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Nov. 16, 2018

Final OTR up a bit  – but still lowest in years
after NCUA approves 2019-20 budgets

The NCUA Board approved 2019 and 2020 operating budgets Thursday that will be funded with a slightly larger overhead transfer rate (OTR), but one that is still smaller than any adopted by the agency in the last six years.

The combined operating, capital, and National Credit Union Share Insurance Fund administrative budgets for 2019 will be $334.8 million, a 1.1% increase from the 2019 funding, according to NCUA. The combined budgets for 2020 will be $343.9 million, a 2.7% increase from 2019, the agency said.

As for the OTR, in its proposal released last month NCUA estimated that the ratio (the rate at which NCUA transfers dollars from the NCUSIF to its operating budget to cover “insurance related costs”) would be 60.4%. At Thursday’s meeting, NCUA Chief Financial Officer Rendell Jones announced the official rate for 2019 would be slightly higher, at 60.5%. The reason for the 10-basis-point increase, he said: “refined work-load modeling.”

(In the 1-minute video, NCUA’s Rendell Jones explains how this year’s OTR was calculated while briefing the NCUA Board Thursday; click on the image to play.)

Last year, the OTR came in at 61.5%, the lowest rate (until now) in years. In 2016, the rate was set at its all-time high of 73.1% (NASCUS has long advocated for a fairer and more transparent OTR).

To set the OTR, the agency relied, again, on the “principles-based” methodology it adopted in 2017 (and which the agency has committed to reviewing regularly). NASCUS President and CEO Lucy Ito noted that the new methodology appears to be working as advertised by the agency (that is, the agency says, “simpler, more equitable and transparent”). “We are pleased that the ‘principles-based approach’ to calculating the OTR that NCUA now employs is continuing to benefit federally insured credit unions — both federal and state charters,” Ito said in a press statement. “The methodology is fostering clarity and fairness for federally insured credit unions.”

Under the rate set by the board, federally insured, state-chartered credit unions will contribute just less than half of the total funds transferred via the OTR (FCUs will contribute the other portion). Overall, contributions from FISCUs will cover about 29% of the agency’s operating budget (via the OTR); the FCUs’ portion of the OTR – plus operating fees paid by federals – covers nearly the rest of the budget.

In other highlights of its budgets, NCUA notes:

  • The agency seeks input from all stakeholders – including State Supervisory Authorities, “in order to clearly understand the needs of the credit union system.”
  • Training deliverables for 2019 include classes offered by the FFIEC, new examiner classes, and “subject matter expert training sessions for the NCUA examiners and state regulators.”
  • Estimated costs for state examiner computer leases and training is $1.2 million (“slightly lower than prior years”).
  • Costs for training and equipment provided to State Supervisory Authorities are directly charged to the NCUSIF.

NCUA 2019-2020 budget justification (102 pages)

NCUA budget board action memorandum


Also at Thursday’s meeting, NCUA proposed (and issued for comment) new rules on fidelity bond requirements for corporate and natural-person credit unions that would (among other things) codify authority for coverage of certain service organizations.

The agency said the proposal (part of NCUA’s regulatory reform agenda) is intended to:

  • strengthen a board of directors’ oversight of a credit union’s fidelity bond coverage;
  • ensure there is an adequate period to discover and file covered claims following a credit union’s liquidation;
  • codify a 2017 Office of General Counsel (OGC) legal opinion that permits a natural person credit union’s fidelity bond to include coverage for certain credit union service organizations (CUSOs); and
  • clarify the documents subject to the NCUA Board’s approval and require all bond forms receive the NCUA Board’s approval every 10 years.

However, NASCUS’ Ito noted that, as with all rules that apply to federally-insured state-chartered credit unions, “there is ongoing concern that the manner in which NCUA’s rules are organized may lead to confusion among credit unions and federal and state examiners regarding which rules apply to state charters.” She said that, over the course of the 60-day comment period for the proposal, NASCUS will carefully review the proposed fidelity bond requirements to determine the extent of the impact of state-chartered credit unions.

