[Federal Register Volume 85, Number 224 (Thursday, November 19, 2020)]
[Notices]
[Pages 74090-74159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-25546]
[[Page 74089]]
Vol. 85
Thursday,
No. 224
November 19, 2020
Part VI
National Credit Union Administration
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The NCUA Staff Draft 2021-2022 Budget Justification; Notice
Federal Register / Vol. 85, No. 224 / Thursday, November 19, 2020 /
Notices
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NATIONAL CREDIT UNION ADMINISTRATION
The NCUA Staff Draft 2021-2022 Budget Justification
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice.
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SUMMARY: The NCUA's draft, ``detailed business-type budget'' is being
made available for public review as required by federal statute. The
proposed resources will finance the agency's annual operations and
capital projects, both of which are necessary for the agency to
accomplish its mission. The briefing schedule and comment instructions
are included in the supplementary information section.
DATES: Requests to deliver a statement at the budget briefing must be
received on or before November 20, 2020. Written statements and
presentations for those scheduled to appear at the budget briefing must
be received on or before 5 p.m. Eastern, November 30, 2020.
Written comments without public presentation at the budget briefing
may be submitted by December 11, 2020.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
Presentation at public budget briefing: Submit requests to
deliver a statement at the briefing to BudgetBriefing@ncua.gov by
November 20, 2020. Include your name, title, affiliation, mailing
address, email address, and telephone number. Copies of your
presentation must be submitted to the same email address by 5 p.m.
Eastern, November 30, 2020.
Written comments: Submit comments to
BudgetComments@ncua.gov by December 11, 2020. Include your name and the
following subject line ``Comments on the NCUA Draft 2021-2022 Budget
Justification.''
Copies of the NCUA Draft 2021-2022 Budget Justification and
associated materials are also available on the NCUA website at https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
FOR FURTHER INFORMATION CONTACT: Eugene H. Schied, Chief Financial
Officer, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6571.
SUPPLEMENTARY INFORMATION: The following itemized list details the
documents attached to this notice and made available for public review:
I. The NCUA Budget in Brief
II. Introduction and Strategic Context
III. Forecast and Enterprise Challenges
IV. Key Themes of the 2021-2022 Budget
V. Operating Budget
VI. Capital Budget
VII. Share Insurance Fund Administrative Budget
VIII. Financing The NCUA Programs
IX. Appendix A: Supplemental Budget Information
X. Appendix B: Capital Projects
Section 212 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act amended 12 U.S.C. 1789(b)(1)(A) to require the NCUA
Board (Board) to ``make publicly available and publish in the Federal
Register a draft of the detailed business-type budget.'' Although 12
U.S.C. 1789(b)(1)(A) requires publication of a ``business-type budget''
only for the agency operations arising under the Federal Credit Union
Act's subchapter on insurance activities, in the interest of
transparency the Board is providing the agency's entire staff draft
2021-2022 Budget Justification (budget) in this Notice.
The draft budget details the resources required to support NCUA's
mission as outlined in its 2018-2022 Strategic Plan. The draft budget
includes personnel and dollar estimates for three major budget
components: (1) The Operating Budget; (2) the Capital Budget; and (3)
the Share Insurance Fund Administrative Budget. The resources proposed
in the draft budget will be used to carry out the agency's annual
operations.
The NCUA staff will present its draft budget to the Board at a
budget briefing open to the public and scheduled for Wednesday,
December 2, 2020 from 10:00 a.m. to 12:00 p.m. Eastern. Due to the
COVID-19 Pandemic, the budget briefing will be open to the public via
live webcast only. Visit the agency's homepage (www.ncua.gov) and
access the provided webcast link.
If you wish to participate in the briefing and deliver a statement,
you must email a request to BudgetBriefing@ncua.gov by November 20,
2020. Your request must include your name, title, affiliation, mailing
address, email address, and telephone number. The NCUA will work to
accommodate as many public statements as possible at the December 2,
2020 budget briefing. The Board Secretary will inform you if you have
been approved to make a presentation and how much time you will be
allotted. A written copy of your presentation must be delivered to the
Board Secretary via email at BudgetBriefing@ncua.gov by 5 p.m. Eastern,
November 30, 2020.
Written comments on the draft budget will also be accepted by email
at BudgetComments@ncua.gov until December 11, 2020. Include your name
and the following subject line with your comments: ``Comments on the
NCUA Draft 2021-2022 Budget Justification.''
All comments should provide specific, actionable recommendations
rather than general remarks. The Board will review and consider any
comments from the public prior to approving the budget.
By the National Credit Union Administration Board on November
13, 2020.
Melane Conyers-Ausbrooks,
Secretary of the Board.
I. The NCUA Budget in Brief
Staff Draft 2021 and 2022 Budgets
The National Credit Union Administration's (NCUA) 2018-2022
Strategic Plan sets forth the agency's goals and objectives that form
the basis for determining resource needs and allocations. The annual
budget provides the resources to execute the strategic plan, to
implement important initiatives, and to undertake the NCUA's major
programs: Examination and supervision, insurance, credit union
development, consumer financial protection, and asset management.
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The NCUA's 2021-2022 budget justification consists of three
separate budgets: The Operating Budget, the Capital Budget, and the
National Credit Union Share Insurance Fund Administrative Budget.
Combined, these three budgets total $342.5 million for 2021, which is
4.9 percent less than the 2021 funding level approved by the NCUA Board
in December 2019 as part of the two-year 2020-2021 budget, and 1.4
percent less than the comparable level funded by the Board for 2020.
Three significant factors drive the 2021 budget lower than the 2020
level.
1. The NCUA anticipates the continuation of remote/off-site
examinations into the first few months of 2021, as the result of on-
going concerns about the COVID-19 pandemic, and that examinations-
related and other travel will begin to resume as we continue through
2021. Accordingly, travel spending estimates in the 2021 budget are
reduced by approximately 25 percent.
2. The NCUA reduced its 2021 budget for travel by an additional 25
percent because it proposes to use surplus funds that resulted from
reduced travel in 2020. Combined with the first factor, these
reductions account for approximately $12 million in travel-related
budget that would otherwise have been included in the 2021 Operating
Budget. Had the travel budget for 2021 included this $12 million, the
Operating Budget would have increased by approximately 3.7 percent.
3. A final factor driving lower overall spending in 2021 is the
reduction in the Capital Budget, largely driven by the completion of
the latest phase of the MERIT project.
Staffing levels for 2021 and 2022 reflect the agency's current
staffing requirements and proposed staffing enhancements related to
high-priority initiatives.
This document is a draft, staff-level budget proposal, made
available to the NCUA Board members and the public for their
consideration and comment. The contents of this document represent
staff-level recommendations for 2021 NCUA funding and have not been
endorsed or adopted by the NCUA Board. The NCUA plans to hold a public
meeting on December 2, 2020 at 10:00 a.m. to review the budget document
and receive comments from members of the public. Final adoption of the
budget by the NCUA Board, including any changes to the staff draft that
may result from public comments or Board member recommendations, is
anticipated at the December Board meeting.
Operating Budget
The proposed 2021 Operating Budget is $315.6 million. Staffing
levels are requested to increase by five full-time equivalents (FTE)
compared to the 2020 Board-approved budget.\1\
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\1\ The published 2020 FTE level approved by the Board was 1,180
for the Operating Budget. In March 2020, the NCUA Board approved one
additional FTE. The revised 2021 Operating Budget proposes five more
FTE, for a total of 1,186.
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The 2021 Operating Budget, decreases approximately $0.3 million, or
0.1 percent, compared to the 2020 Board-approved budget. The Operating
Budget estimate for 2022 is $341.8 million and reflects no change to
authorized positions from the 2021 proposed level.
The following chart presents the major categories of spending
supported by the 2021 budget, while specific adjustments to the 2020
Board-approved budget are discussed in further detail, below:
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Total Staffing. The budget supports 1,191 FTE in total for 2021, of
which five are funded by the Share Insurance Fund Administrative
Budget. The Operating Budget funds 1,186 FTE in 2021, a net increase of
five FTEs from the 2020 levels approved by the Board. Additional staff
have been added to several offices as discussed later in this document.
Since 2018 and despite significant credit union asset growth, total
NCUA staffing has remained within a relatively narrow range, as shown
in the chart below.
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BILLING CODE 7535-01-C
Pay and Benefits. Pay and benefits increase by $9.6 million in
2021, or 4.1 percent, for a budget of $240.9 million. A substantial
amount of the growth in pay and benefits--nearly $2.3 million--is the
result of OPM increasing the mandatory employer contribution for the
Federal Employee Retirement System (FERS). Required FERS payments to
OPM increase from 16 percent of covered employees' salaries to 17.3
percent, a change of 130 basis points. Nearly all NCUA employees are
covered by FERS, which includes a defined pension benefit funded by
both employee and employer contributions. Because almost every federal
agency is required to participate in FERS, the employer share of
contributions increases throughout the government in 2021.
The remaining increase in pay and benefits accounts for the merit
and locality pay adjustments required by the NCUA's current collective
bargaining agreement, the five new positions proposed for 2021,
anticipated staff promotions, position changes, and increased costs for
other mandatory employer contributions such as health insurance.
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Travel. The travel budget decreases by $13.9 million in 2021, or
50.7 percent, for a budget of $13.5 million. Included in this total and
as discussed above, the NCUA reduced the 2021 travel budget by
approximately $12 million because the agency expects travel in the
first quarter of the year will remain at minimal levels due to the
COVID-19 pandemic, and because the agency plans to use surplus 2020
travel funds to pay for a portion of 2021 travel costs. In addition,
the cost of training the examiner workforce to use the new MERIT system
was already funded in 2020; most training was rescheduled for 2021 but
do not require additional resources to carry out.
The NCUA continues working to contain travel costs by expanding
offsite examination work and using technology-driven training. In
future budgets, the NCUA will determine how such adjustments to its
examination approach will help mitigate travel costs.
Rent, Communications, and Utilities. The budget for rent,
communications, and utilities decreases by $1,038,000 in 2021, or 12.6
percent, for a budget of $7.2 million. This funding pays for space-
related costs, telecommunications services, data capacity contracts,
and information technology network support. The decrease in 2021 is
primarily due to the termination of a lease for office space in
Alexandria VA and the elimination of payments for the NCUA Central
Office Building note from the Share Insurance Fund, which would be
retired by paying off all principal balances using surplus 2020 travel
funds.
Administrative Expenses. Administrative expenses increase $0.6
million in 2021, or 9.8 percent, for a total budget of $6.2 million.
The increase to the administrative expenses budget category largely
results from including in the 2021 budget the anticipated costs of
employee relocations. In 2020, employee relocation costs were paid from
surplus salaries and benefits funds available at the end of 2019.
Contracted Services. Contracted services expenses increase by $4.5
million in 2021, an increase of 10.3 percent compared to 2020, for a
total budget of $47.8 million. The increase in spending for contract
services primarily results from the operating and maintenance costs
that will result from deployment of the MERIT system.
Contracted services funding pays for products and services acquired
in the commercial marketplace, and includes critical mission support
services such as information technology hardware and software support,
accounting and auditing services, and specialized subject matter
expertise.
Capital Budget
The proposed 2021 Capital Budget is $18.8 million.
The 2021 Capital Budget is $6.4 million less than the 2021 funding
level approved by the Board in December 2019, and $6.2 million less
than the 2020 Board-approved budget.
The Capital Budget pays for continued investments in critical
technology and infrastructure projects. For the past several years,
major component of the Capital Budget has been development of the first
phases of the Enterprise Solution Modernization (ESM) program, which
includes a new technical platform and security infrastructure, a
central user interface for stakeholders to transact business with the
NCUA, integration of business intelligence tools into the supervision
function, and the MERIT examination system, which will replace the
agency's antiquated AIRES examination software and will be used by both
federal and state examiners in almost all credit union examinations.
The MERIT system is scheduled for deployment to all examiners in 2021,
and MERIT costs will transition to operating and maintenance budgets.
The NCUA's Information Technology Prioritization Council recommended
$12 million for IT software development projects that continue to
replace the NCUA's decades-old and functionally obsolete information
technology systems, and $5.6 million in other IT investments for 2021.
The NCUA's facilities require $1.25 million in capital investments.
Share Insurance Fund Administrative Expenses
The proposed 2021 Share Insurance Fund Administrative budget is
$8.1 million.
The 2021 Share Insurance Fund (SIF) Administrative Budget is $1.2
million more than the 2021 funding level approved by the Board in
December 2019, and $1.6 million more than the 2020 Board-approved
budget. The increase in the SIF Administrative Budget is primarily
attributed to the costs associated with tools and technology used by
the Office of National Examinations and Supervision to oversee credit
union-run stress testing for the largest Credit Unions using its own
proprietary models. The cost to develop such models was included in
past years' capital budgets and the tools and technology were deployed
in 2020; the 2021 operating and maintenance costs for ONES tools is now
included in the SIF Administrative Budget. Direct charges within this
budget include administration of the NCUA Guaranteed Note (NGN)
program, state examiner training and laptop leases for state examiners,
as well as financial audit and internal control support for the Share
Insurance Fund.
2020 Operating Budget--Use of Budget Surplus Resulting From COVID-19
Operating Adjustments
Various public health restrictions instituted in response to the
COVID-19 pandemic resulted in much lower-than-planned spending on NCUA
employee travel in 2020, as the NCUA pivoted to remote and offsite
examinations and work. The NCUA currently estimates that the agency
will end 2020 having under-spent the Board-approved budget by
approximately $18.3 million, mostly due to a reduction in travel as
well as other operating expenses.
The NCUA's response to the coronavirus pandemic has also led to a
number of unplanned and unbudgeted expenses, particularly for
information technology and operational support activities. As of the
publication of this draft budget, the NCUA has reallocated $3.6 million
of the projected travel surplus for the liquidation of a portion of
NCUA's liabilities associated with disbursements to employees for leave
earned in 2020, reducing the anticipated end of year balance for
employee leave, as well as increased expenses for items such as remote
communications and supply reimbursements due to required off-site work,
information technology licensing and equipment costs, cleaning
supplies, and facility cleaning and maintenance. These items were
discussed as part of the mid-session budget briefing presented at the
July 2020 Board meeting. The mid-session estimate was for a $13 million
budget surplus from travel, offset by an estimated $5.8 million in
increases to other spending categories. The revised surplus estimate is
now $18.3 million, and the amount that has been reallocated is $3.6
million.
Deducting the $3.6 million that has been reallocated from the $18.3
million, leaves a balance of $14.7 million, which--subject to approval
by the NCUA Board--is being proposed for use in the following way:
$5.8 million of the budget surplus for 2020 would be made
available in 2021, to offset 2021's travel budget. For 2021, the NCUA
is currently forecasting a need for about 75% of its annual travel
budget, due to the anticipated ongoing travel and on-site work
restrictions related to COVID. In addition to the $13.5 million
included in this 2021 budget, an additional $5.8 million
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would be made available from the 2020 surplus, to fund travel at about
75% of the typical need.
