NCUA Board Meeting Recap - December 2023

Happy Friday everyone! It's hard to believe we are already half-way through December, but here we are. The NCUA had a full agenda for their Board meeting yesterday. Here's a recap of some of the highlights.

Operating Fee Schedule Methodology

The NCUA Board voted to raise the threshold at and below which FCUs do not pay an operating fee from $1 million to $2 million. They will also adjust this threshold annually by the aggregate rate of asset growth at FCUs. In the Board meeting, the NCUA noted that this does not reduce the total revenue collected by the NCUA for their operating budget.

In Virginia, this change will provide additional relief to several of our small credit unions. Virginia has four credit unions that currently have total assets between $1 million and $2 million. If they remain in that asset-size range, those credit unions would now be exempt from paying an operating fee to the NCUA.

The League submitted a comment letter to the NCUA on this proposal, supporting the raising of this asset threshold to $2 million, while also urging them to consider further increases to $5 million. While the NCUA considered an increase to $5 million to be outside the scope of this proposal, they will consider it for future proposals. Two other commenters joined the League in supporting a threshold increase to $5 million.

The League also asked for clarification on the inflationary adjustment mechanism the rule puts into place. Each year the exemption threshold will be adjusted by the percentage by which average quarterly assets reported for FCUs for the most current four quarters have increased compared to the previous four quarters. In our comment letter, we asked if the NCUA had considered what would happen to the exemption threshold if total FCU assets were to decrease on an annual basis.

In the final notice, the NCUA noted our comment and stated that they would take it under advisement and may, in the future, consider whether it is necessary to amend the methodology to address this contingency. NCUA Board Member Rodney Hood also asked this question to staff during the Board meeting, and got a similar answer - in the unlikely event of a decrease in total FCU assets, the Board could decide how to handle the threshold.

NCUA Budget

The NCUA issued its final budget for 2024. In November, they issued their staff draft budget and accepted written comments and oral testimony from stakeholders. League President/CEO Carrie Hunt testified at the NCUA's budget hearing, and the League submitted written comments as well. Input from credit union trade associations is an important part of the process.

From Mark Treichel, former executive director of the NCUA, here are some of the changes put in place between the staff draft and the final budget:

• An additional $5.3 million in expected surplus is now projected for 2023, for a total of $23.3 million in "carryforward funding" in the operating budget. This amount has been used to lower the overall level of new operating budget funding for 2024.
• The budget for agency travel expenses was reduced by $2 million, reflecting expectations for some examination work to continue to be conducted off-site by NCUA examiners, and other efficiencies gained through remote work.
• One position requested for the Office of Ethics Counsel was eliminated.
• The recommended final budget eliminates two new positions and related funding requested to establish a new Office of the Executive Secretary.
• One new position was added to the Office of External Affairs and Communications to lead the implementation of the 21st Century Integrated Digital Experience Act and other requirements newly established for federal government websites. The new writer-editor position proposed in the staff draft for the Office of External Affairs and Communications was eliminated.
• Funding for one position in the Office of Human Resources - that is authorized within the NCUA staffing plan but currently unfunded - was moved from 2024 to 2025.
• One new position was added to the Office of the Chief Information Officer to reflect information security management needs. The recommended final budget eliminates funding proposed in the staff draft for one position in the Office of the Chief Information Officer that is authorized within the NCUA staffing plan, but which is currently unfunded.
• One new position for the Office of the Ombudsman was moved from 2024 to 2025.
• Four additional examiner positions, for a total of nine when including the five additional positions proposed in the staff draft, were added to the regions to reflect updates to the NCUA’s examination and supervision program needs for 2024.
• Additional budget amounts for 2024 totaling $0.1 million, net, were added to several offices primarily because of revised estimates for various contract support costs. Some additional, immaterial adjustments were made to funding levels in the staff draft for technical corrections and to reflect updated information that was not available at the time the staff draft was published.

Request for Comment on Overhead Transfer Rate (OTR) Methodology

The NCUA Board approved a request for comment on the existing OTR methodology. The last change to the OTR methodology was in 2017. At that time, the Board committed to allowing for comments on the methodology (1) every three years and (2) in the event the Board proposes a change to one or more of the core principles.

In the proposal, the NCUA is providing clarifying details and information on the principles used in the OTR calculation. The Board notes that they welcome comments on any and all aspects of the OTR methodology, as well as any suggested alternatives. The comment period will likely open in about one week, close toward the end of February, and the process will be finalized around June of 2024.

Central Liquidity Facility's 2024 Budget

Finally, the NCUA was briefed on the CLF's Proposed 2024 Budget, and unanimously approved the 2024 budget of $2,199,065. Chairman Todd Harper noted the important role the CLF plays in the current economic environment and highlighted that the facility would be even more effective if more credit unions signed on. While in previous years the NCUA Board has approved CLF budget funding through the NCUA's operational budget, they have taken steps to strengthen the independence of the CLF by separating its budget from the NCUA operating budget.

That's all from a full Board meeting agenda!