In turnaround, NCUA raises OTR, but not as much as proposed

(Dec. 17, 2021) An increased overhead transfer rate (OTR) for 2022, a final operating budget of $320 million for next year, and three final rules – on the complex credit union leverage ratio (CCULR), subordinated debt and mortgage servicing assets — were all approved by the NCUA Board at a busy meeting this week.

All actions by the board (including new rules, see items) were approved unanimously.

In a U-turn, the board voted to reduce the staff-proposed OTR, but it is still higher than the last two years.

The board gave the nod to a 62.7% OTR to partially fund its 2022 budget of $320.1 million. The board’s action on the OTR, which represents the rate at which funds are transferred from the National Credit Union Share Insurance Fund (NCUSIF) to pay for “insurance related” expenses of the agency, is the third straight year that the rate has been raised (at 40 basis points higher than 2021, and 140 bp higher than 2020).

Although the OTR is higher again for 2022, the figure the board ultimately approved was lower than that proposed last month when the budget was unveiled. Originally, the agency recommended a 63.4% rate.

As recently as last week, during the agency’s briefing and public comment on its 2022 budget, NASCUS asserted that every dollar that is transferred from the insurance fund to fund NCUA expenses is one dollar not available to cover losses in the system, and subsequently a dollar that may need to be replenished in the NCUSIF by the charging of a premium.

NASCUS also urged the agency to do a more complete job in explaining how and why the OTR changes from year to year. “Credit unions should also be interested in what additional costs NCUA is now covering with NCUSIF dollars,” NASCUS President and CEO Lucy Ito said in prepared comments for last week’s briefing. In that regard, she was repeating the view of the state system that the agency needs to do better in communicating what goes into the OTR.

In response, NCUA indicated it is listening. “The NCUA will also look to provide better explanation for the drivers behind the year-over-year OTR changes in budget documents going forward, rather than just reporting on the level of the change,” agency staff said in background materials submitted for this week’s board meeting.

LINK:

NCUA’s 2022-2023 Budget: Board Action memorandum