$2.6 million of the budget surplus would be used to pay
for COVID-related expenses in 2020 and 2021, which are largely of a
one-time nature and are not anticipated to result in a long-term
expense to the agency. This includes:
[cir] The increase data capacity for computer networks, revised
data reporting, conference calling services, and virtual meeting
software, all of which spiked due to the remote/off-site work
situation.
[cir] Modifications to facilities operations and maintenance,
including improvements to air handling and filtration systems;
anticipated increases in facility cleaning and cleaning supplies; and
medical consultant support to assess operating status and issues.
[cir] An assessment of virtual exams in light of the shift to
remote and off-site examination and supervision in 2020 as a result of
COVID-19, to evaluate opportunities and long-term changes to the
supervision program.
$3.7 million of the surplus would be used to retire the
note owed by the Operating Budget to the Share Insurance Fund for the
Central Office building at 1775 Duke Street, Alexandria, VA. When the
NCUA purchased the building, it was financed by the Share Insurance
Fund, and the Operating Fund makes annual principal and interest
payments. This action would retire the note three years ahead of
schedule, fully repaying the Share Insurance Fund. This will reduce the
Operating Budget by about $1.3 million in annual principal payments
scheduled for 2021 through 2023, and also avoid additional interest
payments for the remaining three years of the loan.
$2.6 million for the final phase of facilities
modernization at the Central Office. This project was originally
planned in the original 2021 Capital Budget for $3.0 million. Over the
past three years, the NCUA has been modernizing and updating the
Central Office, much of which has not been updated in over 20 years.
The project also supports security upgrades at the Central and regional
offices. Accelerating the funding would enable much of the work to be
done while a number of staff continue to work remotely, and will allow
NCUA to terminate the lease it has at 1900 Duke Street rather than keep
it for 2021, avoiding a cost of approximately $600,000. Therefore, in
total, the use of the surplus for this project reduces the overall 2021
budget by $3.6 million.
Budget Trends
As shown in the chart below, the relative size of the NCUA budget
(dotted line) continues to decline when compared to balance sheets at
federally insured credit unions (solid line). This trend illustrates
the greater operating efficiencies the NCUA has attained in the last
several years relative to the size of the credit union system.
Additionally, the NCUA has improved its operating efficiencies more
aggressively than other financial industry regulators (dotted line
compared to dashed line).
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BILLING CODE 7535-01-C
It is also notable that the NCUA's operations have become more
efficient relative to the size of the credit union system because
consolidation in the industry has led to growth in the number of large
credit unions. This
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results in additional complexity in the balance sheets of such credit
unions, and a corresponding increase in the supervisory review required
to ensure the safety and soundness of such large institutions. The NCUA
responded to this increasing complexity through several initiatives:
Creation of the specialized Office of National Examination and
Supervision, development of in-house capabilities to oversee large
credit unions' stress testing, use of specialist examiners with
expertise in cybersecurity and capital markets, and improved quality of
examination reports through enhanced quality review processes.
Federal Compliance Cost
As a federal agency, the NCUA is required to devote significant
resources to numerous compliance activities required by federal law,
regulations, or, in some cases, Executive Orders. These requirements
dictate how many of the agency's activities are implemented and the
associated costs. These compliance activities affect the level of
resources needed in areas such as information technology acquisitions
and management, human capital processes, financial management processes
and reporting, privacy compliance, and physical and cyber security
programs. While agency managers are responsible for these activities,
required compliance activities can add additional processes and
procedures.
Financial Management
Federal law, regulations, and government-wide guidance promulgated
by the Office of Management and Budget (OMB), the Government
Accountability Office (GAO), and the Department of the Treasury place
numerous requirements on federal agencies including the NCUA regarding
the management of public funds. Government-wide financial management
compliance requirements include: Financial statement audits, improper
payments, prompt payments, internal controls, procurement, audits,
enterprise risk management, strategic planning, and public reporting of
financial and other information.
Information Technology (IT)
There are numerous laws, regulations and required guidance
concerning information technology used by the federal government. Many
of the requirements cover IT security such as the Federal Information
Security Management Act. Other requirements cover records management,
paperwork reduction, information technology acquisition, cybersecurity
spending, and accessible technology and continuity.
Human Capital and Equal Opportunity
Like other federal agencies, the NCUA is subject to an array of
human capital-related laws, regulations, and other mandatory guidance
issued by OPM, the Equal Employment Opportunity Commission, and OMB.
Human capital compliance requirements include procedures for engagement
related to hiring; management engagement with public unions and
collective bargaining; employee discipline and removal procedures;
required training for supervisors and employees; employee work-life and
benefits programs; equal employment opportunity and required diversity
and inclusion programs; and storage and retention of human resource
records. The NCUA is also required by law to ``maintain comparability
with other federal bank regulatory agencies'' when setting employee
salaries.
Security
The NCUA's security posture is driven by numerous legal and
regulatory requirements covering the full range of security functions.
The NCUA is required to comply with mandatory requirements for
personnel security; physical security; emergency management and
continuity; communications and information security; and insider threat
activities. In addition to meeting specific legislative mandates, as a
federal agency the NCUA is required to follow guidance from, but not
limited to, the Office of the Director of National Intelligence, the
Department of Defense, OPM, and the Federal Emergency Management
Agency.
General Compliance Activities
The NCUA also has other general compliance activities that cut
across numerous offices. For example, the NCUA expends resources
complying with the Privacy Act; Government in the Sunshine Act;
multiple laws and regulations related to government ethics standards;
and various reporting and other requirements set forth by the Federal
Credit Union Act and other statutes.
Federal retirement costs are an example of mandatory payments to
other federal agencies. As discussed earlier in this document, the cost
of mandatory contributions to OPM for most NCUA employees' retirement
system will increase from 16.0 to 17.3 percent of their salaries, based
on the OPM Board of Actuaries of the Civil Service Retirement System
recommendations. The budget impact of these additional retirement costs
in 2021 is an increase of approximately $2.3 million over 2020.
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II. Introduction and Strategic Context
History
For more than 100 years, credit unions have provided financial
services to their members in the United States. Credit unions are
unique depository institutions created not for profit, but to serve
their members as credit cooperatives.
President Franklin Roosevelt signed the Federal Credit Union Act
into law in 1934 during the Great Depression, enabling credit unions to
be organized throughout the United States under charters approved by
the federal government. The law's goal was to make credit available to
Americans and promote thrift through a national system of nonprofit,
cooperative credit unions. In the years since the passage of the
Federal Credit Union Act, credit unions have evolved and are larger and
more complex today than those first institutions. But, credit unions
continue to provide needed financial services to millions of Americans.
The NCUA is the independent federal agency established in 1970 by
the U.S. Congress to regulate, charter, and supervise federal credit
unions. With the backing of the full faith and credit of the United
States, the NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of the account holders in all
federal credit unions and the vast majority of state-chartered credit
unions. No credit union member has ever lost a penny of deposits
insured by the Share Insurance Fund.
As of June 2020, the NCUA is responsible for the regulation and
supervision of 5,164 federally insured credit unions, which have
approximately 122.3 million members and more than $1.75 trillion in
assets across all states and U.S. territories.\2\
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\2\ Source: The NCUA quarterly call report data, Q2 2020.
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Authority
Pursuant to the Federal Credit Union Act, authority for management
of the NCUA is vested in the NCUA Board. It is the Board's
responsibility to determine the resources necessary to carry out the
NCUA's responsibilities
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under the Act.\3\ The Board is authorized to expend such funds and
perform such other functions or acts as it deems necessary or
appropriate in accordance with the rules, regulations, or policies it
establishes.\4\
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\3\ See 12 U.S.C. 1752a(a).
\4\ See 12 U.S.C. 1766(i)(2).
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Upon determination of the budgeted annual expenses for the agency's
operations, the Board determines a fee schedule to assess federal
credit unions. The Board gives consideration to the ability of federal
credit unions to pay such a fee, and the necessity of the expenses the
NCUA will incur in carrying out its responsibilities in connection with
federal credit unions.\5\ In July 2020, the Board approved for
publication in the Federal Register proposed changes to its regulation
and methodology for determining the fees due from federal credit
unions, and has invited public comment on the proposals.\6\
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\5\ See 12 U.S.C. 1755(a)-(b).
\6\ See https://www.federalregister.gov/d/2020-16981 and https://www.federalregister.gov/d/2020-17009.
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Pursuant to the law, fees collected are deposited in the agency's
Operating Fund at the Treasury of the United States, and those fees are
expended by the Board to defray the cost of carrying out the agency's
operations, including the examination and supervision of federal credit
unions.\7\ In accordance with its authority \8\ to use the Share
Insurance Fund to carry out a portion of its responsibilities, the
Board approved an Overhead Transfer Rate methodology, and authorized
the Office of the Chief Financial Officer to transfer resources from
the Share Insurance Fund to the Operating Fund to account for
insurance-related expenses.
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\7\ See 12 U.S.C. 1755(d).
\8\ See 12 U.S.C. 1783(a).
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Mission, Goals, and Strategy
The NCUA's 2021-2022 Budget Submission supports the agency's fourth
year implementing its 2018-2022 Strategic Plan to achieve its
priorities and improve program performance.
Throughout 2021 and 2022, the NCUA will continue fulfilling its
mission to ``provide, through regulation and supervision, a safe and
sound credit union system which promotes confidence in the national
system of cooperative credit,'' and its vision to ensure that the
``NCUA protects credit unions and consumers who own them through
effective supervision, regulation and insurance.'' This budget commits
the resources necessary to implement the NCUA's plans to identify key
challenges facing the credit union industry and leverage agency
strengths to help credit unions address those challenges.
The budget supports the NCUA's programs, which are focused on
achieving the agency's three strategic goals:
Ensure a safe and sound credit union system;
Provide a regulatory framework that is transparent,
efficient, and improves consumer access; and
Maximize organizational performance to enable mission
success.
Additional information about alignment of the budget to the NCUA's
strategic goals is in Appendix A.
In support of its first strategic goal--ensure a safe and sound
credit union system--the NCUA will continue to supervise federally
insured credit unions effectively and maintain a strong Share Insurance
Fund.
The NCUA's primary function is to identify credit union system
risks, determine the magnitude of those risks, and mitigate
unacceptable levels through the examination and supervision program.
The agency identifies supervision program priorities each year,
aligning budgeted resources to these priorities while addressing
emerging issues in order to minimize losses to the Share Insurance
Fund. Program priorities in 2021 include ongoing efforts to:
Ensure compliance with Bank Secrecy Act and Anti-Money
Laundering laws and regulations;
examine credit union operations for compliance with
applicable consumer financial protection regulations;
review credit union policies and the use of loan workout
strategies, risk management practices, and new strategies implemented
to assist borrowers impacted by the COVID-19 pandemic, including new
programs authorized through the CARES Act;
ensure that credit unions have evaluated and effectively
manage the economic impact of COVID-19 on their credit risk, capital
position, and overall financial stability;
evaluating critical security controls for credit union
information systems in response to emerging cyber-attacks, which are a
persistent threat to the financial sector;
assess credit unions' exposure and planning related to a
transition away from LIBOR; and,
review liquidity risk management and planning in all
credit unions.
The NCUA staff of credit union examiners are the agency's most
important assets for identifying and addressing risks before they
threaten members' deposits. To do their jobs effectively in this
complex and dynamic financial environment, the NCUA staff require the
advanced skills, training, and tools supported by the budget. The
multi-year Enterprise Solution Modernization (ESM) program will reach a
major milestone in 2021 with the deployment of the Modern Examination
and Risk Identification Tool (MERIT), the agency's modernized
examination tool replacing the Automated Integrated Regulatory
Examination System (AIRES), to all credit union examiners and state
regulators. As the agency transitions to this new tool, which will
result in more efficient and effective supervision, the NCUA must
ensure its staff is prepared to use it. Training originally scheduled
and paid for in the 2020 budget has been postponed to 2021 because of
COVID-19 related travel restrictions.
To fulfill the NCUA's second strategic goal--provide a regulatory
framework that is transparent, efficient, and improves customer
access--the agency continues its efforts to review its regulations in a
manner that encourages innovation, provides flexibility, and fulfills
its primary mission of protecting safety and soundness. The budget
allocates resources to agency programs that keep regulations up to date
and consistent with current law, and that assist existing and
prospective credit unions with expansion and new chartering activities.
The NCUA also seeks to promote financial inclusion through its
Advancing Communities through Credit, Education, Stability, and Support
(ACCESS) initiative to better serve a changing population and economy
while simultaneously ensuring compliance with consumer and financial
protections.
Accomplishing the third strategic goal--maximize organizational
performance to enable mission success--ensures the NCUA employees
achieve the agency's mission by supporting them through efficient and
effective business processes, modern and secure technology, and
suitable tools necessary to perform their duties. The budget makes
investments in improved tools and facilities for the NCUA staff, and
technological enhancements including new systems that will improve
operational effectiveness and efficiency. The budget also allocates
resources to developing better human capital planning and processes
including a new leadership development strategy and a focus on training
for the transition to MERIT.
[[Page 74099]]
Organization, Major Agency Programs, and Workforce
The NCUA operates its headquarters in Alexandria, Virginia, to
administer and oversee its major programs and support functions; its
Asset Management and Assistance Center (AMAC) in Austin, Texas, to
liquidate credit unions and recover assets; and three regional offices,
to carry out the agency's supervision and examination program.
Reporting to these regional offices, the NCUA has credit union
examiners responsible for a portfolio of credit unions covering all 50
states, the District of Columbia, Guam, Puerto Rico, and the U.S.
Virgin Islands.
The NCUA organizational chart below reflects the agency's current
structure, and the map shows each region's geographical alignment:
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The NCUA's regional offices will carry out the agency's 2021
examination program. The NCUA uses an extended examination cycle for
well-managed, low-risk federal credit unions with assets of less than
$1 billion. Additionally, the NCUA's examiners perform streamlined
examination procedures for financially and operationally sound credit
unions with assets less than $50 million. In addition, the Office of
National Examination and Supervision (ONES) will continue to examine
corporate credit unions and large consumer credit unions with assets
that total over $10 billion. Consumer credit unions fall within ONES'
purview based on assets reported on the first quarter call report for
the preceding year. Therefore, based on 2020 first quarter call report
statistics, in 2021 ONES will examine and supervise 11 consumer credit
unions with 21.5 million members, accounting for $324.5 billion in
credit union assets. For the 2022 examination cycle, an additional
seven credit unions are projected to cross the $10 billion threshold
and under existing regulations fall within the supervisory purview of
ONES.
