ALEXANDRIA, Va.–The NCUA board has voted in favor of delegating to the agency’s Director of Examination & Insurance responsibility for setting the overhead transfer rate each year.
The vote was 2-1, with board member Mark McWatters casting the dissenting vote.
The board also approved by the same vote delegation of authority to the agency’s CFO to also set the operating fee each year using a board-approved methodology. The operating fee was set at .47% for 2016.
The board approved an overhead transfer rate for 2016 of 73.1%, up from 2015’s 71.8%. NCUA’s Director of Examination and Insurance, Larry Fazio, said the primary driver of the increase in the 2016 OTR was an increase in the percentage of insured shares held by state-chartered credit unions (up 0.9 percentage points to 47.7%).
The board vote and the change in authority were met with disapproval by the National Association of State Credit Union Supervisors (NASCUS).
“By shifting virtually all safety and soundness-related expenses to the share insurance fund overhead transfer rate, NCUA is foregoing responsibility for safety and soundness as the charterer of federal credit unions,” said NASCUS CEO Lucy Ito.” Other financial institution charterers without deposit insurance obligations – including state regulators and federal supervisors such as the Office of the Comptroller of the Currency and the Federal Reserve – assume full responsibility for safety and soundness. We hope that after the board agrees in January to publish the OTR for public comment in the Federal Register a much more clear picture will emerge as to how and why the agency assigns all safety and soundness expenses to the OTR – and that the agency will consider making meaningful changes as a result of public comment.”
Ito added that NASCUS also objects to delegating the authority to staff of setting the OTR. “This will only decrease transparency and especially accountability."
'Thankless Job'
The delegation of authority does not represent the power to change the methodology for calculating the OTR, which is the funds transferred from the National Credit Union Share Insurance Fund to cover what the agency says are its costs for examining state-chartered, federally insured credit unions.
NCUA Vice Chairman Rick Metsger said the OTR covers about 73% of NCUA’s budget, and that state charters pay approximately 35% of the agency’s budget.
“Setting the annual Overhead Transfer Rate has always been a thankless job for the NCUA Board and staff, because it is never possible to satisfy all stakeholders,” said NCUA Chairman Debbie Matz. “If the Overhead Transfer Rate goes up, state charters complain the rate is too high. If the OTR goes down, federal charters complain the rate is too low.”
Matz said that all the agency can do is make sure the methodology accurately values the work done by NCUA and state examiners, and that it fairly allocates costs between federal and state charters.
Matz emphasized that the OTR is not some “arbitrary number” that the NCUA board or staff picks at random every year,
“Rather, it’s a cost-accounting equation, driven by a methodology that has been in place since 2003, under then-Chairman Dennis Dollar,” she said, adding that the methodology has always been posted the agency’s website.
In 2011, noted Matz, Price Waterhouse Cooper signed off on the methodology.
Matz added that it might seem counterintuitive that at the same time the agency’s is planning to put the methodology out for comment, it’s proposing to give staff the authority to calculate each year’s OTR.
“But, this process actually parallels the separation of duties inside a credit union, where the board sets policy and staff executes the policy,” she said.
In response to a question from Matz that was clearly prompted by an issue McWatters has previously raised, Deputy General Counsel Lara Rodriguez said it is her office’s opinion that the OTR does not need to be put out for comment every year in accordance with the Administrative Procedures Act, because it is exempt.'
Erroneous Contention
Rodriguez said the Office of General Counsel at NCUA believes it is an “erroneous contention” that notice and comment are required.
That brought, not surprisingly, a response from McWatters, who is an attorney himself. “I disagree,” said McWatters. “I think the better approach is to follow APA, and if we don’t follow it, that we shadow it. We may conclude that we don’t have a legal requirement to follow it, but we should follow it anyway. The APA was put in place to add transparency to the vetting process.