NCUA Chairman Todd M. Harper Opening Remarks at NCUA’s Public Budget Briefing on the Staff Draft Budget for 2023 and 2024

As Prepared for Delivery on October 19, 2022

The National Credit Union Administration Board is, as mandated by Congress, meeting today to hold this budget hearing on the staff draft budget for 2023 and 2024. The statutory directive, now codified within the Federal Credit Union Act, requires us to hold an annual budget hearing, but it also gives us some flexibility in how we structure these proceedings.

So, this year, at the request of Vice Chairman Hauptman, we will follow a different and more interactive format than in prior years. Instead of the standard testimony followed by questions-and-answers format, we will seek today to engage in more of a dialogue between NCUA staff, participating stakeholders, and the NCUA Board. Thank you, Vice Chairman Hauptman, for the suggestion.

Although there may be a more free-flowing conversation today than in previous budget hearings, I would note that we still expect everyone to engage in a respectful dialogue. Today’s budget hearing is about the NCUA gaining a better understanding of stakeholder concerns and stakeholders getting a better understanding of the NCUA staff’s budget recommendations. It’s not about scoring political points nor is it about grabbing headlines.

Additionally, as I have noted at prior budget hearings, the NCUA staff draft budget document is merely a starting point for discussions, not a final product. That is why the NCUA Board is very interested in stakeholder input. And, today’s budget hearing is just one part of getting that feedback. As a reminder, written comments on the staff draft budget are due by Friday, October 28. I encourage anyone interested in the credit union system to weigh in, whether they are or are not presenting today.

Ultimately, a budget is a forward-looking document that signals an organization’s priorities and objectives each year. Among other things, the staff draft budget requests an increase in the number of specialist examiners and other staff in consumer compliance, Bank Secrecy Act compliance, and small credit union support. After considering industry input, we may want to make other choices.

The proposed NCUA 2023 staff draft budget is $367 million. That is 8.1 percent higher than the 2022 budget approved by the NCUA Board. Although not done so intentionally, that increase largely aligns with the current rate of inflation. Whether you think this rate of growth is too high or too low, there’s another important point I’d like to make. The proposed increase in 2023 spending is actually a more than four-percentage point drop from the 2023 budget the Board approved last December. Let me explain.

Each year, the NCUA Board approves the budgets for each of the upcoming two years. So, at the end of 2021, the NCUA Board approved the budgets for 2022 and 2023. If the NCUA Board does not approve an updated 2023 budget later this year, then the previously approved 2023 would remain in effect. And, that budget would result is a 12.3 percent increase over the Board’s approved budget for 2022. So, in developing this staff draft budget proposal, staff have already identified cost savings and pared back increases in certain activities.

Nevertheless, like credit unions and the credit union members we protect and insure, the NCUA is experiencing inflationary pressures for nearly everything the agency needs, including labor, contracting, supplies, and travel. As stewards of the agency’s resources, the NCUA Board carefully evaluates what is needed to support credit unions’ safety and soundness, ensure consumer compliance, and maintain the health of the Share Insurance Fund.

While the credit union system has, to date, largely weathered the COVID-19 pandemic without considerable economic dislocation, we now have new challenges ahead of us due to rising interest rates, increased liquidity risks, and ever evolving cybersecurity threats. In response, the NCUA must maintain an effective examination and supervision program as the agency navigates this period of economic and market uncertainty and fulfills its consumer financial protection responsibilities.

After reading the testimony and comment letters received to date, I recognize that stakeholders would like the agency to pare back expenditures in 2023. For example, several of today’s participants called for cutting travel costs. While there may be some flexibility in lowering travel costs below what staff have proposed, we must also ensure that our efforts to be penny-wise in exams don’t ultimately result in being pound-foolish for the Share Insurance Fund.

Since the start of voluntary travel this spring as part of Phase 2 of the NCUA’s return to on-site examinations and supervision, field staff have found an increase in recordkeeping deficiencies, problems with internal controls, and instances of fraud. While the agency will continue to use off-site supervision as appropriate, the NCUA will need to spend the money necessary to conduct in-person examinations to find and address other internal control, recordkeeping, and fraud issues before they become significant and lead to Share Insurance Fund losses.

Ultimately, today’s briefing, testimony, and discussions provide a vehicle for the NCUA Board to listen to stakeholder concerns and solicit feedback, while also giving the industry context and transparency about the agency’s budget. This engagement increases the public’s understanding of the NCUA’s annual priorities and how they advance the agency’s mission of protecting the system of cooperative credit and its members through effective chartering, supervision, regulation, and insurance.

In closing, I look forward to hearing today’s presentations and getting feedback on the staff draft budgets for 2023 and 2024. I would also like to thank my fellow Board members — Vice Chairman Hauptman and Board Member Hood — for their willingness to engage on their budget priorities. I look forward to working with my fellow Board members to reach a consensus on the agency’s budget in the coming weeks. Building on the effective process we used last year, I am confident that we can reach an agreement on a consensus budget for the next two years.

That concludes my opening remarks. Vice Chairman Hauptman?