CUNA Comments at NCUA Budget Briefing

October 18, 2006

FOR IMMEDIATE RELEASE
Contact:
Pat Keefe, CUNA
(202) 508-6765; pkeefe@cuna.com
pkeefe@cuna.com

CUNA representative Marla Marsh made several key points about the NCUA budget in her presentation to the NCUA Board during the annual hearing on its spending plan, held today.

Marsh, chairman of CUNA’s examination and supervision subcommittee – and president/CEO of the Kansas Credit Union Association – told the NCUA Board members:

* CUNA will continue to press NCUA to maximize efficiencies while minimizing costs;

* CUNA strongly encourages the Board to assure credit unions that for 2007 it has fully assessed its staffing needs in light of changing regulatory and marketplace demands on credit unions, balancing safety and soundness objectives with cost containment.

* Regarding the Overhead Transfer Rate from the National Credit Union Share Insurance Fund to the agency’s budget, it is still unclear to credit unions after several years of dealing with this issue, what the agency attributes to insurance related costs. CUNA urges the agency to clarify what “insurance related costs” entail.

* CUNA commends NCUA for its recent letter on appropriate ROA levels, noting “it is essential for the agency to continue to understand that as not-for-profit cooperatives, credit unions need not and should not operated like banks.”

The full text of Marsh’s statement follows:

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THE CREDIT UNION NATIONAL ASSOCIATION’S STATEMENT

FOR THE SIXTH ANNUAL NATIONAL CREDIT UNION ADMINISTRATION BRIEFING

AND PUBLIC FORUM ON THE AGENCY’S 2007 BUDGET

PRESENTED BY MARLA MARSH
CHAIRMAN, CUNA EXAMINATION AND

SUPERVISION SUBCOMMITTEE
AND PRESIDENT/CEO OF THE KANSAS CREDIT UNION ASSOCIATION

OCTOBER 18, 2006

Introduction

Chairman Johnson, Vice Chairman Hood, and Board Member Hyland, on behalf of the Credit Union National Association and as chair of CUNA’s Examination and Supervision Subcommittee, I appreciate the opportunity to present our views on the agency’s resource allocation process.

This briefing, which CUNA strongly supports, is an exceptional undertaking for a federal regulator. It reflects the unique funding system for the agency that Congress created, namely, that credit unions -- not the federal government -- provide the vast majority of financial resources used to operate the agency and the National Credit Union Share Insurance Fund.

In light of this fact, it is important that credit unions are well informed about the agency’s spending priorities and practices and that NCUA remains accountable to credit unions as well as to Congress on how its resources are allocated.

CUNA’s Examination and Supervision Subcommittee, which reports to CUNA’s Governmental Affairs Committee, was established in 1991 as the primary policy-development group within the association focusing on NCUA’s accountability to credit unions. In countless meetings and statements, the Subcommittee has urged NCUA to make budget and policy decisions that are effective, efficient and clearly understood. CUNA will continue to press NCUA to maximize efficiencies while minimizing costs.

Nonetheless, as CUNA has also reiterated, the agency’s primary goal is safety and soundness, an objective which cannot be achieved without adequate resources. In other words, we realize you have an important job to do. We just want you to realize you are doing it with credit unions’ money!

I now want to turn to specific areas relating to the agency’s budget process and provide comments on several topics.

Agency Staffing Levels

Last year, NCUA approved a fiscal year budget for 2006 of almost $150.8 million. This August, the agency reprogrammed the budget to reduce it by $1.4 million, due largely to a continuing pool of 29 vacancies in the agency’s authorized staff level, which is currently at 958.

Just as NCUA should not micromanage credit unions, the credit union system cannot affect specific aspects of the agency’s budget, including staffing levels. In our view, sufficient staff resources for NCUA are essential. Without them, including adequate regional examiners and supervisors, NCUA will not be able to meet its primary goal of promoting credit union safety and soundness.

However, inflated staff levels may lead to inefficiencies, bloated budgets, and increased fees and assessments for credit unions.

Since 2000, NCUA has consistently cut the number of FTEs, a move we have generally supported. In our view, the issue is not so much the number of FTEs but rather whether the agency has the employees with the appropriate skills to assess credit unions’ safety and soundness without unnecessarily intruding in their operations.

CUNA strongly encourages the Board to assure credit unions that for 2007 it has fully assessed its staffing needs in light of changing regulatory and marketplace demands on credit unions, balancing safety and soundness objectives with cost containment.

Operating Fund Balance And Overhead Transfer Rate

In past years, the issues of the agency’s overhead transfer rate and the amount in the agency’s operating fund have received a significant amount of attention. This is no longer the case as the agency has taken steps to improve its processes for establishing the appropriate levels for both the operating reserves and for the OTR. That said, as with most things in life, there is still some room for improvement.

Regarding the OTR, it is still unclear to credit unions after several years of dealing with this issue, what the agency attributes to insurance related costs. NCUA should not give up on its efforts to clarify this term for credit unions as it is essential to a thorough understanding of how the agency’s funding process actually works.

Regarding the operating fund balance, we continue to encourage NCUA to provide more information to credit unions about the agency’s objectives for the account and consider whether reductions are feasible.

Issues for 2007

NCUA and credit unions are facing a number of concerns as we approach 2007. These include but are certainly not limited to the lack of overall growth in the credit union system, current and increasing regulatory burdens on financial institutions which not only affect credit unions but also NCUA, and troubling economic indicators.

None of these issues is insurmountable, but they do demand attention and coordination between the regulators and regulated if credit unions are to continue to thrive and serve their members well in the coming years.

In the context of this briefing, I want to focus on regulatory burden issues which include concerns relating to the USA Patriot and Bank Secrecy Acts, data security, Home Mortgage Disclosure Act requirements and other ongoing due diligence issues regarding NCUA’s regulatory requirements.

While examiner training on the range of regulatory compliance issues is essential, it is also important that examiners receive ongoing training on communicating and working with credit unions in the least intrusive manner.

Also, ensuring that the agency provides as much advance notice as possible to credit unions regarding what examiners will be checking for in key areas is critical.

In coming months, CUNA will be conducting its periodic survey of state and federal credit unions regarding the examination process and as we have in the past, we will provide NCUA with a summary of our findings.

Before concluding, I do want to commend NCUA for its recent letter on appropriate ROA levels. The approach reflected in the letter is a model of good regulatory policy and appropriate flexibility. We encourage NCUA to consider the extent to which this approach could be utilized for other regulatory requirements.

It is essential for the agency to continue to understand that as not-for-profit cooperatives, credit unions need not and should not operated like banks.

NCUA in recent years has taken steps to address regulatory burden, most notably with improvements to the member business loan rule and the Regulatory Flexibility program. In our view, such regulatory leeway, when warranted by a credit union’s safety and soundness and supported by relevant statutes, is an absolute must for credit unions. CUNA is developing further recommendations in these areas which we plan to discuss with NCUA in 2007.

In the meantime, we welcome NCUA’s quick action, slated for tomorrow’s board meeting, to implement provisions of the new regulatory relief legislation.

Conclusion

Now more than ever, the NCUA Board and senior staff have a lot on their plate – the data collection process; lack of growth in credit unions; mounting regulatory burdens for credit unions and the agency; and increasing concerns about our economy. Nonetheless, it is important for credit unions to understand the agency’s program and budget priorities for the coming year. We appreciate the opportunity to share our views and be part of this process. Thank you.

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