The National Credit Union Administration announced at its Thursday board meeting that credit unions could be subject to a share insurance premium ranging from three to six basis points, approved budgets for 2017 and 2018 and tackled the Overhead Transfer Rate, longer exam cycles and other exam flexibility initiatives.
Federal law requires normal operating levels for the Nationa Credit Union Share Insurance Fund (NCUSIF) fall within a range of 1.20% and 1.50%, and since 2007 the regulator has set normal operating levels at 1.30%. However the agency's current projections – which could change with fluctuations in the economy – indicate that the ratio will fall to somewhere between 1.24% and 1.27% in the coming year. NCUA's staff has recommended to the board that premiums be assessed, though the board has not yet approved that. If the board does vote to approve, that would not likely happen until the February or July board meeting.
The board also approved a 2017 operating budget of $298.2 million –
The credit union trade associations were quick to criticize budget and the insurance premiums.
"NAFCU acknowledges that certain factors have resulted in a downward movement of the equity ratio for the Share Insurance Fund recently," said NAFCU President and CEO Dan Berger. "However, NAFCU urges NCUA to exercise caution in assessing a premium in 2017, only doing so if it is deemed absolutely necessary.
NCUA has not instituted premium assessments for the NCUSIF since 2010, when at 12.42 basis-point assessment was put in place. The announcement of possible new premium assessments comes not long after NCUA declared that
"Just like a homeowner who checks the roof and makes repairs before the storm comes, NCUA and credit unions must do the same for the Share Insurance Fund before the next economic downturn," Metsger said. "In recent years, the economy has stabilized, and credit unions as a whole have experienced considerable growth in insured shares. To ensure the fund continues to have the resources it needs, credit unions next year may need to pay their first share insurance premium since 2010. Such an investment would prudently protect member deposits."
But the move still drew a cautionary response from NAFCU. "Given the fact that NCUA is forecasting a three- to six-point premium for the Share Insurance Fund next year, NAFCU urges the agency to redouble its efforts to refund monies to credit unions to offset any additional costs as soon as possible," said Berger
Neither NAFCU nor the Credit Union National Association (CUNA) were satisfied with the minor reduction to NCUA's budget, with NAFCU's Berger calling it "a first step, and we hope it signals a trend toward further budget discipline in the years to come."
CUNA CEO Jim Nussle noted in a statement that not only does the regulator's budget continue to increase, but is doing so "at a rate that significantly outpaces changes in credit union operating costs and the budgets of other banking regulators." He added that the regulator's staffing increased "substantially" following the financial crisis, yet the overall number of full-time employees at the agency is "virtually unchanged since the peak of the crisis even though credit union financial conditions have improved dramatically."
Nussle added: "The agency provides woefully little information on the rubric it uses to determine appropriate staffing levels. Instead it rationalizes what appears to outsiders as unnecessarily high staffing by simply explaining that CU complexity has increased."
Ironically, on the same day as NCUA finalized its budget, the Cornerstone CU League – which represents credit unions in Texas, Oklahoma and Arkansas – announced that Oklahoma officials have approved a 50% reduction in assessments collected from state-chartered CUs with assets under $1 billion, and a 30% discount for those above the $1 billion mark. This is the fifth consecutive year that the Oklahoma State CU Board has approved reductions for state-chartered credit unions.
Both NCUA Chairman Rick Metsger and Board Member J. Mark McWatters noted that this was the most transparent budget process at the agency in a number of years, pointing to last month's public briefing on the regulator's budget—something industry stakeholders had long been asking for.
Still, those same stakeholders have suggested that still more could be done – and McWatters didn't disagree. "While we have made steps in the right direction, the budgetary process remains a work in progress," McWatters said. "The next step will involve considering recommendations for the overhead transfer rate methodology early next year, and we should consider further changes at the mid-session budget review."
OTR and Other Matters
NCUA is also expected to assess nearly $105 million in operating fees from FCUs, with the remaining amount expected to be funded via the Overhead Transfer Rate and other sources. The 2017 OTR is down by more than five percentage points, from this year's 73.1% to 67.7%.
The National Association of State Credit Union Supervisors has regularly pressed NCUA about the OTR and its methodology, and NASCUS President and CEO Lucy Ito commended the regulator for the reduction, but emphasized that it must still be brought down further.
"This has never been about a number; it's about equity and fairness, and most importantly the legal question as to how Congress intended the agency to allocate its funding," Ito said in a statement. She added that NASCUS continues to urge NCUA "to rescind its delegation to staff of setting the OTR; this is something that must rest with the board."
In addition to premiums, the budget and OTR, the NCUA Board unanimously approved a final rule on the Community Development Revolving Loan Fund and 10 other recommendations from the agency's Exam Flexibility Initiative working group (though those were approved as part of the budget discussions).