In 2021 and 2022, the agency's workforce will undertake tasks in
all of the NCUA's major programs:
Supervision: The NCUA supervises federally insured credit unions
through examinations and regulatory enforcement including providing
guidance through various publications, taking administrative actions
and conserving, liquidating, or merging severely troubled institutions
as necessary to manage risk.
Insurance: The NCUA manages the $17.7 billion \9\ Share Insurance
Fund, which provides insurance to at least $250,000 for shares held at
federally insured credit unions. The fund is capitalized by credit
unions and through retained earnings.
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\9\ See https://www.ncua.gov/files/publications/share-insurance-financial-highlights-2020-june.pdf.
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Credit Union Development: Through training, partnerships and
resource assistance, the NCUA fosters credit union development,
particularly the expansion of services to eligible members provided by
small, minority, newly chartered, and low-income designated credit
unions. The NCUA also charters new federal credit unions, as well as
approves modifications to existing charters and fields of membership.
Consumer Financial Protection: The NCUA protects consumers' rights
through effective enforcement of federal consumer financial protection
laws, regulations, and requirements. The NCUA also develops and
promotes financial education programs for credit unions to assist
members in making smarter financial decisions.
Asset Management: The NCUA conducts credit union liquidations and
performs management and recovery of assets through AMAC. This office
effectively and efficiently manages and disposes assets acquired from
liquidations.
The NCUA also performs stakeholder outreach and is involved in
numerous cross-agency initiatives. The NCUA conducts stakeholder
outreach to clearly understand the needs of the credit union system.
The NCUA seeks input from all of its stakeholders, including the
Administration, Congress, State Supervisory Authorities, credit union
members, credit unions, and their associations.
The NCUA collaborates with the other financial regulatory agencies
including through participation in several councils. Significant
councils include the Financial Stability Oversight Council (FSOC), the
Federal Financial Institutions Examination Council (FFIEC), and the
Financial and Banking Information Infrastructure Committee (FBIIC).
These councils and relationships help ensure consistent policy and
standards within the nation's financial system, where appropriate.
[[Page 74101]]
Budget Process--Strategy to Budget
The NCUA's budget process starts with a review of the agency's
goals and objectives set forth in the strategic plan. The strategic
plan is a framework that sets the agency's direction and guides
resource requests, ensuring the agency's resources and workforce are
allocated and aligned to agency priorities and initiatives.
Each regional and central office director at the NCUA develops an
initial budget request identifying the resources necessary for their
office to support the NCUA's mission, strategic goals, and strategic
objectives. These budgets are developed to ensure each office's
requirements are individually justified and remain consistent with the
agency's overall strategic plan.
For regional offices, one of the primary inputs in the development
process is a comprehensive workload analysis that estimates the amount
of time necessary to conduct examinations and supervise federally
insured credit unions in order to carry out the NCUA's dual mission as
insurer and regulator. This analysis starts with a field-level review
of every federally insured credit union to estimate the number of
workload hours needed for the budget year. The workload estimates are
then refined by regional managers and submitted to the NCUA central
office for the annual budget proposal. The workload analysis accounts
for the efforts of nearly seventy percent of the NCUA workforce and is
the foundation for budget requests from regional offices and ONES.
In addition to the workload analysis, from which central office
budget staff derive related personnel and travel cost estimates, each
of the NCUA offices submit estimates for fixed and recurring expenses,
such as rental payments for leased property, operations and maintenance
for owned facilities or equipment, supplies, telecommunications
services, major capital investments, and other administrative and
contracted services costs.
Because information technology investments impact all offices
within the agency, the NCUA has established an Information Technology
Prioritization Council (ITPC). The ITPC meets several times each year
to consider, analyze, and prioritize major information technology
investments to ensure they are aligned with the NCUA's strategic plan.
These focused reviews result in a mutually agreed-upon budget
recommendation to support the NCUA's top short-term and long-term
information technology needs and investment priorities.
Once compiled for the entire agency, all office budget submissions
undergo thorough reviews by the responsible regional and central office
directors, the Chief Financial Officer, and the NCUA's executive
leadership. Through a series of presentations and briefings by the
relevant office executives, the NCUA Executive Director formulates an
agency-wide budget recommendation for consideration by the Board.
In recent years, the Board has emphasized the need for increased
transparency of the NCUA's finances and its budgeting processes. In
response, the Office of the Chief Financial Officer has made draft
budgets available for public comment via the NCUA's website, and
solicited public comments before presenting final budget
recommendations for the Board's approval. Furthermore, the Economic
Growth, Regulatory Relief, and Consumer Protection Act, Public Law 115-
174, enacted May 24, 2018, requires in Section 212 that the NCUA ``make
publicly available and publish in the Federal Register a draft of the
detailed business-type budget.'' To fulfill this requirement, the Board
delegated to the Executive Director the authority to publish the draft
budget before submitting it for Board review.
This 2021-2022 budget justification document includes comparisons
to the Board approved 2020-2021 budget, and includes a summary
description of the major spending items in each budget category to
provide transparency and understanding of the use of budgeted
resources. Estimates are provided by major budget category, office, and
cost element.
The NCUA also posts supporting documentation for its budget request
on the NCUA website to assist the public in understanding its budget
development process. The budget request for 2021 represents the NCUA's
projections of operating and capital costs for the year, and is subject
to approval by the Board.
Commitment to Financial Stewardship
The NCUA funds its activities through operating fees levied on all
federal credit unions and through reimbursements from the Share
Insurance Fund, which is funded by both federal credit unions and
federally insured state-chartered credit unions. The Overhead Transfer
Rate (OTR) calculation determines the annual amount that the Share
Insurance Fund reimburses the Operating Fund to pay for the NCUA's
insurance-related activities. At the end of each calendar year, the
NCUA's financial transactions are subject to audit in accordance with
Generally Accepted Government Auditing Standards.\10\
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\10\ See 12 U.S.C. 1783(b) and 1789(b).
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The Board and the agency are committed to providing sound financial
stewardship. In recent years, the NCUA Chief Financial Officer, with
support and direction from the Executive Director and Board, has worked
to improve the NCUA's financial management, financial reporting, and
budget processes.
The NCUA revised its financial presentations to conform to federal
budgetary concepts and increase transparency of the agency's planned
financial activity, starting with the 2018 budget. The 2021-2022 budget
continues this presentation. The NCUA is the only Financial
Institutions Reform, Recovery, and Enforcement Act (FIRREA) agency that
publishes a detailed, draft budget and solicits public comments on it
at a meeting with its Board and other agency leadership.
The NCUA continues to work diligently to strengthen its internal
controls for financial transactions, in accordance with sound financial
management policies and practices. Based on the results of the NCUA's
assessments conducted through the course of 2019, the agency provided
an unmodified Statement of Assurance (signed February 14, 2020) that
its management had established and maintained effective controls to
achieve the objectives of the Federal Managers Financial Integrity Act
(FMFIA) and Office of Management and Budget (OMB) Circular A-123.
Specifically, the NCUA supports the internal control objectives of
reporting, operations, and compliance, as well as its integration with
overarching risk management activities. Within the Office of the Chief
Financial Officer, the Internal Controls Assessment Team (ICAT)
continues to mature the agency-wide internal control program and
continues to strengthen the overall system of internal control, further
promote the importance of identifying risk, and ensure the agency has
identified appropriate responses to mitigate identified risks, in
accordance with the Government Accountability Office's Standards for
Internal Controls in the Federal Government (Green Book) requirements.
Enterprise Risk Management
The NCUA uses an Enterprise Risk Management (ERM) program to
evaluate various factors arising from its operations and activities
(both internal to the agency and external in the
[[Page 74102]]
industry) that can impact the agency's performance relative to its
mission, vision, and performance outcomes. Agency priority risks
include both internal considerations such as the agency's control
framework, information security posture, and external factors such as
credit union diversification risk. All of these risks can materially
impact the agency's ability to achieve its mission.
The NCUA's ERM Council provides oversight of the agency's
enterprise risk management activities. Through the ERM program,
established in 2015, the agency is identifying, analyzing, and managing
risks that could affect the achievement of its strategic objectives. In
2020, the NCUA utilized ERM principles to respond to the operational
challenges and opportunities created by the COVID-19 pandemic. In 2021,
the NCUA plans to continue its efforts to mature its ERM program,
analyze high-priority enterprise risks using its assessment framework,
and refresh its inventory of enterprise risks.
Overall, the NCUA's ERM program promotes effective awareness and
management of risks, which, when combined with robust measurement and
communication, are central to cost-effective decision-making and risk
optimization within the agency. This holistic evaluation of how the
agency pursues its goals and objectives is guided by the agency's
appetite for risk and considers resource availability or limitations.
The NCUA believes that for many strategic decisions about its programs,
ERM offers a better framework for evaluating both the quantitative and
qualitative aspects of enterprise-level decisions than the types of
cost-benefit analyses used for regulatory development. In addition, the
agency's risk appetite helps the NCUA's employees align risks with
opportunities when making decisions and allocating resources to achieve
the agency's strategic goals and objectives.
The NCUA adopted its enterprise risk appetite statement in the
2018-2022 Strategic Plan, which is:
The NCUA is vigilant and has an overall judicious risk appetite.
The NCUA's primary goal is to ensure the safety and soundness of the
credit union system and the agency recognizes it is not desirable or
practical to avoid all risk. Acceptance of some risk is often
necessary to foster innovation and agility. This risk appetite will
guide the NCUA's actions to achieve its strategic objectives in
support of providing, through regulation and supervision, a safe and
sound credit union system, which promotes confidence in the national
system of cooperative credit.
This enterprise risk appetite statement is part of the NCUA's
overall management approach and is supported by detailed appetite
statements for individual risk areas.
In practice, this means that the NCUA recognizes that risk is
unavoidable and sometimes inherent in carrying out the agency's
mandate. The NCUA is positioned to accept greater risks in some areas
than in others; however, when consolidated, the risk appetite
establishes boundaries for the entire agency and all of its programs.
Collaboration across programs and functions is a fundamental part of
ensuring the agency stays within its risk appetite boundaries, and the
NCUA will identify, assess, prioritize, respond to, and monitor risks
to an acceptable level. This budget proposal for 2021-2022 incorporates
several programmatic investments that resulted from the NCUA's
enterprise risk management reviews, such as acquiring data loss
prevention and other network security tools, strengthening analytical
focus on emerging financial risks within the credit union system, and
assessing process and technology improvements that could improve the
NCUA's financial management and reporting functions.
III. Forecast and Enterprise Challenges
Economic Outlook
The economic environment is a key determinant of credit union
performance. After several years of solid growth, the economy entered a
recession at the start of 2020. The significant pull-back in spending
that occurred as a result of COVID-19 and government efforts to slow
its spread (including business closures and stay-at-home orders) led to
an unprecedented drop in real gross domestic product (GDP) and a sharp
increase in the unemployment rate from a five-decade low of 3.5 percent
in February 2020, to a post-war high of 14.7 percent in April 2020. The
Federal Government responded quickly, establishing loan programs for
affected businesses and providing financial relief to households as
well as enhanced benefit payments to unemployed workers. Federal
Reserve policymakers cut short-term interest rates, increased the
Federal Reserve's asset holdings, and established a number of lending
programs to support financial conditions and the flow of credit to
households, businesses, and state and local governments. Interest rates
across the maturity spectrum fell to historically low levels.
Despite the severity of the downturn, credit unions in the
aggregate turned in a relatively solid performance in the first half of
2020. Federally-insured credit unions added 4.0 million members over
the year, boosting credit union membership to 122.3 million in the
second quarter of 2020. Credit union assets rose by 15.1 percent to
$1.75 trillion. Total loans outstanding at federally insured credit
unions increased 6.6 percent to $1.14 trillion, and the system-wide
delinquency rate declined 5 basis points to 58 basis points. Credit
union shares and deposits increased by 16.5 percent over the year to
$1.49 trillion in the second quarter of 2020, reflecting the boost to
income from CARES Act payments to individuals and the sharp, economy-
wide increase in personal saving.
The credit union system's net worth increased by 6.8 percent over
the year to $182.9 billion in the second quarter of 2020. The jump in
assets led to a drop in the credit union system's composite net worth
ratio but, at 10.46 percent, the credit union system remained well-
capitalized. The overall liquidity position of credit unions improved.
Cash and short-term investments as a percentage of assets rose from 13
percent in the second quarter of 2019 to 18 percent in the second
quarter of 2020, reflecting a 55 percent increase in cash and short-
term investments.
By late spring, economic conditions had started to improve.
Employment began to rise again in May and by September the unemployment
rate had fallen to 7.9 percent. A consensus of forecasters \11\ expects
the recovery in labor markets and the broader economy to continue. Real
GDP is projected to grow 3.9 percent in 2021, following an anticipated
4.0 percent drop in 2020. However, given the depth of the recession--
which is on track to be the most severe downturn since the Great
Depression--forecasters do not expect the economy to return to its pre-
recession, late 2019 peak before the end of 2021. Forecasters expect
the labor market recovery will take longer. Although employment is
expected to rise and the unemployment rate will continue to decline,
the unemployment rate is not forecast to return to pre-recession levels
during the 2021-2022 budget window. The unemployment rate is projected
to average 6.3% in the fourth quarter of 2021 and 5.5% at the end of
2022.
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\11\ Estimates and projections in this paragraph are based on
forecasts submitted on October 5 and 6, 2020 and published in Blue
Chip Economic Indicators, October 10, 2020.
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[[Page 74103]]
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In light of these expectations, Federal Reserve policymakers
anticipate that it could be appropriate to hold the federal funds
target rate in its current range of 0 to 0.25 percent until at least
2023.\12\ Analysts expect other short-term interest rates, which
largely determine the interest payments credit unions make, will remain
near their current low levels through 2021 and move modestly higher in
2022. Longer-term rates, which largely determine the interest payments
credit unions receive, are expected to edge higher later this year and
continue to rise as economic conditions improve.
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\12\ Economic projections of Federal Reserve Board members and
Federal Reserve Bank presidents, under their individual assumptions
of projected appropriate monetary policy, September 16, 2020
available at: https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20200916.pdf.
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Even if the economy continues to expand as expected, the recent
downturn will likely affect credit union performance through the end of
the budget period. For example, a sustained, high level of unemployment
could reduce loan demand, particularly for non-mortgage consumer loans,
and affect credit quality. System-wide delinquency rates, which
remained low through the second quarter, could begin to rise as the
forbearance programs put in place during the spring come to an end.
Credit union shares could remain elevated as consumers eschew riskier
investments and opt to keep their funds in insured credit union
deposits. A prolonged period of low interest rates also poses risks,
particularly to credit unions that rely primarily on investment income
for funding their operations.