Draft notice for Federal Register


Federally insured credit unions are encouraged to complete a 2018 voluntary diversity self-assessment and to submit it to NCUA’s Office of Minority and Women Inclusion (OMWI) before Dec. 31, the agency said in a Letter to Credit Unions this week. NCUA began collecting the voluntary diversity self-assessments in 2016, according to the letter (18-CU-05). The agency said in the letter that it uses the data collected to monitor progress and trends in credit union diversity-related activities. The agency said it aggregates the self-assessment data and only shares results anonymously, primarily in the NCUA’s annual OMWI Congressional Report and in the annual Voluntary Credit Union Diversity Self-Assessment Results Report.

NCUA and the federal banking agencies in 2015 finalized an Interagency Policy Statement establishing joint standards for assessing the diversity policies and practices of regulated entities, actions the agencies took to comply with a requirement in Section 342 of the Dodd-Frank Act. The statement encourages financial depository institutions, particularly those with 100 or more employees, to consider adopting and incorporating these diversity standards into ongoing business and hiring practices.

The policy statement is not a rule and sets no legal compliance obligations, NCUA noted in the letter, and the implementation or use of the suggested diversity standards “is completely voluntary. According to NCUA, standards in the policy statement provide a framework for credit unions to create and strengthen their diversity policies and practices, including their organizational commitment to diversity, workforce profile and employment practices, procurement and business practices, and practices to promote transparency of organizational diversity and inclusion. Each credit union may use the standards in a manner that best aligns with its unique characteristics, the agency said in the letter.

NCUA Letter to Credit Unions 15-CU-05


Regulators and the credit union movement are responding to the deadly wildfires in California, releasing guidance for financial institutions in assisting members and customers, and (with credit unions) providing relief to credit union people.

Thursday, federal financial institution regulators (including NCUA) and the California Department of Business Oversight (DBO) released joint guidance recognizing “the serious impact of the California wildfires on the customers, members, and operations of many financial institutions and will provide appropriate regulatory assistance to affected institutions subject to their supervision.” The joint statement said the agencies encourage institutions operating in the affected areas to meet the financial services needs of their communities.

Meanwhile, the National Credit Union Foundation (The Foundation) said it is working closely with staff at the California and Nevada Credit Union Leagues to direct disaster relief funds to credit union people affected by wildfires in throughout California. Donations to the Foundation’s General Disaster Relief Fund are being used, the group said, for credit union employees and volunteers affected by these wildfires. Credit union supporters in every state can always make donations to the General Disaster Relief Fund at According to the Foundation, 100% of donations received through CUAid go to credit union disaster relief. In the event that any donations to the "General Disaster Relief Fund" are not used for a current disaster affecting credit union people, the funds will be used for any future credit union disaster relief efforts.

NASCUS’ Lucy Ito said the thoughts of the state system are with California credit unions -- including their supervisors, examiners, employees and volunteers -- during this extraordinary disaster.

Federal and state financial regulatory agencies issue interagency statement on supervisory practices regarding financial institutions and their customers affected by California wildfires

Donate to The Foundation’s General Disaster Relief Fund at


Payday and other “small-dollar loans” were in the news again this week, this time as the FDIC issued a “request for information” from insured banks and savings institutions about consumer demand for small dollar lending products, and the supply of small-dollar credit products currently offered by banks. The bank deposit insurer also asked banks what the agency could do to “better enable banks to offer responsible, prudently underwritten credit products to meet consumer demand.” The FDIC RFI came in an environment in which the BCFP (formerly known as the CFPB) recently announced it would “reconsider” its payday lending rule, issued about a year ago, with proposed changes in January (most of the rule is scheduled to take effect next August). Meanwhile, a proposed rule from NCUA on small-dollar loans remains pending. In May, the agency proposed amendments to its regulations on payday alternative loans that it said would give FCUs more market-based, payday alternative loan options. Comments on the proposal closed Aug. 3; the agency has not yet announced a final rule to be considered by the board. Last month, NCUA Board Chairman J. Mark McWatters in a speech endorsed viable short-term loan programs provided by credit unions as alternatives to high-priced payday loans and a way to break the cycle of debt that traps millions of consumers.

