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The National Credit Union Administration board on Thursday agreed to a compromise budget that will return $15 million to credit unions next year and set the agency’s normal operating level at 1.33% for 2022.
Throughout the meeting, board members emphasized that they were not wholly satisfied with several proposals presented, but that compromise was needed to move policies through the process.
“Long ago, my parents — and my more recent experiences on Capitol Hill — taught me that negotiating in good faith, with an open mind and open communications, leads to better decision-making and, ultimately, better governance,” board Chairman Todd Harper said at as the board considered a mortgage servicing rule. “That is what we have achieved here today.”
Discussing the normal operating level, Harper said that an agency working group recommended that the agency set the level at 1.33%–a decrease from the current level of 1.38%.
This revised level will continue the policy objectives of retaining public “confidence in federal share insurance, preventing impairment of the one percent contributed capital deposit, and ensuring the Share Insurance Fund can withstand a moderate recession without the equity ratio declining below 1.20 percent over a five-year period,” he said.
Board member Rodney Hood said he would have preferred to see the operating level set at 1.30%–a level supported by credit union trade groups. He said that the burden of proof is on the NCUA if the operating level is set any higher than 1.30%.
He said, however, that he would support the 1.33% since it does reduce the operating level and removes some things from the calculation that are no longer relevant.
Board member Kyle Hauptman said that the 1.33% normal operating level has little meaning right now, since the agency’s equity ratio is projected to be 1.28% at the end of the year.
On the budget, many of the staffing increases included in a draft 2022 budget proposed last month were eliminated. The funding levels in the 2022 budget were cut by $5.9 million from the draft budget. The total operating budget will be $320.1 million, a 1.8% increase over 2021.
The operating fee collected from federal credit unions will be reduced by $15 million.
The draft budget, endorsed by Harper, included 29 additional examiners for proposed changes to the examination schedule. Those proposed employees were not included in the budget adopted Thursday. The four additional fair lending staff for the consumer protection office in the draft budget were decreased to two new staffers.
“Compared to the overall funding and staffing levels shown in the staff draft budget, the budget we are considering is smaller in dollars and full-time equivalents, but it still achieves the important goals of protecting credit union members, maintaining the safety and soundness of the credit union system, and safeguarding the Share Insurance Fund,” Harper said.
“While I would have liked to increase our fair lending resources by more, the recommended budget includes two additional staff to expand the NCUA’s fair lending program,” Harper added.
Hood said the final budget makes sensible changes in the number of employees at the agency and gives money back to credit unions from the operations fund.
He added, however, that the budget should be presented earlier in the year to give board members and the credit union community more time to study the document.
Hauptman said he was pleased that the final budget is considerably lower than the draft budget. He said he supports Hood’s efforts to ensure that excess funds are returned to credit unions.
“We all appreciate the effort to conserve budget dollars, but we should work toward a consistent method for returning excess funds when they reach certain levels,” Hauptman said. “Returning $15 million of the excess cash to offset the operating budget is a step in the right direction.”
The board also approved a final rule amending the NCUA capital adequacy regulation to allow credit unions with assets over $500 million to use a simple measure of capital adequacy. The rule will allow those credit unions to opt out of the NCUA’s upcoming risk-based capital rule.
Harper said the rule is comparable to the community bank leverage ratio.
“In essence, both standards seek to strike a balance among several objectives, including maintaining strong capital levels, protecting safety and soundness, and simplifying compliance,” he said. He added the final rule represents a compromise among board members.
Hood said he would have preferred that the board simply repealed the upcoming risk-based capital rule and fine-tuned the current risk-based net worth rule.
He said the proposed rule is a step in the right direction, since it provides complex credit unions with an “off-ramp” to the risk-based capital rule, adding that he would “reluctantly” vote for the rule.
The board also approved a final rule that will allow well-managed and capitalized credit unions to purchase mortgage servicing rights from other credit unions as long as the purchases comply with the credit union’s investment polices and are approved by a federal credit union’s board or investment committee.
Harper had opposed the rule when it was first proposed by the board. He said Thursday that the final rule builds safeguards into the system. Hood said that the rule will keep the mortgage capital in the credit union system, while not posing a risk to the Share Insurance Fund. Hauptman said that the rule “gives federal credit unions the ability to scale up mortgage servicing for their own members by purchasing mortgage servicing assets from other credit unions.”