NCUA's Overhead Transfer Rate: An Historical Perspective
Published August 31, 2015 4:00 PM
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Updated June 1, 2021 1:22 PM
1 Min Read
Under the Federal Credit Union Act, the NCUA was authorized to expend funds from the Share Insurance Fund for "administration and other expenses" related to federal share insurance. OTR represents a transfer of funds from the Share Insurance Fund to cover insurance-related expenses which are paid by both federal credit unions and federally insured state credit unions.
Historically, OTR has fluctuated widely-from as low as 30% in the early 1980s, to more than 70% in recent years.
1970-72: the National Credit Union Share Insurance Fund is created by Congress to insure member's deposits in federally insured credit unions. Two years later, a General Accounting Office (precursor to today's Government Accountability Office) audit recommends that the NCUA adopt a method of allocating costs between NCUA and the Share Insurance Fund.
1973-80: Various allocation methods are used to determine OTR, including direct charges to the NCUSIF for insurance expenses (i.e., cost of closing institutions, liquidation and merger costs, etc.), and examiner time spent supervising (versus examining) institutions.
1981-1984: The OTR ranges between 30% and 34% over this period, coinciding with Ronald Reagan's first term as president.
1985-1999: Annual examination surveys are conducted requiring the completion of 1,000 to 1,200 survey forms. Survey results vary between 50.1% and 60.4%; but the OTR is maintained at 50%. NCUA initially approves conducting surveys once every three years.
2000-2001: NCUA moves to annual surveys. As a result of the surveys, the regulator pushes the OTR to 66.72%. The agency decides to hire an independent party to evaluate the OTR process. Auditors from Deloitte and Touche determine the methodology to be "reasonable" while making some "minor" recommendations.
2001-2002: Auditors from Deloitte and Touche conduct a review of the OTR process and determine the methodology to be "reasonable." The consulting firm also recommends automating the survey collection process, enhance guidance and training for examiners, collect surveys on an ongoing basis, and establish a help-line and public folders to better communicate issues.
2003: OTR is set at 62%. In response to suggestions from trade associations, the NCUA board adopts a new methodology for calculating the OTR. This methodology, with various refinements, has been in place ever since.
2004-2010: The OTR fluctuates from a low of 52% to a high of 59.8%
With the OTR set at 58.9 in 2011, NCUA contracts with PricewaterhouseCoopers (PwC) to independently review the OTR methodology and its supporting rationale. PwC concludes that the existing OTR methodology is "sound and reasonable" and that it favors neither federally chartered nor state-chartered credit unions. Following the publication of the PwC report, trade groups urge NCUA to further clarify and refine the definition of "insurance-related activities" and "non-insurance activities." They request that NCUA provide more accuracy and consistency when examiners recorded their time.
2012-2013: NCUA conducts a regulation-by-regulation review to make the application of the time survey definitions more explicit. The OTR moves up to 59.3% in 2012. In 2013, OTR moves to 59.1%, and PwC completes an independent analysis of proposed changes to the NCUA's Examination Time Survey. The recommendations from that report are incorporated.
2014-2015: NCUA sets OTR at 69.2% in 2014, an uptick that the National Association of State Credit Union Supervisors characterizes as "alarming," suggesting the federal regulator's new mapping of regulations classified virtually all activities related to safety and soundness as being "insurance related." In 2015, NCUA raises OTR to 71.8% saying the increase resulted from more precise recordings of examination time. The agency notes federal credit unions are still covering 66.4% of NCUA's operating expenses for 2015, the agency said. NASCUS reiterates calls on the federal regulator to open the OTR process to public review and comment.
Aug. 31, 2015: NCUA Chairman Debbie Matz announces the OTR methodology will be put out for public comment in 2016 and considered alongside NCUA's next proposed Strategic Plan. This will permit stakeholders to provide input into the process. NCUA said it will carefully consider and respond to all comments received as part of this process.
