On December 15, the NCUA Board held its final meeting of 2023. The Board was briefed on the Share Insurance Fund’s (SIF) Normal Operating Level, which will remain at 1.33%. The NOL was lowered to 1.33% from 1.38% at the end of 2021. The Board discussed inflation and the current rate environment during the briefing along with the potential impact these factors may have on the SIF in the coming months and years.

The Board was also presented with the proposed 2023-2024 NCUA Budget for a vote. The funding levels in the total 2023 draft budget would be reduced by $6.7 million. The original draft was posted to the NCUA website on September 29, 2022, with an identical version published in the Federal Register on October 5, 2022. The Board voted unanimously to approve the budget. Toward the end of the budget discussion, Chairman Harper inquired as to the impacts of the Financial Transparency Act on the NCUA Budget should NDAA pass. It was noted that should this pass, implementation would be a multi-year effort that NCUA would need to assess.

Finally, the Board unanimously approved a Proposed Rule, NCUA Parts 701 and 714, Financial Innovation – Loan Participation, Eligible Obligations, and Notes of Liquidating Credit Unions. The proposed rule would amend NCUA’s rules and regulations regarding the purchase of loan participations and the purchase, sale, and pledge of eligible obligations and other loans, including notes of liquidating credit unions. The proposed rule is also intended to clarify the NCUA’s current regulations while providing additional flexibility for federally insured credit unions to use advanced technologies and opportunities offered by FinTechs. The NCUA Board praised the proposed rule as a means to keep the NCUA relevant in this space and allow credit unions greater opportunities.

November 17, 2022 — There was one item on the NCUA Board meeting agenda, a briefing on the Quarterly Share Insurance Fund report. The fund’s equity ratio as of June 30, 2022, remains stable at 1.26%, the same as from December 31, 2021. Additionally, the projected ratio of the Normal Operating Level is 1.30%.

The fund saw an investment income of $73.6 million, $5 million higher than the previous quarter. NCUA Chairman Harper inquired if the increase in the investment income for the quarter was attributable to interest income overall or a reduction in expenses to which it was reported that the fund’s overall net income had been aided by the reduction in corporate asset management expenses as well as rising interest rates.

As part of the briefing, the Board was informed that there was a slight decrease this quarter in the assets in credit unions with a CAMELS rating of a 1 or 2, a slight increase in assets in credit unions with a CAMELS 3 rating, while assets in CAMELS 4 and 5 credit unions remained the same. The overall number of credit unions also decreased from the previous quarter by 19, down from 4,846. There were 4 credit union failures last quarter, which included 2 involuntary liquidations with purchase and assumptions and 2 assisted mergers to a total of $7 million in losses to the share insurance fund. Of the 4 failures, 3 were attributed to fraud.

At several points in the meeting, the board members addressed the concern of fraud in credit unions, particularly smaller credit unions, and reiterated the importance of onsite examinations to review documents and internal controls. As NCUA considers the 2023/2024 budget, they will be addressing the need for potential increases in travel costs for such examinations. Board Member Hood also stressed the importance of resources and ongoing fraud training and mitigation measures, particularly for smaller credit unions.

Finally, the Board collectively reinforced the need for Congress to take action and codify the Central Liquidity Facility Agent Program to provide much-needed liquidity sources to credit unions.

Oct. 20, 2022 – The National Credit Union Administration Board held its ninth open meeting—and second in person—of 2022, and approved the agency’s Enterprise Risk Appetite Statement, which helps the agency align risks and opportunities when making decisions and allocating resources to achieve the agency’s strategic goals and objectives.

The NCUA Board was also briefed on the state of the Central Liquidity Facility (CLF) and cybersecurity trends affecting federally insured credit unions and the broader financial system.

Read the remarks by the NCUA Board Members Here

Board Approves New Enterprise Risk Appetite Statement

The NCUA Board unanimously approved the NCUA’s new enterprise risk appetite statement prepared by the agency’s Enterprise Risk Management Council. The statement is a management tool that provides guidance from agency leadership to managers and staff on the amount of risk the NCUA is willing to undertake in pursuit of its objectives.

