NCUA approves 2018-2019 budget, simplified OTR metholology

The National Credit Union Administration unanimously approved a two-year budget plan that was largely unchanged from the one unveiled at a public session last month. Under the blueprint, the agency is authorized to spend a total of $321 million in 2018 and $331.3 million in 2019.

Before voting, Chairman J. Mark McWatters and Member Rick Metsger lauded NCUA for its transparency and frugality – noting the increase in spending between 2017 and 2018 is 0.9% -- less than the current rate of inflation.

“No stone has been left unturned to find ways to economize,” Metsger said.

Capital expenses are the only area of the budget seeing a significant increase, from $15.4 million in 2018 to $21.1 million in 2017. Much of the added money is earmarked for improved technology that, among other things, will help NCUA examiners conduct more of their work remotely.

‘We’re spending some money today hopefully to be able to save more in the future,” McWatters said.

In addition to the Oct. 18 briefing, NCUA produced a video, a 41-slide online presentation and a 98-page justification memo to explain its budget priorities.

“I’m, frankly, not aware of any public or private entity in the financial services sector that releases this level of detail on its budget.” Metsger said prior to casting his vote. “This is not only the most transparent budget in NCUA’s history, it is also the most transparent of any of the federal financial services regulators, and is quite likely the most transparent of any federal agency.”

“This is exactly what I wanted this agency to be doing,” McWatters said.

In other action, the board also approved a simplified methodology for calculating the overhead transfer rate, which determines how much the agency will take from its Share Insurance Fund to support its operating costs. Using the new methodology, the board approved a transfer totaling $128.9 million in fiscal 2018. Fees paid by federal credit unions comprise the agency’s other source of funding.

Overall, federal credit unions will fund 69.9 percent of the NCUA’s 2018 operating budget, while state-chartered credit unions will fund 30.1 percent.

The previous overhead-transfer methodology, first implemented in 2003, was notorious for its complexity, McWatters said.
“When I dug into the overhead transfer rate, I found something that was almost unfathomable in its complexity,” he said. According to Larry Fazio, director of NCUA’s office of examination and insurance, the revised methodology reduces the steps required to calculate the OTR rate from 8 to 3.

“It’ a very, very good rule,” McWatters said. “It’s built from the ground up, as opposed to tacking a bell or whistle on to what we had.”

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Also on the docket, the board approved a change to its corporate credit union rule that will require corporates to hold retained earnings equal to at least 0.25% of average assets. Those funds would be added to capital contributed by natural person credit union to achieve an overall capital ratio.

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