OTR raised to 73.14%; growth in FISCU insured shares cited

Nov. 19, 2015 -- An overhead transfer rate (OTR) of 73.14% -- an increase of 134 basis points from the previous year – was approved by the NCUA Board in a split vote of 2-1 Thursday at its regular monthly meeting in Alexandria, Va.

The board also voted to delegate authority for calculating future OTRs – using the methodology in place – to the director of the agency’s office of examination and insurance. Any changes to the methodology, however, would have to be approved by a vote of the NCUA Board.

Chairman Debbie Matz and Vice Chairman Rick Metsger voted for the increase; Board Member J. Mark McWatters voted no.

In increasing the OTR – the percentage of its budget that NCUA annually transfers from the National Credit Union Share Insurance Fund (NCUSIF) to its operating budget to cover “insurance-related expenses” – NCUA pointed to rising insured shares at state-chartered, federally insured credit unions (FISCUs). “The primary driver of the increase in the 2016 OTR was an increase in the percentage of insured shares held by state chartered credit unions,” NCUA staff wrote in a memo to the board on the issue. The memo added that the insured shares at FISCUs were up 0.9% to 47.7% of total insured shared.

But NASCUS President and CEO Lucy Ito pointed out that insured shares at federal credit unions rose in the same time period by 4.75% -- and, yet, the operating fee that federals pay to partially fund the agency’s operations was reduced by the board (also on a split vote) by 0.47%.

"By shifting virtually all safety and soundness-related expenses to the share insurance fund overhead transfer rate, NCUA is foregoing responsibility for safety and soundness as the charterer of federal credit unions,” Ito said in a statement released after the board vote.

“Other financial institution charterers 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. We hope that after the Board agrees in January to publish the OTR for public comment in the Federal Register 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.”

Ito also noted that NASCUS objects to delegating to staff the authority of setting the OTR each year. “This will only decrease transparency and especially accountability,” she said.

In a release following the meeting, NCUA Board Chairman Debbie Matz stated she intends to request Board approval at the January 2016 open meeting of the board to publish (for public comment) the current OTR methodology in the Federal Register. After an agency review of comments received, the Board would determine whether to revise the methodology, she stated.

In other action, the NCUA Board:

  • Approved, unanimously, a proposed rule aimed at modernizing the agency’s field of membership (FOM) rules. 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.
  • Adopted a 2016-17 “annual performance plan,” which (at the board meeting) Chairman Matz said does not lock the agency into an annual exam cycle each year, but “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 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 federal 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.
  • Adopted 2016-17 operating budgets of $290.9 million and $302.9 million, respectively. According to a press release from NCUA, “cost savings of nearly $7 million held increases in the budget to 4.1%, the slowest growth since 2007. The budgets were also adopted on a 2-1 vote.

Each of the split votes were the same as that on the OTR.

Video on basics of overhead transfer rate

Legal analysis: OTR subject to notice and comment under APA

NASCUS OTR resources page (with APA analysis and other documents, etc.)

NCUA Budget Resource Center (details on OTR, budget, Matz statement, etc.


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