“The enterprise risk appetite statement presented today is part of the NCUA’s overall management approach. And, I am especially pleased that we will have an averse risk appetite when addressing identified safety and soundness concerns at credit unions,” NCUA Chairman Todd M. Harper said. “This means we will be risk-focused and ready to act expeditiously if needed. I also appreciate that through this statement we will remain focused on ensuring compliance with and enforcement of federal consumer financial protection laws and regulations at credit unions.”

The NCUA’s Enterprise Risk Management Council developed a risk appetite statement through careful consideration and evaluation of the risks the agency faces and focused on achieving several programmatic goals, which included:

Communicating guidelines about the levels of risk the NCUA is willing to accept in pursuit of its mission and goals;
Promoting consistency in understanding, measuring, and managing risk across the enterprise;
Informing agency responses to risks and decision-making to balance limited time and resources; and
Driving a more risk-aware culture.

Briefing Highlights Central Liquidity Fund’s Status for 3^rd Quarter

The Central Liquidity Facility President briefed the NCUA Board on the status of the Central Liquidity Fund as of September 30, 2022. The briefing covered liquidity and contingency funding plans, liquidity sources and needs, CLF advances, and membership requirements. The CLF president also discussed enhancements to the CLF’s processes and structures to ensure it can serve as an effective liquidity backstop for the credit union system should the need arise.

Said Chairman Harper, “The CLF is a vital source of emergency liquidity within the credit union system. However, the pending expiration of the temporary CLF enhancements authorized by Congress at the start of the COVID-19 pandemic remains a very real concern. While we are grateful to Congress for allowing the CLF enhancements of the last few years, there is a real need to keep in place the ability of corporate credit unions to serve as a CLF agent for a subset of their members. That authority will allow us to provide emergency liquidity quickly when needed.”

Financial highlights for the CLF in the third quarter include:

$1.243 billion in total assets;
$1.1 million in year-to-date net income;
$40.5 million in retained earnings;
2.24 percent dividend was paid to members of the CLF in the third quarter;
3,991 corporate credit unions and consumer credit unions have access to the CLF; and
$29.1 billion in borrowing authority for the CLF.

The Central Liquidity Facility is an NCUA-operated, mixed-ownership government corporation that was created to improve the general financial stability of credit unions by serving as a liquidity lender to credit unions experiencing unusual or unexpected liquidity shortfalls. Member credit unions own the CLF, which exists within the NCUA. The CLF’s President manages the facility under the oversight of the NCUA Board.

Cybersecurity Threats Continue, NCUA Launches ISE Program at Year-end

Ransomware, cloud migration, and distributed denial-of-service attacks are contributing to a dynamic threat landscape that creates evolving risks for federally insured credit unions, according to a briefing provided to the NCUA Board by the agency’s Critical Infrastructure Division. Additionally, rising geopolitical tensions continue to increase the potential for cyberattacks on the financial system and other parts of the nation’s critical infrastructure.

“Each of us — the NCUA, state supervisory authorities, vendors, and credit unions — has a responsibility to protect our systems, improve our ability to recover from incidents, educate our teams, share information, and report and address potential vulnerabilities,” Chairman Harper said. “Our chain is only as strong as our weakest link, so we all must be hypervigilant to prevent a catastrophic failure.”

The briefing also outlined good cyber hygiene practices, summarized the NCUA’s proposed cyber incident reporting rule, and provided an update on the NCUA’s Information Security Examination (ISE) Program. This new examination program offers flexibility for credit unions of all asset sizes and complexity levels while providing examiners with standardized review steps to facilitate advanced data collection and analysis. These new examination procedures will assist the credit union system in preparing for, withstanding, and recovering from cybersecurity threats. The ISE examination procedures will be deployed at the end of 2022.

The NCUA strongly encourages credit unions to strengthen their cybersecurity programs and preparedness and immediately report known details of cyber incidents to the NCUA, the FBI, and the Cybersecurity and Infrastructure Security Agency.

Credit unions are also encouraged to download and use the NCUA’s Automated Cybersecurity Evaluation Toolbox, or ACET. The ACET is an excellent resource for small credit unions or those credit unions with limited resources to take the first steps in understanding their level of cyber preparedness. Additional cyber-related information and resources are available on the NCUA’s cybersecurity resources webpage.