While the recovery in economic activity and labor markets is widely
expected to continue, there is a high risk of a worse-than-expected
outcome. Much will depend on the path of the coronavirus in the months
ahead. If COVID-19 cases rise to levels that necessitate another wave
of temporary business closures and other measures that hinder economic
activity, the recovery could falter, leading to more job losses and
higher unemployment. Weaker-than-expected economic conditions or
another downturn would keep interest rates low or cause them to
decline, particularly at the long end of the yield curve, and pose more
significant challenges for the credit union system. The NCUA, like
credit unions, needs to plan and prepare for a range of economic
outcomes that could affect credit union performance and determine
resource needs.
Other Risk Factors and Trends
In addition to risks associated with movements and trends in the
general economy, the NCUA and credit unions will need to understand
their increasing exposure to, and address risks associated with, the
technological and structural changes facing the system. Over the
longer-term, increased concentration of loan portfolios, development of
alternative loan and deposit products, technology-driven changes in the
financial landscape, continued industry consolidation, and ongoing
demographic changes will continue to shape the environment facing
credit unions and will determine the resource needs of the NCUA.
Cybersecurity: Credit unions' increasing dependency on technology
is making the credit union system vulnerable to emerging cyber-enabled
risks and threats. The prevalence of social engineering, malware/
ransomware, distributed denial of service (DDOS) attacks, and other
forms of cyber-attacks are creating challenges at credit unions of all
sizes, and will require ongoing measures for rapid detection,
protection, response and recovery. These trends are likely to continue,
and even accelerate, over the foreseeable future.
Lending trends: Increasing concentrations in select loan types and
the introduction of new types of lending by credit unions, emphasize
the need for long-term risk diversification and effective risk
management tools and practices, along with expertise to properly manage
increasing concentrations of risk.
Financial Landscape and Technology: New financial products that
mimic deposit and loan accounts, such as
[[Page 74104]]
Apple Pay and peer-to-peer lending, pose a competitive challenge to
credit unions and banks alike. Credit unions also face a range of
challenges from financial technology (Fintech) companies in the areas
of lending and the provision of other services. For example,
underwriting and lending may be automated at a cost below levels
associated with more traditional financial institutions, but may not be
subject to the same regulations and safeguards that credit unions and
other traditional financial institutions face. The emergence and
increasing importance of digital currencies may pose both risks and
opportunities for credit unions. As these institutions and products
gain popularity, credit unions may have to be more active in marketing
and rethink their business models.
Technological changes outside the financial sector may also lead to
changes in consumer behavior that indirectly affect credit unions. For
example, the increase in on-demand use of auto services and pay-as-you-
go, on-demand vehicle rental could reduce purchases of consumer-owned
vehicles. That could lead to a slowdown or reduction in the demand for
vehicle loans, now slightly more than a third of the credit union
system loan portfolio.
Membership trends: While overall credit union membership continues
to grow, roughly half of federally insured credit unions had fewer
members at the end of the second quarter of 2020 than a year earlier.
Demographic and field of membership changes are likely to continue
leading to declining membership at many credit unions. All credit
unions need to consider whether their product mix is consistent with
their members' needs and demographic profile.
Smaller credit unions' challenges and industry consolidation: Small
credit unions face challenges to their long-term viability for a
variety of reasons. If current consolidation trends persist, there will
be fewer credit unions in operation in future years and those that
remain will be considerably larger and more complex. As of June 30,
2020, there were 627 federally insured credit unions with assets of at
least $500 million, 34 percent more than just five years earlier. These
627 credit unions accounted for 76 percent of credit union members and
81 percent of credit union assets. Large credit unions tend to offer
more complex products, services and investments. Increasingly complex
institutions will pose management challenges for the institutions
themselves, as well as the NCUA; consolidation means the risks posed by
individual institutions will become more significant to the Share
Insurance Fund.
IV. Key Themes of the 2021-2022 Budget
Overview
The budget supports the priorities and goals outlined in the
agency's strategic plan and its annual performance plan. The resources
and initiatives proposed in the budget support the NCUA's mission to
maintain a safe and sound credit union system.
The COVID-19 pandemic, which onset early in 2020, remains a
dominant consideration for the 2021-2022 agency priorities and its
budget. The spread of COVID-19 has presented a multitude of challenges
to the credit union industry and the NCUA, from the economic downturn
and its impacts on individuals, business and institutions, to
legislation such as the CARES act, to how the NCUA operates, to new
cybersecurity concerns. The impacts of COVID-19 are most readily
apparent in the 2021-22 budget due to the shift to remote/off-site
supervision and work, which reduces travel expenses but also increases
certain other expenses such as information technology.
The 2021-2022 budget includes funding for the NCUA to increase
permanent staffing in critical areas necessary to operate as an
effective federal financial regulator capable of addressing emerging
issues. Importantly, the agency has made efforts through 2020 to fill
examination-related positions, so that NCUA is best prepared to address
the economic impacts from the ongoing COVID-19 situation. The NCUA
employees are the agency's most valuable resource for achieving its
mission, and the agency is committed to a workplace and a workforce
with integrity, accountability, transparency, inclusivity, and
proficiency. We will continue investing in the workforce through
training and development, helping employees develop the tools they need
to do their work effectively.
The 2021-2022 budget also invests in a number of agency priorities,
including: The Advancing Communities through Credit, Education,
Stability, and Support, or ACCESS, initiative focused on financial
inclusion; increased use of off-site examinations work and data
analytics through the Virtual Examination project; deployment of the
MERIT system to all examiners; ongoing implementation of examination
priorities updated in response to the COVID-19 pandemic; regulatory
reform initiatives; and efforts to implement organizational
efficiencies. The NCUA expects these efforts will result in a more
effective organization.
The efficiency and effectiveness of the agency's workforce is
dependent upon the resiliency of the NCUA's information technology
infrastructure and availability of technological applications. The NCUA
is committed to implementing new technology responsibly and delivering
secure, reliable and innovative technological solutions to support its
mission. This necessitates investments funded in the Capital Budget and
additional staff to provide the analytical tools and technology the
workforce needs to achieve the NCUA mission.
Financial Inclusion
At its heart, financial inclusion means expanding access to safe
and affordable financial services for unbanked and underserved people
and communities as well as broadening employment and business
opportunities. The financial services industry--of which credit unions
are an important part--plays a key role in helping families achieve
financial freedom by building generational wealth; helping
entrepreneurs to get their small businesses off the ground; and helping
to create jobs and strengthen communities. The NCUA has a role to play
in making sure that credit unions can support overlooked or underserved
areas.
The NCUA recently announced its Advancing Communities through
Credit, Education, Stability, and Support, or ACCESS, initiative, which
will bring together agency leaders to develop policies and programs
that support financial inclusion within the NCUA and more broadly
throughout the credit union system.\13\ The NCUA has dedicated
resources from across the agency offices to ensure an inclusive and
open-minded approach to refreshing and modernizing regulations,
policies, and processes.
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\13\ https://www.ncua.gov/access.
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Addressing the various aspects of inclusion, the agency will look
at the unique role credit unions can fill by providing access to
unbanked and underserved individuals and communities, how credit unions
can remain competitive within the financial services industry, and what
steps can be taken to modernize the rules and processes for chartering
new credit unions to provide consumers with services that meet their
needs.
Virtual Examination Project
In 2017, the NCUA Board approved the Virtual Examination project
and
[[Page 74105]]
provided funding to research methods to conduct offsite as many aspects
of the examination and supervision processes as possible. The Virtual
Examination project team is researching ways to harness new and
emerging data, advancements in analytical techniques, innovative
technology, and improvements in supervisory approaches. Additionally,
the COVID-19 pandemic necessitated a switch to an offsite examination
posture, and the project team plans to build upon its work to date by
integrating lessons learned during the pandemic in planning for
enhanced offsite procedures.
By identifying and adopting alternative methods to remotely analyze
the financial and operational condition of a credit union, while
maintaining or improving effectiveness relative to current
examinations, it may be possible to significantly reduce the frequency
and scope of onsite examinations. Onsite examination activities could
potentially be limited to periodic data quality and governance reviews,
interventions for material problems, and meetings or other examination
activities that need to be handled in person. To be successful,
examination staff will likely need to analyze more information about
the credit union being examined and to communicate more frequently with
management at the credit union. However, by conducting this analytic
work offsite, the NCUA expects to have less impact on credit unions'
day-to-day operations.
The NCUA believes that effective Virtual Examinations should lead
to greater use of standardized interaction protocols, advanced
analytical capabilities, and better-informed subject matter experts.
This should result in more consistent and accurate supervisory
determinations, provide greater clarity and consistency with respect to
how the agency conducts supervisory oversight, and reduce coordination
challenges between agency and credit union staff.
The virtual examination team will deliver to the NCUA Board by the
end of 2020 an initial report discussing alternative methods identified
to remotely analyze aspects of the financial and operational condition
of a credit union.
Enterprise Solution Modernization
In 2015, the NCUA conducted an assessment of the information
technology (IT) needs across the agency and developed a business case
for replacing its antiquated legacy systems. This assessment recognized
the full range of industry-leading, cost-effective alternative
strategies, services, and products for implementing the agency's next
generation of IT information management, examination, supervisory, and
data collection solutions.
At that time, the NCUA acknowledged a technology revamp of this
magnitude as a high-risk endeavor, both in terms of cost and delivered
functionality. The risk stems from the number of systems impacted and
the unique nature of the NCUA's applications, many of which require a
high degree of customization. However, the agency required a major
modernization after many years of under-investment in software and
application development. In November 2015, the NCUA Board approved a
plan for modernizing the agency's IT systems known as the Enterprise
Solution Modernization (ESM) program. The ESM program recognizes the
following legacy systems, capabilities and strategies need to be
modernized:
To better manage the complexity of the ESM Program, the NCUA
established three sub-programs to modernize the NCUA's technology
solutions and create an integrated examination and data environment
that facilitates a safe and sound credit union system:
BILLING CODE 7535-01-P
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BILLING CODE 7535-01-C
The NCUA 2021-2022 budget includes funding to complete the roll-out
of the first Examination and Supervision Solution project as well as to
initiate the first project under the Data Collection and Sharing
Solution sub program.
Examination and Supervision Solution
Given the age of the NCUA's legacy examination systems and their
importance to the mission of the agency, priority was given to the
following parts of the modernization effort in the first phase of ESM
development:
[cir] Better information security across the organization.
[cir] Technical platform and foundation for new applications.
[cir] AIRES replacement (Examination and Supervision Solution),
including financial analytics.
[cir] Central user interface for stakeholders to interact with the
NCUA.
[cir] Business Intelligence tools for enhanced analytical
capabilities (added later to the initial phase as explained below).
To deploy the Examination and Supervision Solution, it was first
necessary to stand up new agency infrastructure that supports the full
modernization program: The technology architecture, infrastructure, and
security posture required to operate modernized systems. The necessary
infrastructure was acquired and put in place in 2019.
The new examination solution, which is named the Modern Examination
and Risk Identification Tool (MERIT), was released as a pilot to the
Office of National Examinations and Supervision (ONES) and the State
Supervisory Authorities (SSA) in North Carolina and Washington in
September 2019. The ESS program capabilities were further developed and
were on schedule to be released to all users in the summer of 2020.
However, the training rollout was delayed because of the coronavirus
pandemic. Instead, the agency deployed the second release to current
pilot users in July 2020 and began an extended pilot in September 2020
for additional users from the NCUA's three Regional offices, the
Wisconsin SSA, select corporate credit unions, and natural person
credit unions of various asset sizes. The NCUA now plans to conduct
training for its examiner workforce and other users in 2021, with
deployment to all remaining system users in the third quarter of 2021.
Enhancing NCUA's analytic capabilities is an important objective of
the ESM program. As the MERIT development progressed, the agency
identified an opportunity to incorporate a robust business intelligence
solution
[[Page 74107]]
into the MERIT deployment. Though not originally included as part of
the initial MERIT project plan, this addition advances the agency's
analytic capabilities and is central to the strategy to shift more exam
work offsite.
In addition to better data analytics, MERIT provides numerous
improvements over the legacy AIRES examination system, including:
[cir] Better controlled access to examination data across the
organization.
[cir] Ability to request and submit items for the examination in an
organized manner that is easily accessible to members of an exam team.
[cir] Collaboration and real-time information for examiners, team
members, and supervisors, including state supervisory authorities on
joint exams.
[cir] Opportunities for credit union users to manage examination
findings and view completed examination reports.
[cir] Business process improvements to achieve exam efficiencies,
including less data redundancy and relational support between scope
tasks, questionnaires, and findings.
From 2015 to 2020, the NCUA has spent approximately $40.2 million
on the ESM program, which includes the costs for ESS and MERIT. This
total includes spending on program planning, a modernized and more
secure IT infrastructure, the MERIT central user interface, and
multiple releases of MERIT and associated examination systems.
Through September 2020, the NCUA accomplished the following:
[cir] Established the ESM technical program infrastructure
platform, including enhanced IT security.
[cir] Developed the central user interface known as NCUA Connect,
achieving a secure, single entry point into NCUA applications.
[cir] Deployed the new MERIT examination tool to pilot users to
support examination and supervision activities.
[cir] Deployed the Admin Portal which provides confirmed, delegated
credit union and SSA administrative users the ability to add and manage
user access to NCUA Connect for their organization.
[cir] Deployed the Data Exchange Application to ingest credit union
member loan and share data requested during the examination and
supervision process.
[cir] Developed financial analytics and new loan and share
analytics with dashboards and visualizations designed to assist the
examiner in identifying risk.
The NCUA's 2021 budget includes $14.6 million for MERIT, split
between the operating, capital and SIF administrative expenses budgets.
Of this total, $14.3 million in the operating and capital budgets will
support technical and system platform upgrades, surge support for
functionality enhancements prior to the broad user rollout, and ongoing
operations and maintenance enhancements, fixes, and technological
upgrades for the deployed system. An additional $0.3 million for MERIT
is in the SIF administrative expenses budget, reflecting the cost of
making MERIT available for those state supervisory agencies that use
it.
The project is on schedule and met its 2019 performance target for
deployment to and use by ONES and State regulators in Washington and
North Carolina to carry out examinations and supervision contacts for
all relevant federal credit unions with assets greater than $10
billion. Due to the economic, travel, and social disruptions caused by
the coronavirus pandemic, the NCUA has delayed the MERIT training
rollout for all NCUA examiners originally planned for the third quarter
of 2020. The MERIT project's performance goal for 2021 is:
Finalize deployment and training of NCUA and SSA users on MERIT and
associated examination systems to begin the transition from AIRES to
MERIT by December 31, 2021.
