Proposed Rule on Field of Membership Offers Regulatory Relief, Growth Opportunities

Board Action Bulletin

Two-Year NCUA Budget Approved with Smallest Percentage Increase Since 2007

ALEXANDRIA, Va. (Nov. 19, 2015) – The National Credit Union Administration Board convened its tenth open meeting of 2015 at the agency’s headquarters here today and approved five items:

• A proposed rule to modernize field-of-membership requirements for federal credit unions, cut regulatory red tape and increase consumers’ access to affordable financial services.
• An Operating Budget increase of 4.1 percent for each of the next two years—the smallest increase since 2007—to fund the agency’s critical activities and address strategic priorities.
• The 2016–2017 Annual Performance Plan to establish NCUA’s goals for the coming year.
• A delegation to the Office of Examination and Insurance to administer the Board-approved methodology for calculating the Overhead Transfer Rate, which will be 73.1 percent in 2016.
• A delegation to the Office of the Chief Financial Officer to administer the Board-approved methodology for calculating the federal credit union Operating Fee, which will be 0.47 percent in 2016.

The Chief Financial Officer also briefed the Board on the performance of the Temporary Corporate Credit Union Stabilization Fund, based on the best available preliminary and unaudited information. The Corporate Stabilization Fund remained in a positive net position.

The Chief Financial Officer said the agency does not plan a Share Insurance Premium for 2015 or a Corporate Stabilization Fund assessment for 2016. The range for a potential Share Insurance Fund premium for 2016 will be 0 to 6 basis points.

NCUA Board Proposes Sweeping Field-of-Membership Reform
Millions of Americans who need affordable financial services would be eligible for credit union membership under a proposed field-of-membership modernization rule (Part 701) unanimously approved by the NCUA Board.

“There is nothing more vital to the future of a credit union than the ability to attract new members,” Board Chairman Debbie Matz said. “Our vision is to enable federal credit unions to reach potential members from all walks of life. With this proposed rule, we would expand consumer choice, increase access to affordable financial services and provide regulatory relief to a wide range of federal credit unions. At the same time, we will keep the federal charter competitive with state charters that allow more permissive field-of-membership rules.”

Consistent with the limitations outlined in the Federal Credit Union Act, the proposed rule would amend NCUA’s chartering and field-of-membership rule by:

• Modernizing the definition of “multiple common bond” to streamline the process for adding new groups to a charter;
• Enlarging the pool of potential members by expanding the areas that may be served by a community charter;
• Updating the process of defining an “underserved area;”
• Revising the “rural district” definition to include populations of up to 1 million people; and
• Expanding the definition of a “trade, industry or profession” as a single common bond.

Matz said the proposed rule was in large part the result of work by the Field-of-Membership Working Group she appointed in December 2014. NCUA Board Vice Chairman Rick Metsger had previously called on the agency to reform its field-of-membership rules.

“I would like to express our sincere gratitude to everyone who participated on calls with the NCUA Working Group,” Matz said. “Over the last 11 months, staff heard from hundreds of stakeholders from every region in the country. As a result, this proposal includes creative ideas, and we look forward to more input during the comment period.”

Comments on the proposed rule, available online here, must be received within 60 days of publication in the Federal Register. A comparison chart showing the proposed changes to the existing rule is available here.

Agency Budget Growth Slowest in Nine Years
Cost savings of nearly $7 million held increases in the agency’s Operating Budget, approved by a 2–1 NCUA Board vote, to 4.1 percent, the slowest growth since 2007.

NCUA’s Operating Budget will be $290.9 million for 2016 and $302.9 million for 2017. The 2016 Operating Budget reduces staffing levels by 21.7 full-time equivalents, with the reductions achieved through attrition, saving approximately $4.3 million. Authorized staffing in 2016 and 2017 is 1,247 full-time equivalents.

“As a result of an all-inclusive, zero-based budget process, the Operating Budget increase of 4.1 percent will be the lowest in nine years,” Matz said. “We’ve achieved cost savings of nearly $7 million in the 2016 budget alone without sacrificing NCUA’s statutory mission to protect the National Credit Union Share Insurance Fund.

“This Operating Budget will ensure NCUA continues to move forward as we supervise a rapidly growing and rapidly changing credit union system that exceeds $1.1 trillion in assets,” Matz said. “The budget presented today demonstrates our intent to hold the line on budget growth and staffing into 2017 and act transparently throughout the two-year budget cycle.”

All budget requests reflect NCUA’s top priorities, including maintaining a strong supervisory system, strengthening security, promoting greater awareness of critical risks and related threats, providing credit unions with guidance and supporting consumer protection and financial literacy.

Detailed information about NCUA’s budget, including office budgets and fact sheets, is available online at the agency’s Budget Resource Center.

The two-year budget is a return to the Board’s former practice. During the financial crisis, the NCUA Board approved budgets on an annual cycle. The budget estimates for 2017 represent the agency’s current best estimates of operating costs for that year. The Board plans to continue its practice of holding a mid-year budget review, and the 2017 budget is scheduled to be reviewed at the Board’s November 2016 open meeting.

