part reflective of a 1.3% increase in government-wide per diem rates, the agency said. NCUA in recent years has reshaped its regional mapping and various regional offices, including closing some facilities, as the regulator continues to move toward less frequent on-site visits and more remote exams. As part of that process, the 2020 operating budget includes roughly $1 million for one-time travel costs associated with nearly 800 employees who will participate in training next year for the agency’s new Modern Examination and Risk Identification Tool (MERIT) system. State credit union examiners will also be trained on the new system.

The NCUA board is scheduled to discuss the proposals during its Nov. 20 budget briefing and the agency will accept public comments on the issue until Dec. 2.

“Careful stewardship of the resources credit unions make available to us includes being transparent and accountable,” NCUA Chairman Rodney Hood said in a statement. “We strive to make credit union stakeholders aware of how and why we allocate those resources and that they are in the service of our mission to provide, through effective, not excessive, regulation, a safe-and-sound system of cooperative credit. Final budget decisions remain with the board, and we want those decisions to be informed by public comments.”

Part of the increase to the 2020 operating budget is driven by a higher overhead transfer rate, which is marked at 61.3%, compared to 60.5% for 2019. That caught the attention of the National Association of State Credit Union Supervisors.

“We are concerned that the overhead transfer rate is estimated to rise for the first time in three years and look forward to engaging with NCUA to ensure the higher rate will not place an unjustifiable burden on state-chartered credit unions,” NASCUS President and CEO Lucy Ito said in a statement.

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Budgets Law and regulation NCUA NASCUS