Data Collection and Sharing Solution
With the Examination and Supervision Solution project transitioning
to an operations and maintenance state in 2021, the NCUA will next
prioritize work on the Data Collection and Sharing (DCS) Solution
initiative. The NCUA vision of the DCS project is to replace legacy
systems and to streamline workflow processes. Activities to date have
included the development and validation of high-level requirements with
all NCUA stakeholders.
During the next phase of DCS development, the NCUA will refine the
validated requirements for use in an analysis of alternatives (AoA)
study. The AoA study will provide a roadmap for acquiring and
implementing a solution or set of solutions. The AoA will recommend the
best approach for a phased rollout strategy needed to implement DCS
capabilities and the replacement of legacy systems. This analysis will
also be used to support DCS acquisition planning efforts.
Supervisory Priorities and COVID-19 Response
In July 2020,\14\ the NCUA updated its annual supervisory
priorities to address economic conditions that had emerged as a result
of the COVID-19 pandemic, as well as various statutory and regulatory
changes that occurred. Within these revised priorities, the NCUA is
focusing its examination activities on areas that pose elevated risk to
the credit union industry and the National Credit Union Share Insurance
Fund. Additional information about the NCUA's response to the pandemic
is available on the agency's COVID-19 web page.\15\
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\14\ https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/update-ncuas-2020-supervisory-priorities.
\15\ https://www.ncua.gov/coronavirus.
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Coronavirus Aid, Relief and Economic Security Act
President Trump signed the Coronavirus Aid, Relief and Economic
Security Act (CARES Act) into law on March 27, 2020. The NCUA has added
the CARES Act as a supervisory priority to reflect the importance of
the provisions outlined in the Act. NCUA examiners will review credit
unions' good faith efforts to comply with the CARES Act and will take
appropriate action, when necessary, to ensure credit unions meet their
obligations under the new law.
Multiple CARES Act provisions directly affect credit unions,
including those that:
Provide greater access to liquidity, and improve the
general financial stability of member credit unions through changes to
the Central Liquidity Facility;
Suspend the requirement to categorize certain loan
modifications related to the COVID-19 pandemic as troubled debt
restructurings (TDRs);
Authorize the Small Business Administration to create the
Paycheck Protection Program, a loan guarantee program to assist
eligible businesses;
Change requirements for reporting loan modifications
related to the COVID-19 pandemic to the credit reporting agencies;
Prohibit foreclosures on all single family, federally
backed mortgage loans between March 18, 2020 and May 17, 2020. Fannie
Mae, Freddie Mac, FHA, VA and USDA subsequently extended the
prohibition to June 30, 2020. The foreclosure moratorium expiration for
mortgages purchased by Fannie Mae and Freddie Mac currently extends
until August 31, 2020;
[[Page 74108]]
Provide up to a 360-day forbearance for borrowers with a
single-family, federally backed mortgage loan that experience a
financial hardship related to the COVID-19 pandemic; and
Provide up to a 90-day forbearance for borrowers with a
multifamily, federally backed mortgage loan that experience a financial
hardship related to the COVID-19 pandemic.
Bank Secrecy Act Compliance/Anti-Money Laundering
The NCUA continues to budget resources to comply with the statutory
mandate from Congress to enforce credit union compliance with Bank
Secrecy Act (BSA) and Anti-Money Laundering (AML) laws and regulations.
Technological advancements may expose even the smallest credit unions
to potential illicit finance activities. The NCUA examines federal
credit union compliance with BSA during every examination.
Additionally, the NCUA assists state regulators as needed by conducting
BSA examinations in federally insured, state-chartered credit unions.
The NCUA will continue communicating with credit unions, engaging
with law enforcement, and collaborating with the other banking
regulators on several initiatives associated with this supervisory
priority, including:
Publishing additional updates to the FFIEC Bank Secrecy
Act/Anti-Money Laundering Examination Manual;
Establishing interagency work-streams to define AML
compliance program effectiveness;
Updating the interagency statement on enforcement of BSA/
AML requirements;
Publishing guidance regarding politically exposed persons;
and
Offering clarification and suggestions to improve
Suspicious Activity Report (SAR) and Currency Transaction Report (CTR)
filings.
The NCUA will also continue focusing on proper filing of SARs and
CTRs, as well as reviews of bi-weekly 314(a) information requests from
FinCEN. Law enforcement, intelligence, and counterterrorism officials
depend on prompt reporting of any 314(a) matches and the vital
information provided through timely and informative SARs and CTRs.
Officials use this information regularly to identify and thwart illicit
and terrorist financing activities, and to prosecute and convict guilty
parties. Credit union efforts in this area help fight crime and keep
America safe.
Consumer Financial Protection
The COVID-19 pandemic continues to affect consumers and could
result in increased consumer compliance risk in certain areas; consumer
financial protection, therefore, remains an NCUA supervisory priority.
The NCUA will continue to examine for compliance with applicable
consumer financial protection regulations during every examination as
established in agency's 2020 Letters to Credit Unions about 2020
Supervisory Priorities,\16\ which included:
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\16\ https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/2020-supervisory-priorities and https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/update-ncuas-2020-supervisory-priorities.
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Electronic Fund Transfer Act (Regulation E). Examiners
will evaluate electronic fund transfer policies and procedures and
review initial account disclosures as well as Regulation E's error
resolution procedures for when consumers assert an error.
Fair Credit Reporting Act. Examiners will review credit
reporting policies and procedures and the accuracy of reporting to
credit bureaus, particularly the date of first delinquency.
Gramm-Leach-Bliley (Privacy Act). Examiners will continue
to evaluate credit union protection of non-public personal information
about consumers.
Small dollar lending (including payday alternative loans).
Examiners will test for compliance with the NCUA Payday Alternative
Lending rules and interest rate cap. Examiners will determine whether a
credit union's short-term, small-dollar loan programs that are not NCUA
Payday Alternative Lending comply with regulatory requirements.
Truth in Lending Act (Regulation Z). Examiners will
evaluate credit union practices concerning annual percentage rates and
late charges. This includes evaluating whether finance charges and
annual percentage rates are accurately disclosed and late fees are
levied appropriately.
Military Lending Act (MLA) and Servicemembers Civil Relief
Act (SCRA). The MLA and SCRA have been supervisory priorities for the
NCUA since 2017. For credit unions that have not received a recent
review, examiners will review credit union compliance with the MLA and
SCRA.
The NCUA's consumer compliance reviews will now also emphasize
review of the following regulatory changes enacted since the start of
the COVID-19 pandemic:
Electronic Fund Transfer Act (Regulation E). Examiners
will evaluate credit union practices concerning the Regulation E,
Remittance Transfer Rule changes to the safe harbor threshold and
disclosures of rates and costs associated with remittance transfers.
Truth in Lending Act (Regulation Z). Examiners will also
evaluate credit union practices concerning the changes made in response
to the COVID-19 pandemic to the Truth in Lending-Real Estate Settlement
Procedures Act (TRID) rule and Regulation Z Rescission rules that
permit members to waive the waiting periods under both rules.
Credit Risk Management and Allowance for Loan and Lease Losses
The NCUA's January 2020 Letter to Credit Unions, 20-CU-01, 2020
Supervisory Priorities,\17\ prioritized review of a credit union's loan
underwriting standards and procedures, and exposure to elevated
concentration risks as outlined in NCUA Letter to Credit Unions, 10-CU-
03, Concentration Risk.\18\ In response to the economic impact of the
COVID-19 pandemic and subsequent regulatory and statutory changes, the
NCUA is shifting its emphasis to reviewing actions taken by credit
unions to assist borrowers facing financial hardship. The NCUA will
also review the adequacy of loan and lease losses (ALLL) accounts to
address the pro-cyclical effects of economic downturns.
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\17\ https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/2020-supervisory-priorities.
\18\ https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/concentration-risk.
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NCUA examiners will review credit union policies and the use of
loan workout strategies, risk management practices, and new strategies
implemented to assist borrowers impacted by the COVID-19 pandemic,
including new programs authorized through the CARES Act. In particular,
examiners will evaluate a credit union's controls, reporting, and
tracking of these programs. Examiners will also ensure credit unions
have evaluated and are effectively managing the impact of COVID-19 on
their credit risk, capital position, and overall financial stability.
In addition, credit unions' risk-monitoring practices should be
commensurate with the level of complexity and nature of their lending
activities, provide for safe and sound lending practices, and ensure
compliance with consumer protections and regulatory reporting
requirements.
Further, due to the recent developments in economic conditions and
the Financial Accounting Standards Board's (FASB) decision to delay its
[[Page 74109]]
requirement to comply with the current expected credit losses (CECL)
standard until January 2023, NCUA examiners will not be assessing
credit unions' efforts to transition to the CECL standard until further
notice. The NCUA encourages credit unions to continue to assess their
needs and evaluate methodologies for the eventual implementation of the
CECL standard.
Credit unions must still maintain an ALLL account in accordance
with FASB Accounting Standards Codification (ASC) Subtopic 450-20 (loss
contingencies) and/or ASC 310-10 (loan impairment). NCUA examiners will
be evaluating the adequacy of credit unions' ALLL accounts by
reviewing:
ALLL policies and procedures;
Documentation of an ALLL reserving methodology, including
modeling assumptions;
Adherence to generally accepted accounting principles; and
Independent reviews of credit union reserving methodology
and documentation practices by the Supervisory Committee or by an
internal or external auditor.
Information Systems and Assurance (Cybersecurity)
Emerging cyber-attacks continue to pose a persistent threat to the
financial sector, including credit unions, financial regulators, and
the broader financial system. Advances in financial technology, an
increased remote workforce, and increased use of mobile technology and
cyberspace for financial transactions means more opportunities for
cybersecurity threats and other technology-related issues. As a result,
cybersecurity is one of the top priorities of the NCUA.
The NCUA has transitioned its priority from performing Automated
Cybersecurity Examination Tool (ACET) cybersecurity maturity
assessments, to evaluating critical security controls. The NCUA is
piloting an Information Technology Risk Examination solution for Credit
Unions (InTREx-CU). InTREx-CU harmonizes the IT and Cybersecurity
examination procedures shared by the Federal Deposit Insurance
Corporation, the Federal Reserve System, and some state financial
regulators to ensure consistent approaches are applied to community
financial institutions. The InTREx-CU will be deployed to identify gaps
in security safeguards, allowing examiners and credit unions to
identify and remediate potential high-risk areas through the
identification of critical information security program deficiencies as
represented by an array of critical security controls and practices.
The NCUA has also published information for credit unions on the
increased cybersecurity threats resulting from the COVID-19 pandemic
and additional resources for protecting their members. For more
information, visit the NCUA's Cybersecurity Resources \19\ website and
the Cybersecurity, Frauds, and Scams section on the NCUA's Frequently
Asked Questions for Federally Insured Credit Unions.\20\
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\19\ https://www.ncua.gov/regulation-supervision/regulatory-compliance-resources/cybersecurity-resources.
\20\ https://www.ncua.gov/coronavirus/frequently-asked-questions-regarding-covid-19-ncua-and-credit-union-operations.
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The NCUA also places strong emphasis on ensuring the security of
the agency's systems and the controlled, unclassified information it
collects. The NCUA's Office of the Chief Information Officer is
continually taking steps to enhance the agency's information security
posture and ensure the NCUA's systems and information are protected
from compromise, including the work done as part of ESM.
LIBOR Transition Planning
In a March 23, 2020, statement, the United Kingdom's Financial
Conduct Authority maintained its central assumption that firms cannot
rely on LIBOR being published after the end of 2021. This should remain
the target date for all credit unions to meet.
Credit unions offer, own, and are counterparties to LIBOR-based
products and contracts, including loans, investments, derivatives,
deposits, and borrowings. These may be subject to increased legal,
financial, and operational risks once the reference rate is no longer
available. On July 1, 2020, the FFIEC issued a Joint Statement on
Managing the LIBOR Transition \21\ that highlights the risks that will
result from the transition away from LIBOR and encourages supervised
institutions to continue their efforts to transition to alternative
reference rates.
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\21\ https://www.ncua.gov/newsroom/press-release/2020/financial-regulators-issue-statement-managing-libor-transition.
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Planning for the LIBOR transition is an important operational and
safety and soundness consideration for credit unions with material
exposures. Examiners will continue assessing credit unions' exposure
and planning related to a transition away from LIBOR. For credit unions
with exposure to LIBOR, examiners will continue to conduct reviews
using the NCUA's LIBOR Assessment Workbook.\22\
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\22\ https://publishedguides.ncua.gov/examiner/Pages/default.htm#ExaminersGuide/IRR/IRRExamProcedures.htm%3FTocPath%3DInterest%2520Rate%2520Risk%7C__9.
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Liquidity Risk
The NCUA's January 2020 Letter to Credit Unions, 20-CU-01, 2020
Supervisory Priorities,\23\ included assessments of liquidity risk
management as a supervisory priority, noting that on average, credit
union balance sheets generally exhibit lower levels of on-balance sheet
liquidity due to strong loan growth. At that time, the NCUA was
focusing liquidity reviews to address the following, in credit unions
with low-levels of on-balance sheet liquidity:
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\23\ https://www.ncua.gov/regulation-supervision/letters-credit-unions-other-guidance/2020-supervisory-priorities.
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The potential effects of changing interest rates on the
market value of assets and borrowing capacity;
Scenario analysis for liquidity risk modeling, including
possible member share migrations (for example, shifts from core
deposits into more rate-sensitive accounts). Also, scenario analysis
for changes in cash flow projections for an appropriate range of
relevant factors (for example, changing prepayment speeds); and
The appropriateness of contingency funding plans to
address any potential liquidity shortfalls.
The economic impact of the COVID-19 pandemic may result in
additional stress on credit union balance sheets, potentially requiring
robust liquidity management over the course of 2020 and into 2021. As a
result, examiners will continue to review liquidity risk management and
planning in all credit unions, and will place emphasis on:
The effects of loan payment forbearance, loan
delinquencies, projected credit losses and loan modifications on
liquidity and cash flow forecasting;
Scenario analysis for changes in cash flow projections for
an appropriate range of relevant factors (for example, changing
prepayment speeds);
Scenario analysis for liquidity risk modeling, including
changes in share compositions and volumes;
The potential effects of low interest rates and the
decline of credit quality on the market value of assets, funding costs
and borrowing capacity; and
The adequacy of contingency funding plans to address any
potential liquidity shortfalls.
Impact of COVID-19 on NCUA Operations
Since March 16, 2020, the NCUA has been operating in a remote work
posture in response to the COVID-19 pandemic.
[[Page 74110]]
The NCUA has drafted a resumption plan to enable a safe and orderly
return to onsite work.
The draft NCUA resumption plan is currently designed as a three-
phased approach to restoring those on-site activities that have been
suspended during the pandemic. Since the NCUA has been successful in
maintaining all essential functions and activities under its remote
posture, any decision to move to a new phase and resume some or all
suspended activity will be made with caution, and supported by metrics
and advice from public health professionals.