Sept. 22, 2022 — NCUA held it’s first in-person board meeting since the start of the COVID-19 pandemic. The board thanked the NCUA staff for all of their efforts.

The Board unanimously approved two items:

A notice of proposed rulemaking, NCUA Part 701, Appendix A, Federal Credit Union Bylaws, Member Expulsion
A notice of proposed rulemaking, NCUA Part 702, Subordinated Debt

Proposed Rule, NCUA Part 701, Appendix A, Federal Credit union Bylaws, Member Expulsion

On March 15, 2022, Congress enacted the Credit Union Governance Modernization Act of 2022. Under the statute, NCUA has 18 months following the date of enactment to develop a policy by which a federal credit union (FCU) may be expelled for cause by a two-thirds vote of a quorum of the FCU’s board of directors. The proposed rule would amend the standard FCU bylaws to adopt such a policy. The 18-month period to adopt a final rule enacting a policy on member expulsion ends September 15, 2023.
NCUA Chairman Todd M. Harper Statement on the Member Expulsion Proposed Rule

Proposed Rule, Part 702, Subordinated Debt

The proposal would make two changes to the Subordinated Debt rule (Current Rule) related to the maturity of Subordinated Debt Notes and Grandfathered Secondary Capital. Specifically, this proposal would replace the maximum maturity of Notes with a requirement that any credit union seeking to issue Notes with maturities longer than 20 years demonstrate how such instruments would continue to be considered “debt.”
This proposed rule would also extend the Regulatory Capital treatment of grandfathered secondary capital to the later of 30 years from the date of issuance or January 1, 2052.
The proposed rule would also make four minor modifications to the Current Rule to make it more user-friendly and flexible. Specifically, the proposal would:
- amend the definition of “Qualified Counsel” to clarify that such person(s) is not required to be licensed to practice law in every jurisdiction that may relate to an issuance.
- amend two sections of the Current Rule to remove the “statement of cash flow” from the Pro Forma Financial Statements requirement and replace it with a requirement for “cash flow projections.”
- revise the section of the Current Rule on filing requirements and inspection of documents.
- the proposal would remove a parenthetical reference related to grandfathered secondary capital that no longer counts as Regulatory Capital.
Read: NCUA Chairman Todd M. Harper’s Statement on Amendments to the Subordinated Debt Rule

Each proposal will have a 60-day comment period upon publication in the Federal Register.

June 30, 2022: NCUSIF briefing

Read all Board Member statements from this meeting.

The Board was briefed on the June 30, 2022 – NCUSIF
The Equity Ratio – as of June 30, 2022, the Equity Ratio remained the same from December 2021 at 1.26%.
The NCUA projects the NCUSIF equity ratio to reach 1.30 percent for period ending December 31, 2022.

Each board member stressed that while the fund is stable with an increase in the ratio projected, the board must proceed carefully when making any decisions about the share insurance fund due to inflation and increased operating costs. They also stressed the importance of monitoring and managing liquidity issues in the industry due to the significant increase in interest rates.

The board also discussed the expiration of CARES Act relief and the need for Central Liquidity Facility agent membership. The board stressed they will continue to work with Congress.

Budget Briefing

The NCUA board was briefed on the budget and current operating budget surplus. The surplus is primarily from lower staffing levels and vacancy rates resulting in decreased pay and benefits and continued travel reduction. The board anticipates this to shift as they fill vacant positions and travel ramps up into 2023.

There was also discussion surrounding transparency over the 2023 budget to ensure an opportunity for the industry to ask questions etc. The anticipated release to the public of the 2023 proposed budget is expected to be the end of September.

Vice Chair Hauptman also inquired if there would be a reduction in the operating fee imposed to credit unions due to the surplus.

Final Rule Parts 700,701,702,708a, 708b, 750 and 790 – Asset Threshold for Determination the Appropriate Supervisory Office – (Final ONES Rule)

As expected, at the NCUA Board meeting today, the board members unanimously passed a final rule regarding ONES supervision. Vice Chair Hauptman expressed his concerns that the rule doesn’t go far enough in terms of regulatory relief and pushed the board to identify means of regulatory relief for well-run institutions in a future discussion. Board Member Hood agreed and stated this isn’t the end of this rule, and it’s likely to see further iterations down the road as they continue to evaluate the industry as it evolves.

