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Regulator's budget increases raise alarm bells for credit unions

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Credit unions have a bone to pick with the National Credit Union Administration.

While banking regulators such as the Federal Deposit Insurance Corp. have seen their budgets decline in recent years, one estimate pinpoints the NCUA’s operating budget as having risen 57% over the span of a decade even as the number of institutions it oversees has shrunk by 32%.

And since credit unions themselves fund the agency, that’s raising alarm bells within the movement. This will also be the first public budget briefing since a high-profile scandal regarding how the agency approves employees' expenses. The agency is scheduled to defend its latest budget proposal when it holds a public budget briefing on Nov. 20. Representatives from the regulator did not immediately respond to a request for comment on this story.

The budget increases “do concern me because I do not believe that it is reflective of what’s going on in our industry nor what the average credit union is experiencing in their budget cycle,” said Terry Tucker, operations manager and compliance officer at Pine Federal Credit Union in Pine Bluff, Ark.

Those concerns were echoed by Bill Brooks, a former credit union examiner and current president and CEO of Mid-Atlantic FCU.

“I question what they’re doing and I also question if they’re going to expand into some new level of examination that’s only going to make it more difficult for credit unions,” he said.

NCUA’s budget is funded by credit union examination fees and the overhead transfer rate, which shifts funding from the National Credit Union Share Insurance Fund to the budget in order to cover administrative costs. The revised 2020 budget totals $347.7 million but the 2021 proposal reaches $358.1 million. Chief among the increases is a 34% rise in the regulator’s capital budget, though documents provided by the agency note that mandatory contributions to the Office of Personnel Management’s Federal Employee Retirement System account for a significant portion of that.

The agency’s budget justification documents attempt to account for inflation, and when adjusted for inflation the 2020 operating budget accounts for a 1.7% increase over the approved 2019 budget.

The bulk of the budget is dedicated toward staffing, but NCUA has consistently reduced the number of full-time employees it employees in recent years until recently plateauing. Staffing levels are not expected to change dramatically between now and 2021, raising questions about why those costs keep rising so significantly.

About 73% of the 2020 budget is allocated toward employee pay and benefits, the same percentage as in the agency’s 2013 budget, when the agency employed 78 more people than today, though health care costs today are higher than they were then. The 2020 and 2021 budgets plan for 1,185 employees, essentially level with where staffing stood in 2018. Pay and benefits costs are projected to rise by $8.5 million for 2020, including a $5 million mandatory one-time retirement contribution noted above.

Michael Fryzel, a former chairman at agency, suggested one reason staffing costs continue to rise while staff stays level is to help protect the agency amid a hot job market.

“All regulators try to keep salary at the same for one reason: if you don’t then you’re going to have your other employees jump to other federal regulators,” he said.

Those footing the bill see the matter differently.

Because the industry it serves is consolidating, Tucker suggested NCUA should “get smaller through attrition” while maintaining the same quality of regulation.

Despite criticisms that the regulator has continued to increase costs as the industry consolidates, “NCUA maintains that the remaining credit unions are larger and more complex, thus requiring more supervision,” noted Dennis Dollar a credit union consultant and former NCUA chairman

“This is a bit at odds with FDIC where the number of banks has gone down further than the number of credit unions, and FDIC has responded with considerably smaller budget increases – and even some significant decreases in the biggest budget item which is staffing – than has NCUA in recent years,” he continued.

Looking to the future

NCUA will accept public comment on its budget proposal until Dec. 2, and only two comments were available at the time this story was published – from Tucker and Brooks, respectively – but both called out the possibility that future budgets could be even higher if board member Todd Harper’s proposal to increase oversight of large credit unions is successful.

Not only could that potentially increase costs but, as Brooks suggested, “it’s going to put [small credit unions] out of business.” He added that NCUA Chairman Rodney Hood “has said that we want to be inclusive, but you’re not going to be inclusive by shrinking the base.”

Comments on Harper’s proposal are also due Dec. 2. In its current form, that measure would establish three new full-time roles at the agency. And if things continue as they are, some executives believe NCUA would be better off following the FDIC’s example – or even taking more drastic measures.

“I think the FDIC has done what the NCUA is talking about,” Tucker said, of the bank regulator’s shrinking budgets. “If NCUA is serious that compliance is that much of an issue, then maybe it’s time for the NCUA to merge with the FDIC.”

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