The NCUA anticipates that as specific phases of the resumption plan
are activated, these activations will take place on a county or local
level, specific to the on-the-ground conditions reported by government
authorities. As such, different portions of the NCUA workforce may
operate under different resumption phases based upon local health
conditions.
The NCUA has also implemented enhanced cleaning procedures at all
of the NCUA's facilities to ensure all NCUA owned or leased worksites
are operated in a manner consistent with health guidance from the
Centers for Disease Control.
Regulatory Reform
The NCUA established a Regulatory Reform Task Force (Task Force) in
March 2017 to oversee implementation of the agency's regulatory reform
agenda. This is consistent with the spirit of Executive Order 13777 and
the Trump administration's regulatory reform agenda. Although the NCUA,
as an independent agency, is not required to comply with Executive
Order 13777, the agency chose to review all of the NCUA's regulations,
consistent with the spirit of initiative and the public benefit of
periodic regulatory review. The NCUA has undertaken a series of
regulatory changes as part of this effort, and continues to pursue a
regulatory reform agenda.
The NCUA's Regulatory Reform Task Force published its final report
in December 2018. Since that time, the NCUA established an annual
performance indicator to measure the regulatory reviews it completes on
a yearly basis. The NCUA's current performance target for regulatory
review is to complete review of one third of the agency's regulations
on an annual basis.
V. Operating Budget
Overview
The NCUA Operating Budget is the annual resource plan for the NCUA
to conduct activities prescribed by the Federal Credit Union Act of
1934. These activities include: (1) Chartering new federal credit
unions; (2) approving field of membership applications of federal
credit unions; (3) promulgating regulations and providing guidance; (4)
performing regulatory compliance and safety and soundness examinations;
(5) implementing and administering enforcement actions, such as
prohibition orders, orders to cease and desist, orders of
conservatorship and orders of liquidation; and (6) administering the
National Credit Union Share Insurance Fund.
Staffing
The staffing levels proposed for 2021 reflect the resource
requirements that support the NCUA's continued efforts to modernize the
examination process and enhance the efficiency and effectiveness of the
supervisory process.
In March 2020, the NCUA Board approved one position to support the
agency's new Office of Ethics Counsel to support agency compliance with
relevant ethics laws and regulations, to promote accountability and
ethical conduct, and ensure the success of the NCUA's ethics programs.
The full cost of this new position is included in the 2021 budget.
The 2021 budget supports a total agency staffing level of 1,191
full-time equivalents (FTE), of which 1,186 are funded in the Operating
Budget. This is a net increase of five FTE, or 0.4 percent, compared to
the Board-approved level for 2020. The new 2021 FTE are described in
greater detail below.\24\
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\24\ Full-time equivalent (FTE) employment is the total number
of regular straight-time hours (i.e., not including comp time or
holiday hours) worked by employees divided by the number of
compensable hours applicable to the fiscal year, as defined by the
Office of Management and Budget, Circular No. A-11. The NCUA uses
the number of FTE projected in the budget to build its estimated pay
and benefits calculations. The actual number of persons employed
will vary at any point in time, based on vacancies, use of part-time
employees, etc.
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BILLING CODE 7535-01-P
[[Page 74111]]
[GRAPHIC] [TIFF OMITTED] TN19NO20.028
In addition to the staff assigned to regional offices, most of the
staff in ONES are remote field staff who also travel to credit unions
as part of their examination responsibilities.
Request for New Staff in 2021--+5 FTE
The staff draft budget includes funding for an increase or
adjustment to NCUA staffing that equates to five FTEs. This funding
covers the following 3 specific positions:
Consumer Compliance Program Officer--+1 FTE
This new position, within the Office of Consumer Financial
Protection will develop tiered examination procedures up to and
including FFIEC-approved examination procedures, lead consumer
financial protection compliance reviews conducted at credit unions with
higher compliance risk profiles, and assist in developing training
materials for examiners and credit unions.
Financial Literacy Specialist--+1 FTE
This new position, within the Office of Consumer Financial
Protection, will support and encourage financial inclusion throughout
the credit union industry with informative financial literacy outreach
activities. The NCUA currently employs one Program Officer in the
Office of Consumer Financial Protection to implement the agency's
Financial Literacy and Outreach programs. The new position will support
this Program Officer and help collaborate and contribute to the
National Strategy on Financial Literacy, and the U.S. Department of the
Treasury's Financial Literacy and Education Commission (FLEC).
Senior Credit Specialist--+1 FTE
This new position, within the Office of Examination and Insurance,
will provide enhanced risk mitigation and program support for the
credit risk area. Credit risk, and credit unions' lending functions in
particular, represents the largest portion of the credit union system's
business and continues to grow increasingly diverse and complex. The
NCUA currently has several specialists who analyze the growing
complexity of the commercial, residential mortgage,
[[Page 74112]]
and consumer lending markets. This additional position will ensure that
the Office of Examination and Insurance identifies the increased risks
and program needs of the credit union system by focusing on emergent
credit risks, developing guidance and program policies needed to
effectively implement risk management, and executing increasingly
complex analytic portfolios.
The staff draft budget and the related FTE authorization also
includes two additional FTEs to account for the potential need for
additional support (additional positions and/or changes to position
grades) for the Central Liquidity Facility, the Board Secretary
function, and financial innovation. Options are still being developed
by the NCUA staff related to the resource needs and associated
priorities of these functions for the Board to consider.
Additionally, within the overall existing 2020 staffing level of
1,186 FTE, the NCUA is adjusting its staffing plan to accomplish the
following in 2021:
Office of National Examinations and Supervision (ONES): To
support the additional large consumer credit unions that will come
under ONES supervision: One national supervision technician, one
national lending specialist, one national supervision analyst, one
financial data analyst, and one national information systems officer.
Office of the Chief Information Officer: One data cloud
infrastructure specialist and one network specialist to support the
increasing demands and complexity of the agency's information
technology systems and networks.
Office of Examinations and Insurance: One additional risk
officer to support anticipated increase in risk management actions.
Budget Category Descriptions and Major Changes
There are five major expenditure categories in the NCUA budget.
This section explains how these expenditures support the NCUA's
operations, and presents a transparent overview of the Operating
Budget.
[GRAPHIC] [TIFF OMITTED] TN19NO20.029
BILLING CODE 7535-01-C
Actual expenses for the Operating Fund are reported monthly in the
Operating Fund Financial Highlights posted on the NCUA website. Share
Insurance Fund Financial Reports and Statements, which are also posted
to the NCUA website, detail reimbursements
[[Page 74113]]
made to the Operating Fund for NCUA expenses.
Salaries and Benefits
The budget includes $240.9 million for employee salaries and
benefits in 2021. This change is a $9.6 million, or 4.1 percent,
increase from the 2020 Board-approved budget.
Salaries and benefits costs make up 76.3 percent of the total
budget. There are two primary drivers of increased costs in 2021 for
the Salaries and Benefits category:
Merit and locality pay increases for the NCUA's employees are paid
in accordance with the agency's current Collective Bargaining Agreement
(CBA) and its merit-based pay system. Salaries are estimated to
increase 3.4 percent in aggregate compared to 2020.
Contributions for employee retirement to the Federal Employee
Retirement System (FERS), which are unilaterally set by the Office of
Personnel Management, cannot be negotiated or changed by the NCUA.
Driven largely by the mandatory FERS rate adjustment, total NCUA
benefits costs increase 6.0 percent in 2021 compared to 2020.
These changes are described in more detail below.
In 2021, the NCUA's compensation levels will continue to ``maintain
comparability with other federal bank regulatory agencies,'' as
required by the Federal Credit Union Act.\25\ The Salaries and Benefits
category of the budget includes all employee pay raises for 2021, such
as merit and locality increases, and those for promotions,
reassignments, and other changes, as described below.
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\25\ The Federal Credit Union Act states that, ``In setting and
adjusting the total amount of compensation and benefits for
employees of the Board, the Board shall seek to maintain
comparability with other [F]ederal bank regulatory agencies.'' See
12 U.S.C. 1766(j)(2).
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Consistent with other federal pay systems, the NCUA's compensation
includes base pay and locality pay components. The NCUA staff will be
eligible to receive an average merit-based increase of 3.0 percent, and
an additional locality adjustment ranging from 1.3 percent to 1.7
percent, depending on the geographic location.
The first-year cost of the new positions added in 2021 is estimated
to be $1.0 million. Specific increases to individual offices' salaries
and benefits budgets will vary based on current pay levels, position
changes, and promotions.
Personnel compensation at the NCUA varies among every office and
region depending on work experience, skills, years of service,
supervisory or non-supervisory responsibilities, and geographic
locations. In general, more than 85 percent of the NCUA workforce has
earned a bachelor's degree or higher, compared to approximately 35
percent of the private-sector workforce. This high level of educational
achievement ensures the NCUA workforce is able to fulfill its mission
effectively and efficiently, and attracting a well-qualified workforce
requires the agency to pay employees competitive salaries.
Individual employee compensation varies, depending on the cost of
living in the location where the employee is stationed. The federal
government sets locality pay standards, which are managed by the
President's Pay Agent--a council established to make recommendations on
federal pay. The council uses data from the Occupational Employment
Statistics program, collected by the Bureau of Labor Statistics, to
compare salaries in over 30 metropolitan areas, and establishes
recommendations for equitable adjustments to employee salaries to
account for cost-of-living differences between localities.
The OPM economic assumptions for actuarial valuation of the FERS
have increased significantly for 2021. All federal agencies are
expected to contribute 17.3 percent of FERS employees' salaries to the
OPM retirement system, an increase of 130 basis points compared to the
2020 level. This mandatary contribution is prescribed in the OPM
Benefits Administration Letter dated May 2020. The estimated impact on
the NCUA budget is an increase of approximately $2.3 million in
mandatory payments to OPM, or approximately 0.7 percentage points of
overall budgetary growth, compared to 2020 levels.
The average health insurance costs for the Federal Employees Health
Benefits (FEHBP) program for 2021 are consistent with historical actual
expenses and the OPM estimate that the government share of FEHBP
premiums will increase 3.0 percent in 2021. The employee salary and
benefits category also includes costs associated with other mandatory
employer contributions such as Social Security, Medicare,
transportation subsidies, unemployment, and workers' compensation.
In past years, the NCUA adjusted its budget downward by an expected
vacancy rate for positions that are not filled during the year because
of a time lag between employee separations and hiring new staff. Since
2018, the NCUA has lowered its vacancy rate by more than 50 percent,
and continues to closely monitor the hiring and attrition trends within
its workforce. In anticipation of the need for a full complement of
staff in 2021, and because of ongoing acceleration in the agency's
hiring cycle time, the proposed 2021 budget does not include a vacancy
adjustment.
The 2022 budget request for salaries and benefits is estimated at
$249.4 million, a $8.5 million increase from the 2021 level, which
accounts for merit and locality increases consistent with the CBA
(approximately $5.6 million), the full-year cost impact of new
positions (approximately $1.0 million), and associated increases in
benefits for all employees (approximately $1.9 million). The
assumptions used for compensation-related adjustments are based on the
CBA currently in force.
Travel
The 2021 budget includes $13.5 million for Travel. This change is a
50.7 percent decrease to the 2020 Board-approved budget.
There are two reasons for the significant reduction in the 2021
travel budget. First, the NCUA expects that pandemic-related travel
restrictions will continue through the first quarter of 2021, and
adjusted the budget downward as a result. Second, and subject to
approval by the NCUA Board, the agency will use approximately $6
million of unspent 2020 travel funds to offset the 2021 travel budget.
Historically, the travel budget comprises approximately nine percent of
the overall NCUA budget, however the share of travel in the 2021 budget
will be only 4.3 percent.
The travel cost category includes expenses for employees' airfare,
lodging, meals, auto rentals, reimbursements for privately owned
vehicle usage, and other travel-related expenses. These are necessary
expenses for examiners' onsite work in credit unions. Close to two-
thirds of the NCUA's workforce is comprised of field staff who spend a
significant part of their year traveling to conduct the examination and
supervision program.
The NCUA staff also travel for routine and specialized training. In
2020, the NCUA had planned to conduct a series of training events to
support the nationwide roll-out of MERIT; however, these training
events were postponed to 2021 due to pandemic-related travel
restrictions. Amounts budgeted for MERIT training in 2020 will be used
to pay for the events' costs in 2021. The NCUA roll-out will be a labor
intensive effort requiring travel for many of the NCUA's staff, and
will provide hands-on training for this new system, which
[[Page 74114]]
will be officially deployed in the fourth quarter of 2021.
During the COVID-19 pandemic, the agency and its employees
successfully transitioned to an offsite examination posture, developing
new procedures and processes to continue examination and supervisory
work. In 2021, the NCUA will continue evaluating how it can conduct
examinations remotely and offsite, which should result in future cost
avoidance for travel. In addition, agency personnel will continue to
utilize more virtual training options, where appropriate, to help
minimize travel expenses.
The 2022 budget request for travel is estimated to be $24.3
million, or an 80.4 percent increase over the 2021 level. This increase
results from returning to a full year of scheduled travel and from
using up the unspent 2020 travel balances in 2021.
Rent, Communications, and Utilities
The 2021 budget includes $7.2 million for Rent, Communications, and
Utilities. This is a $1.0 million, decrease, or 12.6 percent less than
the 2020 Board-approved budget. The Rent, Communications, and Utilities
budget funds the agency's telecommunications and information technology
network expenses, and facility rental costs.
The NCUA used approximately $3.7 million of unspent 2020 travel
funds to pay the balance of a loan taken from the Share Insurance Fund
for construction of the NCUA's Central Office building. This reduces
the Rent, Communications, and Utilities budget by approximately $1.3
million per year through 2023.
The telecommunication charges include leased lines, domestic and
international voice (including mobile), and other network charges.
Telecommunication costs include the circuits and any associated usage
fees for providing voice or data telecommunications service between
data centers, office locations, the internet and any customer, supplier
or partner.
The 2021 budget includes costs to support the NCUA's bandwidth at
the NCUA disaster recovery sites, procurement of additional circuits
and express routes for Microsoft365 implementation, and transition to
the GSA-managed Enterprise Infrastructure Solutions (EIS). EIS is the
federal government's contract for enterprise telecommunications and
networking solutions. By transitioning to EIS, the NCUA will benefit
from the comprehensive solution EIS provides to address all aspects of
federal agency IT telecommunications, and infrastructure requirements.
Office building leases, meeting rentals, office utilities, and
postage expenses are also included in this budget category. Facility
costs are approximately $700,000 in 2021 for office space rental for
the Western Region, insurance, and ancillary costs for the NCUA Central
Office. The annual utility costs for the Central Office and regional
offices are estimated at $383,000.
