Achieving long-sought goals on OTR
is sweet, but vigilance necessary
A new overhead transfer rate methodology approved by the NCUA Board last month is a victory for all federally insured credit unions — both state and federal charters alike – but keeping that victory intact over time will require constant vigilance, NASCUS President and CEO Lucy Ito wrote in a recent op-ed in Credit Union Journal. Commenting on the board’s decision at its Nov. 16 meeting, Ito pointed out that the revised OTR methodology is a simple, reasonable and understandable “principles-based” approach, with a foundation built on two pillars. First, the full recognition of the agency’s safety and soundness responsibility as the chartering body and prudential regulator of federal credit unions. Second, the opening of the OTR to public notice and comment every three years or whenever the agency proposes a change to the methodology.
Ito noted that NASCUS has been advocating for both of those results for more than 20 years, and “at long last, a decades’-old debate between NCUA and the state credit union system has been resolved.”
But maintaining long-sought results is now in the hands of the credit union system at large, the NASCUS leader wrote. “All federally insured credit unions must remain watchful of how NCUSIF dollars are spent,” Ito stated. “Having secured public notice and comment on OTR, it is incumbent on the credit union system to be the watchdog of its own money.” She pledged that NASCUS would continue its historic role of ensuring that NCUA allocates costs reasonably and that the NCUA board takes seriously its fiduciary duty to responsibly manage the expenditure of NCUSIF monies.
NEW CORPORATE RULE OUTLINED IN SUMMARY
The new rule on corporate credit unions – adopted by the NCUA Board at its Nov. 16 meeting, and slated to take effect Dec. 22 – is outlined by NASCUS in a summary posted this week. The NASCUS summary notes that the rule provides more flexibility in calculating Tier 1 capital by: incorporating ‘‘GAAP equity acquired in a merger’’ as a component of retained earnings; permitting corporates to include all PCC sourced from an entity not federally insured in its Tier 1 capital once a corporate achieves a retained earnings ratio of 250 basis points, and; adding a definition of “retained earnings ratio” to mean ‘‘the corporate credit union’s retained earnings divided by its moving daily average of net assets. The summary also points out that the agency tightened the “expanded authorities” section in Appendix B of the corporate rule by adding a retained earnings ratio requirement in addition to existing leverage ratios.
CFPB SETS 30-DAY FREEZE ON NEW HIRES, POLICIES, PAYMENTS
A 30-day freeze on policymaking, hiring and payments from the recovery fund were announced this week by acting CFPB Director Mick Mulvaney just hours before a federal judge agreed that his appointment to the post by President Donald Trump was proper, ending (for the time being) a legal confrontation over leadership at the agency. It was also the conclusion of a chaotic five-day period for the agency.
Trump appointed Mulvaney (also the director of the White House Office of Management and Budget (OMB)) to the post following the resignation Nov. 24 of former Director Richard Cordray. However, before he left the agency (and hours before Mulvaney’s appointment) Cordray appointed his chief of staff, Leandra English, to be deputy director, who (under the Dodd-Frank Act) is designated to become acting director when the sitting director is “unavailable or absent.” English filed suit Sunday in an attempt to block Mulvaney’s appointment; Monday, both “acting directors” showed up for work. Later that day, Mulvaney held a “press availability” where he announced the freezes on hires, and on “any new rules, regulations and guidance.” By late Tuesday, a federal judge ruled that Mulvaney would keep the director’s seat.
But the pause in the chaos may be short-lived: English has indicated she is not giving up on her challenge. And members of Congress, supportive of Mulvaney’s appointment, are taking English’s challenge seriously. In a letter to Mulvaney Wednesday, eight Republican senators wrote that – should English prevail in her challenge — “we would support legislative efforts to invalidate any new rules finalized by the agency during this employee’s service, including the use of the Congressional Review Act. We would also fight to ensure that Congress defunds the CFPB until this employee has relinquished control of the CFPB.”
