In an unprecedented action, the NCUA Board has agreed to publish in the Federal Register the methodology it uses to determine the proportion of its budget that is funded by the industry's share insurance fund.
NCUA is giving credit unions 90 days to comment on its overhead transfer methodology, which was included in a 111-page document made public Thursday, and promised to publish a summary of the comments it receives, as well as its response, in the Federal Register, as well.
NCUA also voted to publish its formula for calculating the fees federal credit unions pay the agency each year. That comment period is also 90 days.
Advocates for state-chartered credit unions greeted the unanimous vote authorizing publication of the overhead transfer methodology with satisfaction. They have suggested NCUA is taking more than a fair share out of the share insurance fund - which both state and federal credit unions pay into - and that as a result state-chartered institutions are subsidizing the cost of regulating federal credit unions.
"This is an unprecedented opportunity, and it's about time," Lucy Ito, president and chief executive of the National Association of State Credit Union Supervisors, said in a statement Thursday. "For years, state regulators and credit unions have sought the chance to weigh in on the overhead transfer rate to address the inequities of the current system… We're gratified that NCUA has voluntarily considered the view expressed in our analysis and taken this step."
Congress established the National Credit Union Share Insurance Fund in 1970 and authorized NCUA to tap it in order to pay insurance-related costs. Costs connected to its role as regulator are supposed to be paid by the fees charged to federal credit unions. NCUA has used a number of different overhead transfer formulas over the years. The current methodology dates back to 2003.
For much of the 1980s, the overhead transfer rate ranged between 30% and 34%. It's risen steadily since then, even as large numbers of credit unions have converted to state charters. In 2015, NCUA set the overhead charter rate at 71.8%. This year, it was set at 73.1%.
NCUA officials attribute the trend to an increased focus on insurance-related activities. Chairman Debbie Matz noted federal credit unions pay insurance premiums as well as annual fees and that their combined contributions fund about two thirds of the agency's budget—which totals about $291 million this year.
Matz has defended NCUA's overhead transfer methodology as an accounting procedure divorced from the realms of politics and policy, and she repeated that assertion Thursday.
"The methodology presented should indicate that the OTR is not some arbitrary number that the NCUA Board or staff picks at random every year," she said. "It's a cost-accounting formula, driven by a methodology that has been in place since 2003, under then-Chairman Dennis Dollar. The calculations are based purely on mathematical factors. There are no subjective judgments and no political decisions that go into it."
In November, in a split vote, the board delegated responsibility for calculating the overhead transfer rate to the director of the office of examination and insurance, Larry Fazio. Board member J. Marc McWatters, who cast the dissenting vote, insisted calculating the overhead transfer rate was part of the board's responsibility, adding that the methodology used should be published for comment.
"There's been some talk about the overhead transfer rate being some sort of an accounting construct," McWatters said Thursday. "I've never understood that. Cost accounting applies after the rules are determined...The overhead transfer rate to me is substantially subjective, the part that matters."
Earlier this month, McWatters was nominated to serve on the board of directors of the Export-Import Bank. The nomination must be approved by the Senate and McWatters said he would continue his service on NCUA until lawmakers act on his nomination.
In other actions, Matz said NCUA is studying the option of extending the examination cycle for "low-risk" credit unions by six months to 18 months. The Federal Deposit Insurance Corp., NCUA's banking counterpart, already gives banks under $500 million of assets 18 months between exams. On Thursday, it gave preliminary approval to a plan that would raise that threshold to $1 billion.
NCUA should follow the FDIC's lead, according to Dan Berger, president and CEO of the National Association of Federal Credit Unions.
Lengthening the cycle will also save NCUA resources for credit unions that are facing challenges and need more oversight," Berger said in a statement. "We appreciate that the NCUA has indicated it is open to an 18-month exam cycle, and we urge the agency to approve this much-needed relief for credit unions as soon as possible."