The 2021 budget also includes $627,000 for event rental costs for
examiner meetings and other training events. This is a decrease of
approximately $500,000 compared to 2020 since the costs of MERIT-
related training were already incurred in 2020 but the classes were
rescheduled to 2021 because of the COVID-19 pandemic.
The 2022 budget request for the Rent, Communications, and Utilities
category is estimated to be $8.4 million, an increase of $1.2 million
over the 2021 level, which includes an additional $740,000 for
telecommunications transitions and $500,000 for space rentals for a
national conference.
Administrative Expenses
The 2021 budget includes $6.2 million for Administrative Expenses.
This is an increase of $552,000, or 9.8 percent, compared to the 2020
Board-approved budget. Recurring costs in the Administrative Expenses
category include the annual reimbursement to the Federal Financial
Institutions Examination Council (FFIEC), employee relocation expenses,
recruitment and advertising, shipping, printing, subscriptions,
examiner training and meeting supplies, office furniture, and employee
supplies and materials.
As part of the FFIEC, the NCUA shares in costs for joint actions
and services that affect the financial services industry. The FFIEC
costs increased by almost $200,000 from 2020 to 2021.
The 2020 budget did not include funds for employee relocation but
instead used approximately $1,000,000 of unspent balances from prior
years to pay for 2020 employee relocation costs. The 2021 budget
includes an increase of $750,000 for employee relocations compared to
the 2020 budget. Relocation costs are paid by the NCUA to employees who
are competitively selected for a promotion or new job within the agency
in a different geographic area than where they live.
The 2022 budget request for Administrative Services is projected to
be the same as the 2021 recommended level.
Contracted Services
The 2021 budget includes $47.8 million for Contracted Services.
This is a $4.5 million, or 10.3 percent, increase compared to the 2020
Board-approved budget. The Contracted Services budget category includes
costs incurred when products and services are acquired in the
commercial marketplace. Acquiring specific expertise or services from
contract providers is often the most cost-effective approach to fulfill
the NCUA's mission. Such services include critical mission support such
as information technology equipment and software development,
accounting and auditing services, and specialized subject matter
expertise that enable staff to focus on core mission execution.
The majority of funding in the Contracted Services category
supports the NCUA's robust supervision framework, and includes funding
for tools used to identify and resolve traditional risk concerns such
as interest rate risk, credit risk, and industry concentration risk, as
well as by addressing new and evolving operational risks such as
cybersecurity threats. Growth in the contracted services budget
category results primarily from new operations and maintenance costs
associated with capital investments, such as the Examinations and
Supervision Solution, or MERIT system. Other costs include core agency
business operation systems such as accounting and payroll processing,
and various recurring costs, as described in the seven major
categories, below:
Information Technology Operations and Maintenance (48 percent
of contracted services)
[cir] IT network support services and help desk support
[cir] Contractor program and web support and network and equipment
maintenance services
[cir] Administration of software products such as Microsoft Office,
Share Point and audio visual services
Administrative Support and Other Services (13 percent of
contracted services)
[cir] Examination and Supervision program support
[cir] Technical support for examination and cybersecurity training
programs
[cir] Equipment maintenance services
[cir] Legal services and other expert consulting support
[cir] Other administrative mission support services for the NCUA
central office
Accounting, Procurement, Payroll and Human Resources Systems
(10 percent of contracted services)
[cir] Accounting and procurement systems and support
[[Page 74115]]
[cir] Human resources, payroll, and employee services
[cir] Equal employment opportunity and diversity programs
Building Operations, Maintenance, and Security (8 percent of
contracted services)
[cir] Central office facility operations and maintenance
[cir] Building security and continuity programs
[cir] Personnel security and administrative programs
Information Technology Security (9 percent of contracted
services)
[cir] Enhanced secure data storage and operations
[cir] Information security programs
[cir] Security system assessment services
Training (7 percent of contracted services)
[cir] Examiner staff, technical and specialized training and
development
[cir] Senior executive and mission support staff professional
development
Audit and Financial Management Support (4 percent of
contracted services)
[cir] Annual audit support services
[cir] Material loss reviews
[cir] Investigation support services
[cir] Financial management support services
The following pie chart illustrates the breakout of the seven
categories for the total 2021 contracted services budget of $47.8
million.
[GRAPHIC] [TIFF OMITTED] TN19NO20.030
Major programs within the contracted services category include:
Training requirements for the examiner workforce. The
NCUA's most important resource is its highly educated, experienced, and
skilled workforce. It is important that staff have the proper
knowledge, skills, and abilities to perform assigned duties and meet
emerging needs. Each year, Credit Union Examiners complete a variety of
training classes to ensure their skills and industry knowledge are kept
up to date, including in core areas such as capital markets, consumer
compliance, and specialized lending. Major training deliverables for
2021 include the rescheduled MERIT training sessions discussed
elsewhere in this document, classes offered by the Federal Financial
Institutions Examination Council, updated examiner classes, and subject
matter expert training sessions for the NCUA examiners. Contracted
service providers, in partnership with the NCUA subject matter experts,
will develop and design training classes for examiners and continue
work on the triennial review of the NCUA's Subject Matter Examiner
(SME) course curriculum. The NCUA plans to implement a new Talent
Management System in 2021, and will simultaneously update some of the
current online course content. Additionally, contracted service
providers and central office staff will continue conducting
organizational development, leadership and teambuilding training.
The NCUA's information security program supports ongoing
efforts to strengthen the agency's cybersecurity and ensure its
compliance with the Federal Information System Management Act.
Agency financial management services, human resources
technology support, and payroll services. The NCUA contracts for these
back-office support services with the U.S. Department of
Transportation's Enterprise Service Center (DOT/ESC) and the General
Services Administration. The NCUA's human resource system, HR Links,
also adopted by other federal agencies, is a shared solution that
automates routine human resource tasks and improves time and attendance
functionality.
Audit. The NCUA Office of Inspector General contracts with
an accounting firm to conduct the annual audit of the agency's four
permanent funds. The results of these audits are posted annually on the
NCUA website
[[Page 74116]]
and also included as part of the agency's Annual Report.
A significant share of the budget for the Contracted Services
category finances on-going infrastructure support for the agency. The
2021 budget includes the first year of funding for that annual
Operation and Maintenance costs for the MERIT system, which will
replace the legacy AIRES examination system. Several other of the
NCUA's core information technology systems and processes also require
additional contract support in 2021, which result in increased budgets
in the Contracted Services category, as described below.
Within the budget for the Office of Chief Information Officer
(OCIO), an additional $3.8 million is required primarily for the
operations and maintenance costs of capital projects, including the
MERIT system.
Funding for the contract services that support the NCUA's website--
approximately $1.5 million--has been moved from the Office of the Chief
Information Officer to the Office of External Affairs and
Communications in the 2021 budget. With the rollout of MERIT and new
digital training courses for employees, website-related Americans with
Disabilities Act compliance requests are expected to increase in 2021.
Within the Office of Examination and Insurance, contract reductions
of $500,000 are associated with technical accounting and security
consultant support purchased in 2020 but not required in 2021.
The 2021 contracted serviced budget includes $250,000 for the
NCUA's ACCESS initiative, which will bring together agency leaders to
develop policies and programs that support financial inclusion within
the NCUA and more broadly throughout the credit union system. By
building on our successes, ACCESS will expand existing efforts to
address the financial services and financial literacy needs of
underserved and diverse communities, as well as expand opportunities
for employment.
The 2022 budget for Contracted Services is estimated to increase by
$5.6 million, or 11.8 percent, compared to 2021, largely due to the
operations and maintenance costs resulting from the delivery of capital
projects funded in prior years.
VI. Capital Budget
Overview
Annually, the NCUA carries out a rigorous investment review process
to identify the agency's needs for information technology (IT),
facility improvements and repairs, and other multi-year capital
investments. The NCUA staff review the agency's inventory of owned
facilities, equipment, IT systems, and IT hardware to determine what
requires repair, major renovation, or replacement. The staff then make
recommendations for prioritized investments to the NCUA Board.
IT systems and hardware are another significant capital expenditure
for modern organizations. The 2021 budget continues the NCUA's multi-
year investment in current and replacement IT systems. The budget fully
supports the NCUA's effort to modernize its IT infrastructure and
applications, including the full rollout of MERIT, the NCUA's
Examination and Supervision Solution (ESS) project, which will replace
the legacy Automated Integrated Regulatory Examination System (AIRES)
system. Other IT investments include ongoing enhancements and upgrades
to enhance decades-old legacy systems, network servers, systems to
ensure the agency's cybersecurity posture, and various hardware
investments to refresh agency networks and ensure staff have the tools
necessary to maintain and increase their productivity.
Routine repairs and lifecycle-driven property renovations are also
necessary to properly maintain investments in the NCUA's central office
building in Alexandria, Virginia and the agency's owned office building
in Austin, Texas. The NCUA facility manager assesses the agency's
properties to determine the need for essential repairs, replacement of
building systems that have reached the end of their engineered lives,
or renovations required to support changes in the agency's
organizational structure or to address revisions to building standards
and codes.
The NCUA's 2021 capital budget is $18.8 million. The capital budget
funds the NCUA's long-term investments. The Information Technology
Prioritization Council recommended $12.0 million for IT software
development projects and $5.6 million in other IT investments for 2021.
The NCUA facilities require $1.3 million in capital investments.
[GRAPHIC] [TIFF OMITTED] TN19NO20.031
Detailed descriptions of all 2021 capital projects, including a
discussion of how each project helps the agency achieve its strategic
goals and objectives, are provided in Appendix B.
Summary of Capital Projects
Examination and Supervision Solution and Infrastructure Hosting ($7.4
Million)
The purpose of the Examination and Supervision Solution and
Infrastructure Hosting (ESS&IH) project is to implement a new,
flexible, technical foundation to enable current and future NCUA
business process modernization initiatives, and replace the NCUA's
legacy exam system, AIRES, with a new, customized Commercial-Off-The-
Shelf (COTS) solution that will allow the NCUA's examiners and
supervisors to be more efficient, consistent, and
[[Page 74117]]
effective. In 2021, all NCUA examiners will be trained to use the new
MERIT system, with full implementation expected by the end of the year.
After the MERIT system is fully deployed to the examiner workforce, the
NCUA expects to include the system's on-going operating and maintenance
costs in the operating budget.
Enterprise Central Data Repository ($1.6 Million)
The Enterprise Central Data Repository (ECDR) project will
implement a central data repository that will serve as the data
integration point for ESS, ONES's analytic tools, the NCUA's legacy
applications and the Data Collection Solution (DCS). The ECDR will
become an enterprise solution for the NCUA allowing the agency to
transition in a phased approach from the existing legacy databases to a
cloud-based data repository serving the agency's needs.
Enterprise Data Program ($0.4 Million)
The purpose of this project is the centralization, organization and
storage of the NCUA data. The primary goal is to enable the NCUA to
manage enterprise data as a strategic asset through its full lifecycle
(create/collect, manage/move, consume, dispose). The Enterprise Data
Program (EDP) will also facilitate the centralization and organization
of the NCUA's data with an authoritative source so analysis is more
accurate, simple and easily distributed across the agency.
NCUA Website Development ($0.1 Million)
The purpose of the website Development project is to serve the web-
related needs of the internal NCUA stakeholders and the public. The
project provides on-going improvements to the website, such as an
improved user experience, and provides support for design, development,
and maintenance of the agency's public websites: NCUA.gov and
MyCreditUnion.gov.
Performance Management System Replacement ($0.2 Million)
A replacement system is needed to enable employees to complete all
phases of NCUA's performance management program. The system will
standardize the workflows and management of employees' performance
plans, facilitating employee performance plan issuance, plan
acknowledgement, progress review acknowledgment, and the issuance of a
final year-end evaluation for all NCUA employees.
Continuous Diagnostic Mitigation ($0.9 Million)
The objective of the Continuous Diagnostics and Mitigation (CDM)
project is to enhance the overall security posture of NCUA with
capabilities to monitor vulnerabilities and threats in near real-time.
This is achieved by implementing capabilities and technical controls to
identify what is on the network, who is on the network, what is
happening on the network, and to protect data in use, transit, and at
rest. This increased situational awareness will allow NCUA to
prioritize actions to mitigate or accept cybersecurity risks based on
the potential impact to the NCUA mission.
Microsoft Office M365 Implementation ($1.5 Million)
The goal of the M365 Implementation project is to empower the
NCUA's employees by delivering the most advanced innovations in
management, collaboration, enterprise security, and business analytics
through cloud services. Once implemented, M365 will reduce security
risks as well as reduce the cost and effort to maintain and manage
software nearing the end of its service life.
Enterprise Laptop Lease ($0.8 Million)
The purpose of the Enterprise Laptop Lease project is to ensure the
NCUA workforce has an efficient, mobile friendly, and secure computer
that helps employees better perform their jobs at a reasonable cost.
Because of the priority deployment of the MERIT system in 2021, the
NCUA plans to purchase its current fleet of laptops at the end of the
current lease in 2021. The NCUA now plans to replace its laptops in
2022.
Information Technology Infrastructure, Platform and Security Refresh
($3.9 Million)
The purpose of the Information Technology (IT) Infrastructure,
Platform and Security Refresh project is to refresh and/or replace
routers, switches, virtual servers, wireless infrastructure, virtual
private network, infrastructure appliances, end of life and end of
service components in order to ensure that the NCUA data is secure and
operations are stable.
Refresh VoIP Phone System ($1.0 Million)
The purpose of the Refresh Voice over internet Protocol (VoIP)
Phone System project is to fully replace NCUA's telephone system
(infrastructure, platform, and endpoints) to ensure voice
communications capabilities in order to ensure that business continuity
and operations are stable. NCUA VoIP voice components include Session
Initiation Protocol (SIP), call control, external and internal call
routing, local and long-distance call plans, international calling
plans and VoIP desk/soft phone. In addition, NCUA plans to integrate
the VoIP infrastructure with the M365 project to optimize the
workforce's collaboration experience.
Central Office Heating, Ventilation, and Air Conditioning (HVAC) System
Replacement ($0.5 Million)
The NCUA central office HVAC system replacement project will
recapitalize the HVAC system in the agency's central office building,
including all cooling towers, air handlers, boilers and HVAC
components. The current HVAC system is original to the facility, 27
years old, at the end of its useful life, not working efficiently, and
obsolete. The 2021 budget provides funding to complete the multi-year
HVAC replacement project.
Austin, Texas Office Building Modernization ($0.8 Million)
In 2021, the NCUA will continue its multi-year improvement project
at the Austin, Texas office building. These capital improvements are
required for the facility to continue routine and safe operations, and
align with the lifecycle replacement required for critical
infrastructure.
