NCUA Approves Budget, Delays RBC, Keeps NOL at 1.38 Percent

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The National Credit Union Administration (NCUA) Board held its 11th open meeting of 2019 at the agency’s headquarters and approved two items: 1) Operating, capital and National Credit Union Share Insurance Fund (NCUSIF) budgets for 2020 and 2021; and 2) A two-year delay for the effective date of the agency’s risk-based capital rule.

The board also received a staff briefing on the NCUSIF normal operating level.

Agency Budgets Set for 2020 and 2021
Board members approved, by a 2-to-1 vote, the agency’s budgets for 2020 and 2021. The combined operating, capital, and Share Insurance Fund administrative budgets for 2020 will be $347.4 million. The combined budgets for 2021 will be $360.1 million.

Operating budgets for both years assume 1,185 full-time equivalent positions, including the following:

  • The 2020 Operating Budget of $315,883,000 and 1,180 full-time employees (FTEs), the 2021 Operating Budget of $327,973,000 and 1,180 FTEs, and $2,000,000 from unspent, prior-year balances, of which $1,750,000 will be reallocated from past years’ Capital Budgets, is available for expenditure from the Operating Fund in 2020.

  • The 2020 Capital Budget of $25,076,000, and the 2021 Capital Budget of $25,205,000.

  • The 2020 Share Insurance Fund Administrative Budget of $6,450,000 and five FTEs, and the 2021 Share Insurance Fund Administrative Budget of $6,932,000 and five FTEs.

The dissenting vote came from NCUA Board Member Todd Harper. He expressed significant disappointment that the budget does nothing to strengthen consumer financial protection.

Though not included in the budget process, Harper sought input on a plan to create a dedicated consumer compliance exam program for large, complex credit unions.

OTR: 61.3 Percent; Operating Fee Rises 1.13 Percent
The 2020 overhead transfer rate will be 61.3 percent, and the operating fee will increase by an average of 1.13 percent for natural-person federal credit unions with assets of more than $1 million.

Detailed information on the overhead transfer rate and operating fee is available in the 2020–2021 Budget Justification.

Federal credit unions will fund 70 percent of the NCUA’s 2020 operating budget, and federally insured, state-chartered credit unions will fund 30 percent.

The NCUA will charge federal credit unions the operating fee in March 2020, and payments will be due in April 2020.

The NCUA uses the operating fee to pay the agency’s costs of regulating federal credit unions. The overhead transfer rate is a transfer from the Share Insurance Fund to cover insurance-related expenses paid by both federal credit unions and federally insured, state-chartered credit unions.

RBC Implementation Delayed to 2022
The board voted to delay the effective date of the Risk-Based Capital (RBC) rule from Jan. 1, 2020 to Jan. 1, 2022. During the additional two years, the board intends to “holistically and comprehensively evaluate the NCUA’s capital standards for credit unions,” including consideration of asset securitization, subordinated debt, and a community bank leverage ratio analog.

The dissenting vote came from Harper, who also voted against proposing the delay back in June. Harper voiced significant concerns with delaying the standard, stating that after a decade of work on the new RBC framework it is time for the agency to move ahead to protect taxpayers, federally insured credit unions, and their members before it is too late.

The Leagues urged the agency to adopt the delay in a July letter to the board, providing that a delay will benefit both the NCUA and credit unions, allowing them additional time to prepare for the rule’s implementation. The Leagues also encouraged the board to use the additional time to revisit the agency’s legal authority to establish a two-tier risk-based net worth requirement for “complex” credit unions.

NOL Remains at 1.38 Percent
The normal operating level (NOL) of the NCUSIF will remain at 1.38 percent.

The board received a briefing from staff on the NOL of the Share Insurance Fund for 2020. Upon the recommendation of NCUA staff, the board agreed to maintain the NOL at 1.38 percent for 2020. As such, NCUA staff does not anticipate an equity distribution to credit unions during 2020. There was no similar explicit statement about a premium assessment; however, the Leagues anticipate there will not be a premium assessment.

There will be no official word regarding equity distributions or premium assessments until the Dec. 31, 2019 equity position is calculated (by Feb. 14, 2020) and the Dec. 31 insured shares data is verified (by March 6, 2020).

  • If the year-end Equity Ratio is above the normal operating level of 1.38 percent there will be a distribution sufficient to bring the Equity Ratio down to 1.38. This would occur no later than the end of the second quarter of 2020.

  • If the year-end Equity Ratio is below 1.38 percent but above 1.30 percent, no premium can be assessed. Premiums can only be assessed when the equity ratio is below 1.30 percent.

The Leagues continue to advocate a phase-down of the NOL to 1.30 percent by 2021.

The normal operating level is the equity level set by the NCUA Board based on an economic stress analysis. The Federal Credit Union Act allows the NCUA Board to set the normal operating level between 1.20 percent and 1.50 percent. Funds available beyond the established normal operating level are distributed to credit unions when all statutory criteria are met.

The agency reviews the normal operating level annually.

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