No substantive changes to the final rule from the proposed rule.

Proposed Rule Part 748 – Cyber Incident Notification Requirements

Also, as expected, the board unanimously approved a proposed rule under Part 748 addressing cyber incident notification requirements, similar to those of the federal banking regulators. The timing for notification would be 72 hours from the date a FICU determines an incident has occurred.

From the NCUA: NCUA Board Issues Proposed Rule on Cyber Incident Reporting Requirements

The proposed rule and request for comment will have a 60-day comment window upon publication in the Federal Register. The NCUA has stated that to be reported, an incident must be considered “substantial.” The definition of what is considered “substantial” will be included in the request for public comment. It was discussed at the meeting that 3 incident types would be deemed substantial and reportable incidents:

Federally Insured Credit Union identifies substantial loss of confidentiality/sensitive data as a result of unauthorized access/disruption of member services or integrity of a network or changed
cyber-attack or exploitation of a vulnerability that disrupts business operations/member services
Third-party service provider informs credit union data compromised by the third party – or upon a CU forming reasonable belief of compromise by a third party (whichever comes first)

Vice Chair Hauptman requested that if/when the rule is finalized, the NCUA must send out something directly to the industry – not just on the website – outlining examples of when to report and incidents that would not require reporting

May 26, 2022 — The board meeting opened with a moment of silence in light of the recent tragedies across the country. The meeting agenda included one item for discussion – NCUA’s quarterly update on the National Credit Union Share Insurance Fund.

The Share Insurance Fund reported a net income of $54.4 million and a net position of $20.4 billion for the first quarter of 2022. The Fund’s total assets decreased to $20.6 billion at the end of the quarter from $20.7 billion at the end of the fourth quarter of 2021.

“The Share Insurance Fund continued to perform well in the first quarter,” NCUA Chairman Todd M. Harper said. “Quarterly net income rose by approximately $42 million due to the continued reduction of expected losses associated with the remaining legacy assets of the Corporate System Resolution Program. That is positive news. We are now seeing a normalization of the Share Insurance Fund’s performance to what it was before the Board decided to fold the Temporary Corporate Credit Union Stabilization Fund into the Share Insurance Fund.”

There were two credit union failures in the first quarter, both saw fraud as a contributing factor. The board noted that as a remote posture continues for many across the industry, the continued concern over fraud remains top of mind.

The NCUSIF equity ratio is projected to be 1.25% for the period ending June 30, 2022. While not at the statutory level of 1.3% it is not at a level low enough to trigger the requirement for a premium assessment.

“Although the equity ratio sits below an ideal level, it remains relatively stable,” said Chairman Harper. “Nevertheless, we continue to see a slow, steady decline of the equity ratio due to continued elevated insured share growth and low interest rates, at least from a historical perspective. As such, the NCUA Board must continue to monitor the Share Insurance Fund’s performance and remain ready to act. Such monitoring includes assessing the effects of the changing interest-rate environment on the Fund’s portfolio.”

It was reported that they are now seeing a normalization of share insurance performance. The equity ratio remains relatively stable, but the NCUA board must continue to monitor its performance

Assessing effects of the interest rate environment
Investment portfolio is valued based on the market
Changes in the value of assets are expected
Unrealized losses do not impact ratio nor trigger requirement for premium assessment

Additionally, the NCUA is working with its Investment Committee to develop a new Investment Policy which is expected to be presented to the Board by Q4 2022. As well as adjusting its investment strategy from a 7 to a 10-year ladder due to the rate environment.

At the Q2 NCUSIF update, it was noted that the report will the data from the implementation of the “S” Sensitivity rating to the CAMELS rating. It was also discussed and noted that NCUA is developing guidance for examiners to work with credit unions regarding the sensitivity to market risk and will continue to treat all credit unions equitably.

Finally, the Board gave a quick update on the latest NCUA LTCU 2022-CU-07

NCUA expects CUs to exercise sound judgment and that the considerations in the letter should not be considered all-inclusive. The Board expects the letter to lead to follow-up conversations and the NCUA expects greater FinTech rulemaking in the future.

Read the NCUA Board Action Bulletin here.

