Nov. 20, 2015

How NCUA board mbrs voted on OTR
OTR raised to 73.14% -- and that’s a concern
The overhead transfer rate will be 73.14% for 2016 – an increase of 134 basis points from the previous year – as a result of NCUA Board action Thursday. The decision during the marathon 3.5-hour meeting came on a split vote, with NCUA Board Chairman Debbie Matz, and Vice Chairman Rick Metsger, voting in favor – and Board Member J. Mark McWatters voting no. The OTR increase and the underlying methodology are, of course, concerns to us.  By shifting virtually all safety and soundness-related expenses to the share insurance fund, it seems to signal that the agency is foregoing responsibility for safety and soundness in its role as the charterer of federal credit unions. In a statement we released to the press following the board’s action, we noted that other financial institution regulators without deposit insurance obligations – including state regulators and federal supervisors such as the Office of the Comptroller of the Currency and the Federal Reserve -- assume full responsibility for safety and soundness. But NCUA seems to be saying its safety and soundness responsibilities are limited to its insurance role.  In any event: Now our focus shifts to January, when the NCUA Board is expected to approve submitting next year’s OTR methodology to public review and comment through publication in the Federal Register. By doing so, we hope a much clearer picture will emerge as to how and why the agency assigns all safety and soundness expenses to the OTR – and that the agency will consider making meaningful changes as a result of public comment. (And, by the way, when the OTR is published and made available for comment, NASCUS will be urging all of its members to weigh in on the matter.) We appreciated that NCUA Board Chairman Debbie Matz reiterated in a release issued after the meeting that she intends to follow through on seeking the board vote to publish the OTR for public comment (which, at Thursday’s meeting, Vice Chairman Rick Metsger called “a good idea). In the release, she also noted that, after an agency review of comments received, the Board would determine whether to revise the OTR methodology. That’s all the more reason for state regulators and FISCUs to weigh in early, and often, once the comment period gets underway early in 2016.

Lucy Ito statement to press on OTR

While the OTR goes up, FCU op fees drop; staff control of OTR
The board also voted (again, by 2-1, McWatters dissenting) to delegate authority for calculating future OTRs – using the methodology in place – to the director of the agency’s office of examination and insurance, and to cut the federal credit union operating fee by 0.47%. Both actions raise additional concerns for us. Delegating to staff the authority to annually set the OTR will only decrease transparency and especially accountability over this important use of NCUA resources. Chairman Matz noted that any changes to the methodology of how the rate is calculated would still have to be approved by a vote of the NCUA Board. But we believe that relinquishing this important decision to staff is misdirected, and should remain with the board. We are further puzzled as to why -- given the NCUA board’s fiduciary responsibility to oversee the NCUSIF – it could cede its authority to transfer funds from the NCUSIF to NCUA. Meanwhile, and again by a split vote, the board approved a reduction in the operating fee for federal credit unions (the other major portion of funding that covers the agency’s operating budget). That reduction came even though federal credit union assets grew by 4.75% last year. FISCUs also saw growth – in their percentage of insured shares – but only by 0.9%. Nonetheless, that growth in FISCU insured shares was the “primary driver” (according to NCUA) of the recommended increase in the OTR.

NCUA Budget-related documents

FOM modernization proposed; more reliance on state exams for smaller CUs
In other action this week, the NCUA Board approved (unanimously this time) a proposed rule aimed at modernizing the agency’s field of membership (FOM) rules for federal credit unions. Among other things, the agency said the proposal would modernize the definition of “multiple common bond” to streamline the process for adding new groups to a charter; enlarge the pool of potential members by expanding the areas that may be served by a community charter; update the process of defining an “underserved area;” revised the “rural district” definition to include populations of up to 1 million people; and expand the definition of a “trade, industry or profession” as a single common bond. The rule will be out for a 60-day comment period. Also at the meeting, the board (again on a split vote, with McWatters voting no) adopted a 2016-17 “annual performance plan,” which Chairman Matz said at the board meeting does not lock the agency into an annual exam cycle each year. “In future years, we may consider moving back to an 18-month exam cycle for credit unions that pose less risk to the (National Credit Union) Share Insurance Fund,” she said. She also noted that, starting in 2016, the agency plans to “rely more on state regulators to examine healthy state-chartered credit unions with less than $250 million in assets.” However, she added, next year the agency still plans to “examine all federally insured credit unions with assets over $250 million as well as all federally chartered credit unions.” The performance plan was adopted on a 2-1 vote.

Bank Secrecy Act Conference covers key issues
Our BSA Conference this past week in Fort Lauderdale – held in partnership with CUNA – was a smash hit with the 300-plus participants from state and federal credit unions, regulators and others from around the nation. The event covered updates in BSA-related rules, regulations and procedures – but also did a deep dive into such trenchant topics as marijuana business banking, money services businesses, Bitcoin and human trafficking. We’ll have much more in our Report next week (which, with the Thanksgiving holiday coming up, will be coming out on Wednesday).

BRIEFLY: Slower rise for NCUA budgets; access to cybersecurity docs
The NCUA Board adopted 2016-17 operating budgets of $290.9 million and $302.9 million, respectively, at this week’s meeting, for an increase of 4.1%, which (according to a press release from NCUA) was the “slowest growth since 2007” as a result of “cost savings of nearly $7 million.” (McWatters voted “no” on the budgets.) … For the latest U.S. Government reporting on cybersecurity and critical infrastructure protection, look no further than the Department of Homeland Security’s “Homeland Security Information Network (HSIN) Financial Services Portal.” Access is limited to those who are eligible for membership, since the material on the portal is relatively sensitive. However, regulators and financial institutions may apply for eligibility.

HSIN Financial Services Portal/eligibility information

Information Contact:
Patrick Keefe, NASCUS Communications, or (703) 528-5974