FDIC Request for Information on Small-Dollar Lending


Banks eased standards and terms for commercial and industrial (C&I) loans in the face of weaker demands for those loans during the third quarter, according to a report issued this week by the Federal Reserve. In addition, banks left standards unchanged for most commercial real estate (CRE) loans, although demand reportedly weakened for most categories of those loans, according to the Fed’s October 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices. The Fed report also noted that weaker demand for residential real estate (RRE) loans caused banks to ease their standards for most categories of those loans – but standards for consumer auto and credit card loans were unchanged (as was demand during the quarter for those categories of borrowing).

In other portions of the report, the Fed said banks indicated that the change in the slope of the yield curve so far this year had not affected their standards or price terms across the major loan categories. However, when asked to assess their potential response to a prolonged hypothetical moderate inversion of the yield curve, the Fed said banks responded that they would tighten standards or price terms across every major loan category if the yield curve were to invert, a scenario that they interpreted as a signal of a deterioration in economic conditions.

October 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices

ON THE ROAD: ‘REACHing' out with the state system in CA

NASCUS was in the house last week – in the person of Lucy Ito -- for the REACH Conference hosted by the California/Nevada Credit Union Leagues in Los Angeles. (In the photo: Ito and Tonya Wheatley, VP Credit Union Solutions and  Membership for the CA and NV CU Leagues share some “selfie” time during the event). Among other things, the conference included sessions on information sharing between NCUA and state regulator California Department of Business Oversight (DBO) and cannabis banking.


NASCUS facilitates international exchange in MA

Members of the Massachusetts Division of Banking met with a counterpart from the Republic of Singapore this week in the Bay State to discuss sharing of practices and tools used by regulators of both jurisdictions in supervising credit unions. Participants in the exchange included (in the photo, from left): Dr. Hak Seng Ang, Executive Director, Registry of Co-operative Societies and Mutual Benefit Organisations (Republic of Singapore); and from the MA Banking Division: Jay Bienvenu, Senior Deputy Commissioner; Terence McGinnis, Commissioner of Banks; Andrea Cipolla, Chief Director, Credit Union Supervision; James Barrett, Deputy Commissioner, Risk Management; Mayte Rivera, Deputy Commissioner, Consumer Protection. The exchange was facilitated by NASCUS through its membership in the International Credit Union Regulator Network (ICURN); NASCUS’ Lucy Ito sits on the board of the organization (which hosts its conference next year in Chicago).

2019 ICURN Annual Conference 

BRIEFLY: KS’ Bowman confirmed for Fed Board; Is agency ‘overstepping bounds’ in denying master accounts?

A fifth seat on the Federal Reserve Board of Governors is officially filled, as the Senate Thursday confirmed state regulator Michelle (“Miki”) Bowman as a member, to represent community bankers. Bowman was confirmed on a vote of 64-34; she is now the Kansas State Bank Commissioner … According to an article published by the think tank Brookings Institution in Washington, D.C., the Federal Reserve has been overstepping its legal authority denying applications for master accounts to new financial institutions, such as the Fourth Corner Credit Union (FCCU), chartered to serve businesses serving the legitimate marijuana industry. In the article (which doesn’t necessarily reflect NASCUS views), Peter Conti-Brown at Brookings’ Center on Markets and Regulation asserts that the Fed is not a chartering authority and should not contort itself to become one.

The Fed wants to veto state banking authorities. But is that legal?

Information Contact:
Patrick Keefe,