DIRECTOR CANDIDATE NAMES CIRCULATE; NEW FDIC CHIEF CONSIDERED
Mulvaney’s appointment as “acting director” runs only until the Senate confirms an individual nominated by President Trump (which could be any time, now that Cordray has resigned, and relinquished the remaining six months of his term). Given that Mulvaney will also continue to head up OMB during his time at CFPB (and has indicated he expects to spend three days of each week at the consumer bureau), there is some pressure to bring on a full-time director for a full five-year term, perhaps to head off a continued challenge by Leandra English. Among the names being circulated: House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who is retiring from Congress following the end of his term in 2018; George Mason University law professor Todd Zywicki, and former acting Comptroller of the Currency Keith Noreika. All have been described as “fierce critics of the bureau,” who say it repeatedly oversteps its authority and imposes choking regulation on the financial industry.
Meanwhile, other regulator change may be forthcoming soon: reports were circulating today that the White House will nominate bank lawyer Jelena McWilliams, 43, as chairman of the FDIC Board, succeeding Martin Gruenberg (whose term as chairman expired, officially, yesterday). McWilliams is a former staffer for Sen. Richard Shelby, R-Ala. and a former chairman of the Senate Banking Committee.
Four of the Federal Reserve Board’s seven seats would be filled if the Senate confirms Marvin Goodfriend, an economics professor at Pittsburgh’s Carnegie-Mellon University. President Trump Wednesday nominated Goodfriend, 67, who has been described as a critic of the central bank’s response to the 2008 financial crisis (including “quantitative easing” and purchases of mortgage-backed securities), and is a supporter of a “rules-based” monetary policy (i.e., open to greater scrutiny by Congress). Goodfriend has past experience at the Fed, including in the Richmond bank and visiting economist at the Federal Reserve Board. He has also served as senior staff economist for President Reagan’s Council of Economic Advisors.
AGENCY PUSHES BACK ‘FIDUCIARY RULE’ BY 18 MONTHS
An additional delay of the “fiduciary rule” of 18 months was made official this week by the Department of Labor (DOL), pushing back the effective date to July 1, 2019. The rule, which requires financial advisers to serve as fiduciaries for clients and would expand who is considered a “fiduciary” of an employee benefit plan, was slated to take effect Jan. 1. According to DOL, the additional 18 months gives the agency more time to consider public comments submitted in response to a “request for information” issued in July. Additionally, it also gives the agency more time to conduct an examination of the rule, as ordered by President Donald Trump in February, to “determine whether (the rule) may adversely affect the ability of Americans to gain access to retirement information and financial advice.” The examination, Trump’s order stated, also requires an updated economic and legal analysis concerning the likely impact of the rule.
BILL WOULD ESSENTIALLY ERASE RISK-BASED CAPITAL REGULATION
Repeal of NCUA’s risk-based capital rule, before it takes effect in about one year, is the goal of legislation introduced this week. The “Common Sense Credit Union Capital Relief Act of 2017” (H.R. 4464), introduced Tuesday by Rep. Bill Posey (R-Fla.), is simply a repeal of the rule, stating it “shall have no force or effect, and any regulation revised by that rule shall be applied as if that rule had not been issued.” Adopted by NCUA in October 2015, the rule (according to the NASCUS summary) will require complex credit unions to maintain a net worth ratio of 7% or above and a risk-based capital ratio of 10% or above in order to be well capitalized. In order to be adequately capitalized, complex credit unions must maintain a net worth of 6% and risk based ratio of 8%. The final rule includes a tiered risk weight framework for high concentrations of residential real estate loans and commercial loans, therefore, as a credit union’s concentration in those asset classes increases, incrementally higher levels of capital are required.
Congratulations to Lise Kruse who, as of today, is commissioner of the North Dakota Department of Financial Institutions, following Robert Entringer’s retirement yesterday (Nov. 30) … More than half a million dollars in grants to support outreach to underserved credit union members have been awarded to 23 credit unions in 17 states, NCUA announced Wednesday. According to the agency, the more than $536,000 in grants — ranging in size from $15,000 to $25,000 — will help fund financial literacy coaching for members in low-income communities and “enhance economic opportunities in underserved communities” … Mary Anne Bradfield is NCUA’s new Director of Public and Congressional Affairs, effective Dec. 18, the agency announced Thursday. She most recently worked as chief of staff to Small Business Administration (SBA) Administrator Linda McMahon.
Patrick Keefe, email@example.com