(Jan. 28, 2022) Boards of federal credit unions (FCUs) would be required to “establish and adhere to” processes for succession planning under a proposal issued, on a 2-1 vote, by the NCUA Board Thursday.

The proposal only affects FCUs. NCUA noted that federally insured, state-chartered credit unions (FISCUs) must comply with any state-specific requirements pertaining to succession planning. “However, the Board encourages FISCU boards, to the extent compatible with state law, to undertake succession planning efforts to help ensure continued viability of their credit union,” NCUA said in the proposal.

In fact, the proposal’s summary notes that, although it would apply only to FCUs, “the Board’s purpose is to encourage and strengthen succession planning for all credit unions.”

The proposal also does not affect federally insured corporate credit unions, the agency noted. NCUA said its regulations (under 12 CFR part 704) already “adequately address succession planning” at the corporates.

According to the proposal, succession plans will help to ensure that the FCU has plans to fill key positions, such as officers of the board, management officials, executive committee members, supervisory committee members, and (if provided for in the bylaws) the members of the credit committee to provide continuity of operations.

“In addition, the proposed rule would require directors to be knowledgeable about the FCU’s succession plan,” the proposal states.

One of the reasons that the proposal was issued, according to the agency, is that credit union consolidation largely through mergers is being driven by lack of succession planning. “An NCUA analysis found that poor management succession planning was either a primary or secondary reason for almost a third (32 percent) of credit union consolidations,” the agency said.

At the same time, the agency said, another reason for a heightened focus on succession planning is the ongoing retirements of the “Baby Boomer” generation of individuals born between 1946 and 1964.

“According to some sources, approximately 10 percent of credit union chief executive officers were expected to retire between 2019 and 2021,” the agency asserted.

NCUA Board Member Rodney Hood voted against the proposal because, he said, the agency has “other tools in its toolbox” other than a regulation to help credit unions deal with succession planning. He suggested, for example, greater uses of webinars sponsored by the agency. Both Board Chairman Todd Harper and Vice Chairman Kyle Hauptman supported issuing the proposal for a 60-day comment period.

In other action, the board:

Heard a briefing on the agency’s Central Liquidity Facility (CLF), including plans to increase credit union membership in the facility to “to better serve individual CUs, the Share Insurance Fund and the system overall.” The agency also noted that it continues to advocate for Congress restoring and making permanent the enhanced authorities provided to the CLF as part of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and extended (until the end of 2021) by Congress in early 2021. The enhancements are: Increasing the facility’s maximum legal borrowing authority; permitting temporary access for corporate credit unions, as agent members, to borrow for their own needs; providing greater flexibility and affordability to agent members to join and serve smaller groups of their covered institutions than their entire memberships; and providing the NCUA Board with more clarity and flexibility regarding the loans.
Listened to a briefing on the agency’s supervisory priorities for 2022 (which echoed the letter sent to all federally insured credit unions the week before). However, the agency staff said regarding the current expected credit loss (CECL) accounting standard, which takes effect for credit unions next year, the agency will be providing training and guidance to credit unions as they adopt the new accounting model – including a spreadsheet to be released later this year. Additional training, the agency said, would be made available to credit unions on an as-needed basis.
Heard an update on its final rule (approved by a board notation vote late last month) on adjusting the maximum amount of civil monetary penalty (CMP) amounts, as required by statute, a somewhat routine action that other federal financial institution regulators have already taken this month.

LINKS:

Proposed Rule, Part 701, Succession Planning.

Board Briefing, 2022 Supervisory Priorities

Board Briefing, Central Liquidity Facility, Expiration of CARES and Consolidated Appropriations Acts Impact.

Board Briefing, Final Rule, Part 747, Statutory Inflation of Civil Monetary Penalties.

(Jan. 21, 2022) A proposed rule on succession planning at federal credit unions (under Part 701 of NCUA regulations), and a final rule on resetting civil monetary penalties (CMP), as well as three board briefings, are on the agenda for the NCUA Board when it meets Thursday.

The meeting is set to begin at 10 a.m. ET and scheduled to be live-streamed via the Internet.

The final rule on CMPs (under Part 747 of the agency’s regulations) is also scheduled for a board briefing. The final rule, which essentially updates an existing rule at the agency, will address statutory inflation of CMPs (the federal banking agencies have recently adopted similar rules for their agencies).

