As Prepared for Delivery on December 14, 2023
Thank you, Kelly and David, for your presentation on the request for comment on the methodology the NCUA uses to calculate the Overhead Transfer Rate, or OTR for short. I also want to thank the Office of Examination and Insurance team for their work in developing this request for comment that the NCUA Board is considering today.
Calculating the OTR is complicated. It’s a classic Goldilocks-style dilemma. Adjust it too low, and federal credit unions must pay a greater portion of the agency’s budget. Calculate it too high, and funding the agency could fall disproportionately on state-chartered credit unions and insufficiently reflect the contribution of state supervisory agencies. Therefore, it is incumbent on the NCUA to get it just right. It is for those very reasons that the OTR methodology has, at times, become a controversial subject over the years as the NCUA works to find the correct balance.
As Kelly and David stated, the NCUA uses a principles-based methodology for calculating the OTR that has remained in place since 2017. That methodology places different risk weights on the NCUA’s many activities to assist in calculating the final OTR each year. Some are fully related to the Share Insurance Fund, and some are only partially related.
Today’s request for comment would clarify the NCUA’s four principles for calculating the OTR and the various cost allocations associated with the calculation, and the notice does not contemplate any substantive changes to the existing process. The notice provides interested stakeholders with graphs illustrating the principles to provide further transparency and understanding. The request for comment also asks for input on whether the NCUA should continue to seek comment through the Federal Register on this methodology or, alternatively, add the methodology to the NCUA’s long-standing annual review of one-third of its regulations.
The methodology itself is not open for comment, and this notice is limited to providing additional clarity to stakeholders, as Kelly and David noted. Still, this request for comment provides additional transparency on this mechanism for funding the agency’s operations. It is a worthy effort, and I will support this matter. I encourage all interested stakeholders, including federal and state-chartered credit unions, as well as state regulators, to provide their feedback.
This concludes my remarks. I now recognize Vice Chairman Hauptman.
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NCUA Chairman Todd M. Harper Statement on the Request for Comment on NCUA’s Overhead Transfer Rate Methodology
NCUA Chairman Todd M. Harper at a meeting of the NCUA Board.
As Prepared for Delivery on December 14, 2023
Thank you, Kelly and David, for your presentation on the request for comment on the methodology the NCUA uses to calculate the Overhead Transfer Rate, or OTR for short. I also want to thank the Office of Examination and Insurance team for their work in developing this request for comment that the NCUA Board is considering today.
Calculating the OTR is complicated. It’s a classic Goldilocks-style dilemma. Adjust it too low, and federal credit unions must pay a greater portion of the agency’s budget. Calculate it too high, and funding the agency could fall disproportionately on state-chartered credit unions and insufficiently reflect the contribution of state supervisory agencies. Therefore, it is incumbent on the NCUA to get it just right. It is for those very reasons that the OTR methodology has, at times, become a controversial subject over the years as the NCUA works to find the correct balance.
As Kelly and David stated, the NCUA uses a principles-based methodology for calculating the OTR that has remained in place since 2017. That methodology places different risk weights on the NCUA’s many activities to assist in calculating the final OTR each year. Some are fully related to the Share Insurance Fund, and some are only partially related.
Today’s request for comment would clarify the NCUA’s four principles for calculating the OTR and the various cost allocations associated with the calculation, and the notice does not contemplate any substantive changes to the existing process. The notice provides interested stakeholders with graphs illustrating the principles to provide further transparency and understanding. The request for comment also asks for input on whether the NCUA should continue to seek comment through the Federal Register on this methodology or, alternatively, add the methodology to the NCUA’s long-standing annual review of one-third of its regulations.
The methodology itself is not open for comment, and this notice is limited to providing additional clarity to stakeholders, as Kelly and David noted. Still, this request for comment provides additional transparency on this mechanism for funding the agency’s operations. It is a worthy effort, and I will support this matter. I encourage all interested stakeholders, including federal and state-chartered credit unions, as well as state regulators, to provide their feedback.
This concludes my remarks. I now recognize Vice Chairman Hauptman.