As part of the vote on the Operating Budget, the Board also approved a two-year Corporate Stabilization Fund Budget. The 2016 Corporate Stabilization Fund budget of $4.0 million decreases spending by 2.4 percent, and the 2017 budget will be $4.1 million. Staffing levels for the Corporate Stabilization Fund will stay flat for both years at five full-time equivalents.

Annual Performance Plan Guides NCUA’s Work
In a split vote, the NCUA Board approved the 2016–2017 Annual Performance Plan, which provides specific direction for achieving the agency’s mission and strategic goals contained in the agency’s 2014–2017 Strategic Plan.

The Annual Performance Plan highlights goals, indicators and targets to measure agency performance. NCUA continues to designate the following goals as priorities:

• Implement a robust supervision framework for new financial reform regulations, including liquidity and contingency funding plans, capital planning and stress testing, derivatives authority and interest rate risk.
• Issue industry guidance related to emerging risks and related threats, like cybersecurity.
• Monitor issues or trends in consumer complaints to develop and promote financial literacy education and consumer protection programs.
• Develop and communicate guidance to credit unions to explain regulatory changes and best practices.
• Increase women and minority representation at all levels within the agency’s workforce, particularly within NCUA’s management ranks.
• Strengthen security programs and communications.

Copies of the agency’s Annual Performance Plan, as well as the multi-year Strategic Plan and public comments, can be found online here.

Overhead Transfer Rate Set at 73.1 Percent
The NCUA Board voted 2–1 to approve a delegation of authority to the Office of Examination and Insurance to administer the Board-approved methodology for calculating the Overhead Transfer Rate and set that rate for each budget cycle, beginning in 2016.

The Overhead Transfer Rate for 2016 will be 73.1 percent.

The Overhead Transfer from the Share Insurance Fund covers expenses associated with NCUA’s insurance-related activities. It is calculated annually through a methodology adopted by the Board in 2003. For 2015, the rate was 71.8 percent. The primary cause for the 1.3 percentage-point increase for 2016 is the increase in the percentage of insured shares held by state-chartered credit unions, which rose 0.9 percentage points to 47.7 percent.

Detailed information about the Overhead Transfer Rate and the methodology used to calculate it is available online on the agency’s Budget Resource Center.

Chairman Matz said she intends to request Board approval at the January 2016 open meeting to publish the current Overhead Transfer Rate methodology in the Federal Register. After an agency review of comments received, the Board would determine whether to revise the methodology.

Operating Fee Scale Reduced for Federal Credit Unions
The NCUA Board voted 2–1 to approve a recommendation to delegate authority to the Office of the Chief Financial Officer to administer the Board-approved methodology for calculating federal credit union operating fees and set the fee schedule for each budget cycle, beginning in 2016.

The 2016 Operating Fee will decrease 0.47 percent. NCUA uses the Operating Fee to pay the costs of regulating federal credit unions. NCUA will charge the Operating Fee in March 2016, with payments due April 15, 2016.

Based on the Overhead Transfer and the Operating Fee, federal credit unions will fund 65.1 percent of NCUA’s 2016 Operating Budget, while state-chartered credit unions will fund 34.9 percent.

For the fourth consecutive year, federal credit unions with assets of less than $1 million will be exempt from the fee. In all, 254 federal credit unions are currently eligible for the exemption.

Chairman Matz said she intends to request Board approval at the January 2016 open meeting to publish the current Operating Fee methodology in the Federal Register. After an agency review of comments received, the Board would determine whether to revise the methodology.

Background information on the Operating Fee is available on the agency’s Budget Resource Center.

Corporate Stabilization Fund’s Positive Net Position Increases
For the quarter ending Sept. 30, 2015, the Corporate Stabilization Fund’s net position increased by $24.1 million to a positive $499.1 million.

The increase included a $15.5 million reduction in insurance loss expense as a result of continuing improvements in projected cash flows relating to the legacy assets that secure the NCUA Guaranteed Notes. It also included $11.4 million in income from guarantee fees.

“The Corporate Stabilization Fund has now recorded a positive net position for six straight quarters, and that’s a testament to sound management,” Matz said. “We should note that recent legal settlements earned by the agency cannot yet be factored into this report. In the meantime, we can assure credit unions that NCUA will continue to aggressively pursue legal recoveries, and I am confident that we will have more settlements. Those recoveries, along with an improving economy and careful management, have minimized the costs to credit unions, and we don’t foresee a need for any more Corporate Stabilization Fund assessments in the future.”

Created by Congress in 2009 to ease the impact on the credit union system of the cost of resolving the corporate credit union crisis, the Corporate Stabilization Fund is scheduled to expire in 2021.

While the Corporate Stabilization Fund continues to have a positive net position, no funds are available to provide federally insured credit unions with an immediate rebate. NCUA must first repay outstanding borrowings from the U.S. Treasury, which were $2.3 billion at the end of the third quarter. NCUA plans to make a $400 million repayment to Treasury by Dec. 4.

Future changes in the economy or the performance of the legacy assets, which secure the NCUA Guaranteed Notes, are likely to change the value of the assets NCUA and the Corporate Stabilization Fund can eventually access at the end of the Guaranteed Notes Program.

The third-quarter financial results for the Corporate Stabilization Fund are preliminary and unaudited.

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