The other two board briefings will address the agency’s list of 2022 supervisory priorities (which was the subject of a letter to credit unions this week), and impact of the expiration of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Consolidated Appropriations Act of late 2020 on the agency’s Central Liquidity Facility (CLF).

Both statutes were aimed primarily at providing fast, direct economic assistance to consumers and businesses to weather the financial impact of the coronavirus crisis. They also included provisions designed to strengthen the CLF over the duration of the pandemic.

LINK:

Board Agenda for the Jan. 27, 2022 Meeting

(Dec. 10, 2021) The 2022 budget, and three final rules — on mortgage servicing rights, subordinated debt and the complex credit union leverage ratio — are among the items the NCUA Board will consider at its meeting next week.

In November, the board released publicly its proposed budget for the new year, which called for a 1.2% increase from the previous year’s. However, the components of the spending plan show significant changes from the previous year. For example, the agency’s capital budget (which funds such things as purchases of new equipment) is down 30.7% from the previous year (for a total of $13.1 million). The administrative budget for the National Credit Union Share Insurance Fund (NCUSIF) is down by 21.7% (to $6.2 million) from the previous year.

But the agency’s operating budget – which is funded mostly by funds from the National Credit Union Share Insurance Fund (NCUSIF) via the overhead transfer rate (OTR) of a proposed 63.4%, and accounts for 94.4% of the agency’s overall budget – is up 3.6%, according to the NCUA proposed budget for a total of $326 million. It includes 46 new full-time equivalent (FTE) staff positions for 2022 (including 32 regional and specialist credit union examiners). Employee pay and benefits makes up 79% of the operating budget.

(As noted in the item on NASCUS’ comments made during the NCUA budget briefing, the association has pointed out this year’s proposed OTR is the third straight year NCUA has raised the transfer rate.)

The mortgage servicing rights proposal, if finalized, would amend the agency’s investment regulation to permit federal credit unions to purchase mortgage servicing rights from other federally insured credit unions, subject to certain conditions. Describing the proposed rule as “half baked” when it was proposed and released for comment a year ago (and voting against it), NCUA Board Chairman Todd Harper said he could find a way to support a final rule if changes were made.

Also on Thursday’s agenda:

Share Insurance Fund 2022 Normal Operating Level.
Final Rule Complex Credit Union Leverage Ratio (parts 702 and 703)
Subordinated Debt Final Rule (parts 702 and 741).

The NCUA Board meeting is scheduled to broadcast live via the Internet, and to get underway at 10 a.m. ET on Thursday.

LINK:

NCUA Board meeting agenda, Dec. 16

(Nov. 19, 2021) One of the key expenses proposed in the agency’s 2022 operating budget is the addition of 48 full-time equivalency (FTE) positions, according to NCUA budget documents released this week.

The additional positions include:

29 FTEs for regional staff and supervisory examiners;
three FTEs among regional staff “to expand the cadre of specialist examiners;”
five FTEs in the agency’s Office of Consumer and Financial Protection to “increase the number of fair lending examinations and reviews and to strengthen the agency’s efforts to promote financial inclusion and outreach;”
adding seven FTEs in various NCUA headquarters offices;
two FTEs in the agency’s Office of Credit Union Resources and Expansion (CURE);
and making permanent eight FTEs now filled “within the total NCUA staffing plan.”

The net number of FTEs is reached by cutting five positions in the Office of Chief Financial Officer and Office of Examination and Insurance (E&I), and an additional one FTE in E&I by “reorganizing responsibilities in the office.”

Employee compensation, the agency proposes, will rise by $16.7 million (6.9% over 2021 budget).

During the NCUA Board meeting Thursday, Member Rodney Hood took aim at the 48 additional positions, saying the agency “doesn’t need nearly 50 additional staff positions at this time.” He added that “it’s going to be a busy couple of weeks” as the board members work on the budget before final approval.

Chairman Todd Harper committed to working with both Hood and Vice Chairman Kyle Hauptman in hashing out a final agency budget. The proposed budget released this week, he observed, was just a starting point.

Other key NCUA budget items include:

An increase by $8.5 million for travel (for a total of $20.8 million);
An $11.5 million decrease in “contracted services” (to $36.7 million);
And $2 million less in rent, utilities and communications (for a total of $5.1 million)

LINK:

NCUA Staff Draft: 2022 – 2023 Budget Justification (see page 29)

(Nov. 19, 2021) A $345.3 million 2022 proposed budget, funded partially from an increased amount of funds transferred from the federal credit union savings insurance program, was posted this week by NCUA; a public briefing is set for Dec. 8, the agency said.

According to NCUA, its budget for next year is 1.2% higher than the previous year’s. However, components of the overall spending plan show significant changes from the previous year. For example, the agency’s capital budget (which funds such things as purchases of new equipment) is down 30.7% from the previous year (for a total of $13.1 million). The administrative budget for the National Credit Union Share Insurance Fund (NCUSIF) is down by 21.7% (to $6.2 million) from the previous year.

The overhead transfer rate (OTR), which provides funding for the NCUA’s “operating budget” of $326 million (and makes up 94.4% of the overall agency budget) will be set at 63.4%, according to the budget papers posted by NCUA. Essentially, that means the nearly two-thirds of the 2022 “operating budget” (or $206.7 million) will be paid out of the share insurance fund. The remainder of the operating budget comes from “operating fees” paid by federal credit unions.

The 2021 OTR, adopted in December last year, was 62.3%. NCUA acknowledges in its budget posting this week that the 2022 OTR will be 101 basis points higher than the previous year’s.

The OTR represents money that is transferred from NCUSIF to the operating budget of the agency to cover “insurance-related” expenses of the agency. The remainder of the operating budget is covered by the operating fee paid by federal credit unions.

NASCUS President and CEO Lucy Ito pointed out that the proposed 2022 OTR will be the second year in a row that the OTR has been increased by the agency. She also noted that, as the 2021 OTR was approved last December, that NCUA needed to reconsider how it allocates expenses.

LINK:

Agency Accepting Comments and Budget Briefing Presentation Requests

(Nov. 19, 2021) Shared locations are service facilities for purposes of multiple common bond federal credit unions (FCUs) adding underserved areas to their membership bases, as are those with electronic facilities such as video teller machines, regardless of whether those credit unions have an ownership interest in either of the facilities, under a rule finalized Thursday by the NCUA Board.

However, automated teller machines (ATMs) continue to be excluded from the service facility definition for adding underserved areas, according to the new rule.

The final rule, approved unanimously by the three-member board, will take effect 30 days after publication in the Federal Register.

The rule was proposed nearly a year ago (in December 2020) to modify Part 701, Appendix B, of NCUA’s regulations to include any shared branch, shared ATM, or shared electronic facility in the definition of “service facility” for a multiple-common-bond FCU that participates in a shared branching network. “Reasonable proximity” to those shared facilities by an underserved group is a requirement under federal law for an FCU to add the group to its membership.

The proposal ran into opposition (largely from banking groups, evidenced by 680 form letters out of more than 700 total comment letters received) objecting to the definition of “service facility” to include ATMs. For the final rule, NCUA dropped ATMs from its shared service definition.

It also dropped in the final rule the requirement that FCUs seeking to add underserved groups must have an ownership interest in shared locations and electronic facilities.

The final rule does include, however, continues to mandate that a service facility must offer all three services: ability to take deposits (shares), approve loans and disburse loan proceeds

In other meeting proceedings, the NCUA Board:

Heard an update on its new exam tools (including the (the Modern Examination and Risk Identification Tool, MERIT), noting that there are now 3,383 total MERIT system users, including 547-plus state supervisory authorities (SSAs).
Issued a proposed 2022-2026 strategic plan for a 60-day comment period.
Was told that the National Credit Union Share Insurance Fund (NCUSIF) is expected to reach an equity ratio of 1.28% by year’s end (if the ratio falls below 1.2% — or is projected to do so within six months – the NCUA Board is required to implement a restoration plan – including a premium – to bring the ratio above 1.2% within eight years).

LINKS:

Final Rule, Part 701, Shared Services Facilities

Board Briefing, NCUA’s Modernized Examination Tools

Board Briefing, Share Insurance Fund Quarterly Report.