VII. Share Insurance Fund Administrative Budget
Overview
The Share Insurance Fund Administrative budget funds direct costs
associated with authorized Share Insurance Fund activities. The direct
charges to the Share Insurance Fund include costs associated with the
NCUA Guaranteed Note (NGN) program and other administrative costs, and
represent the total estimated direct costs to the Share Insurance
Fund.\26\ The Share Insurance Fund Administrative budget funds five
positions that were formerly part of the Temporary Corporate Credit
Union Stabilization Fund (Stabilization Fund) budget.
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\26\ Note these direct costs are exclusive of any costs that are
shared with the Operating Fund through the Overhead Transfer Rate,
and with payments available upon requisition by the Board, without
fiscal year limitation, for insurance under section 1787 of this
title, and for providing assistance and making expenditures under
section 1788 of this title in connection with the liquidation or
threatened liquidation of insured credit unions as it may determine
to be proper.
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The cost of the NGN program and the Corporate System Resolution
Program, including costs associated with the
[[Page 74118]]
administration of those programs, are funded from the Share Insurance
Fund Administrative budget. These costs have no impact on the NCUA's
current and future Operating Fund budgets. The budget for the Share
Insurance Fund also includes funding for expenditures previously
authorized as direct expenses of the Share Insurance Fund for items
such as state examiner computer leases, training and financial audit
support.
The 2021 Share Insurance Fund Administrative budget is estimated to
be $8.1 million, $1.6 million, or 26 percent, more than 2020.
The 2021 budget increase is primarily driven by the addition of
operations and maintenance costs for technology systems and data used
by the NCUA to validate stress testing at large credit unions, and the
addition of the costs of making MERIT, the new examination solution and
replacement to AIRES, available to those state supervisory agencies
that use it.
The 2022 requested budget supports similar workload and resources,
but is projected to decrease by $218,000 or, or 2.7 percent, compared
to the 2021 funding level because the one-time nature of the cost of
providing the MERIT system to state supervisory authorities.
Budget Category Descriptions and Major Changes
Salaries and Benefits
The employee pay and benefits expense category for the Share
Insurance Fund Administrative budget is estimated to be $1.5 million,
which represents an increase of $30,000 compared to 2020. This increase
is due to aligning the budget to actual payroll costs for staff on
board, as well as an increase to mandatory agency contribution rates to
the FERS retirement program. Personnel compensation is 18 percent of
the total budget. The financial analysts on the NGN team have
specialized technical expertise to manage the remaining $5 billion of
legacy assets the NCUA will control in 2021. Personnel costs are
estimated in a manner similar to the operating budget.
Travel
The estimated travel cost of $52,000 is less than one percent of
the overall 2021 budget and remains the same as the 2020 budget
estimate. These costs cover all of the travel expenses for the five
staff that manage and support the NGN program. Two of the five staff
are remote employees and are expected to travel periodically to the
NCUA's central office.
Administrative: Training
Training expenses, which represent less than one percent of the
overall 2021 budget, are estimated to remain at $27,000, identical to
the 2020 level, based on projections of employee professional
development plans and specialized training requirements.
Support for the NGN Program (Contract Support)
Contract costs to support the NGN program, which represent 31
percent of the overall 2021 budget, are estimated to be $2.5 million, a
decrease of $0.2 million from the 2020 level. Funding is needed to
fulfill Corporate System Resolution Program requirements and includes
outside professional services such as external valuation experts,
financial specialists, and accountants.
These experts assist the NCUA with the following services:
Consulting Services in the amount of $0.9 million to support two
NCUA offices: Examination and Insurance and the Chief Financial
Officer. Services include quarterly management reviews of asset
valuations, as well as analyses of emerging issues. Contractors also
provide support for the annual financial audit process and improvements
in internal controls. Tasks include: Supporting complex accounting and
financial requirements for settlements, sale of legacy assets, parity
payments, changing valuation model assumptions, and other asset
disposition activities. Additionally, professional services are used to
assist with accounting, tax, financial reporting, and systems support
for the corporate Asset Management Estates.
Valuation Services in the amount of $1.0 million funds valuation
support for the NGN legacy assets. As supported by the NGN Oversight
Committee, resources are also needed to conduct special analyses,
including valuations for determining reasonable market prices for
securities to be sold by auction.
Software and Data Subscription Services in the amount of $0.6
million supports technical tools used to provide waterfall models,
calculations, and metrics for the structured investment products
underlying the NGN portfolio. The service provides coverage of all
relevant asset classes, waterfall models that are seasoned and tested
throughout the industry, and a broad array of calculations and metrics.
Financial data analytics play a critical role in the surveillance,
modeling, and pricing of the legacy assets that securitize the NGN
Trusts, as well as supporting the management reviews that the NCUA
performs on the cash flow projections. Now that the NGNs are maturing,
the NCUA requires data subscription services to provide additional
valuation as well as support for the legacy asset disposition process.
Other annual subscriptions provide important services related to
surveillance of the portfolio of corporate bonds and mortgage-related
bonds. Independent credit research services include fundamental capital
structure research, credit analyses for surveillance of corporate bond
portfolio and mono-line insurer exposure, and direct access to various
industry experts for discussion on specific credits.
Other Direct Expenses
Other direct expenses of the Share Insurance Fund are estimated to
be $4.0 million in 2021, an increase of $1.8 million, or 82 percent,
compared to the 2020 budget level.
The NCUA is required to validate annual stress testing conducted by
certain large credit unions to help ensure these credit unions can
remain financially sound through challenging economic cycles. Over a
multi-year endeavor, the NCUA has developed and implemented its Assets
and Liabilities Management (ALM) system, which in part allows the NCUA
to build internal analytical capabilities and run supervisory stress
testing analyses. The NCUA also uses the ALM system and associated data
to conduct regular quantitative risk assessments. Development of the
ALM system was funded from the NCUA capital budget in 2020 and prior
years, but now that the system is in use, $1.4 million for operations
and maintenance costs will be funded from the SIF budget in 2021 and
future budgets.
The 2021 budget also includes $0.3 million that will be spent to
make the MERIT examination and supervision system available to State
Supervisory Authorities that oversee state-chartered credit unions.
This is expected to be a one-time cost for specific technology
development.
BILLING CODE 7535-01-P
[[Page 74119]]
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[GRAPHIC] [TIFF OMITTED] TN19NO20.033
BILLING CODE 7535-01-C
VII. Financing the NCUA Programs
Overview
When formulating the annual budget, the NCUA is mindful that its
operating funding comes directly from federal and state chartered
credit unions. The agency strives to ensure that any use or allocation
of these funds follows a thorough review that evaluates the necessity
of the expenditures and whether programs are operating in an efficient,
effective, transparent, and fully accountable manner.
To achieve its statutory mission, the NCUA incurs various expenses,
including those involved in examining and supervising federally insured
credit unions. The NCUA Board adopts an Operating Budget, which
includes the Capital Budget, in the fall of each year to fund the vast
majority of the costs of operating the agency.\27\ The Federal Credit
Union Act authorizes two primary sources to fund the Operating Budget:
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\27\ Some costs are directly charged to the Share Insurance Fund
when appropriate to do so. For example, costs for training and
equipment provided to State Supervisory Authorities are directly
charged to the Share Insurance Fund.
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(1) Requisitions from the Share Insurance Fund ``for such
administrative and other expenses incurred in carrying out the purposes
of
[[Page 74120]]
[Title II of the Act] as [the Board] may determine to be proper''; \28\
and
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\28\ 12 U.S.C. 1783(a).
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(2) ``fees and assessments (including income earned on insurance
deposits) levied on insured credit unions under [the Act].'' \29\
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\29\ 12 U.S.C. 1766(j)(3). Other sources of income for the
Operating Budget have included interest income, funds from
publication sales, parking fee income, and rental income.
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Among the fees levied under the Act are annual Operating Fees,
which are required for federal credit unions under 12 U.S.C. 1755 ``and
may be expended by the Board to defray the expenses incurred in
carrying out the provisions of [the Act,] including the examination and
supervision of [federal credit unions].''
Taken together, these authorities effectively require the Board to
determine which expenses are appropriately paid from each source while
giving the Board broad discretion in allocating expenses.
In 1972, the Government Accountability Office recommended the NCUA
adopt a method for properly allocating Operating Budget costs--that is,
the portion of the NCUA's budget funded by requisitions from the Share
Insurance Fund and the portion covered by Operating Fees paid by
federal credit unions.\30\ The NCUA has since used an allocation
methodology, known as the Overhead Transfer Rate (OTR), to determine
how much of the Operating Budget to fund with a requisition from the
Share Insurance Fund.
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\30\ http://www.gao.gov/assets/210/203181.pdf.
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The NCUA uses the OTR methodology to allocate agency expenses
between these two primary funding sources. Specifically, the OTR is the
formula the NCUA uses to allocate insurance-related expenses to the
Share Insurance Fund under Title II. Almost all other operating
expenses are funded through collecting annual Operating Fees paid by
federal credit unions.\31\
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\31\ Annual Operating Fees must ``be determined according to a
schedule, or schedules, or other method determined by the NCUA Board
to be appropriate, which gives due consideration to the expenses of
the [NCUA] in carrying out its responsibilities under the [Act] and
to the ability of [FCUs] to pay the fee.'' 12 U.S.C. 1755(b).
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Two statutory provisions directly limit the Board's discretion with
respect to Share Insurance Fund requisitions for the NCUA's Operating
Budget and, hence, the OTR. First, expenses funded from the Share
Insurance Fund must carry out the purposes of Title II of the Act,
which relate to share insurance.\32\ Second, the NCUA may not fund its
entire Operating Budget through charges to the Share Insurance
Fund.\33\ The NCUA has not imposed additional policy or regulatory
limitations on its discretion for determining the OTR.
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\32\ 12 U.S.C. 1783(a).
\33\ The Act in 12 U.S.C. 1755(a) states, ``[i]n accordance with
rules prescribed by the Board, each [federal credit union] shall pay
to the [NCUA] an annual operating fee which may be composed of one
or more charges identified as to the function or functions for which
assessed.'' See also 12 U.S.C. 1766(j)(3).
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Overhead Transfer Rate (OTR)
The NCUA conducts a comprehensive workload analysis annually. This
analysis estimates the amount of time necessary to conduct examinations
and supervise federally insured credit unions in order to carry out the
NCUA's dual mission as insurer and regulator. This analysis starts with
a field-level review of every federally insured credit union to
estimate the number of workload hours needed for the current year.
These estimates are informed by the overall parameters of the NCUA's
examination program, as most recently updated by the Exam Flexibility
Initiative approved by the Board.\34\ The workload estimates are then
refined by regional managers and submitted to the NCUA central office
for the annual budget proposal. The OTR methodology accounts for the
costs of the NCUA, not the costs of state regulators. Therefore, there
are no calculations made for state examiner hours.
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\34\ The Exam Flexibility Initiative started with the January 1,
2017 examination cycle and it allows for extended examination cycles
for eligible credit unions. Letters to Credit Unions 16-CU-12,
December 2016.
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There have not been any major changes to the parameters of the
examination program since the current OTR methodology went into
effect.\35\ The minor variations in the OTR since 2018 are the result
of routine, small fluctuations in the variables that affect the OTR,
including normal fluctuations in the workload budget from one calendar
year to the next.
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\35\ On November 16, 2017, the NCUA Board adopted a new
methodology for calculating the OTR starting with the 2018 OTR. 82
FR 55644, November 22, 2017.
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The NCUA Board approved the current methodology for calculating the
OTR at its November 2017 open meeting.\36\ In 2020, the Board published
\37\ in the Federal Register a request for comment regarding the OTR
methodology, but did not propose any changes to the current
methodology. The OTR is designed to cover the NCUA's costs of examining
and supervising the risk to the Share Insurance Fund posed by all
federally insured credit unions, as well as the costs of administering
the fund. The OTR represents the percentage of the agency's operating
budget paid for by a transfer from the Share Insurance Fund. Federally
insured credit unions are not billed for and do not have to remit the
OTR amount; instead, it is transferred directly to the Operating Fund
from the Share Insurance Fund. This transfer, therefore, represents a
cost to all federally insured credit unions.
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\36\ 82 FR 55644 (Nov. 22, 2017).
\37\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate.
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The OTR formula uses the following underlying principles to
allocate agency operating costs:
1. Time spent examining and supervising federal credit unions is
allocated as 50 percent insurance related.\38\
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\38\ The 50 percent allocation mathematically emulates an
examination and supervision program design where the NCUA would
alternate examinations, and/or conduct joint examinations, between
its insurance function and its prudential regulator function if they
were separate units within the NCUA. It reflects an equal sharing of
supervisory responsibilities between the NCUA's dual roles as
charterer/prudential regulator and insurer given both roles have a
vested interest in the safety and soundness of federal credit
unions. It is consistent with the alternating examinations the FDIC
and state regulators conduct for insured state-chartered banks as
mandated by Congress. Further, it reflects that the NCUA is
responsible for managing risk to the Share Insurance Fund and
therefore should not rely solely on examinations and supervision
conducted by the prudential regulator.
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2. All time and costs the NCUA spends supervising or evaluating the
risks posed by federally insured, state-chartered credit unions or
other entities that the NCUA does not charter or regulate (for example,
third-party vendors and CUSOs) are allocated as 100 percent insurance
related.\39\
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\39\ The NCUA does not charter state-chartered credit unions nor
serve as their prudential regulator. The NCUA's role with respect to
federally insured state-chartered credit unions is as insurer.
Therefore, all examination and supervision work and other agency
costs attributable to insured state-chartered credit unions is
allocated as 100 percent insurance related.
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3. Time and costs related to the NCUA's role as charterer and
enforcer of consumer protection and other non-insurance based laws
governing the operation of credit unions (like field of membership
requirements) are allocated as 0 percent insurance related.\40\
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\40\ As the federal agency with the responsibility to charter
federal credit unions and enforce non-insurance related laws
governing how credit unions operate in the marketplace, the NCUA
resources allocated to these functions are properly assigned to its
role as charterer/prudential regulator.
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4. Time and costs related to the NCUA's role in administering
federal share insurance and the Share Insurance
[[Page 74121]]
Fund are allocated as 100 percent insurance related.\41\
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\41\ The NCUA conducts liquidations of credit unions, insured
share payouts, and other resolution activities in its role as
insurer. Also, activities related to share insurance, such as
answering consumer inquiries about insurance coverage, are a
function of the NCUA's role as insurer.
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These four principles are applied to the activities and costs of
the agency to determine the portion of the agency's budget that is
funded by the Share Insurance Fund. Based on the Board-approved
methodology, the OTR for 2021 is one percentage point higher than 2020,
and estimated to be 62.3 percent. Thus, 62.3 percent of the total
Operating Budget is estimated to be paid out of the Share Insurance
Fund. The remaining 37.7 percent of the Operating Budget is estimated
be paid for by Operating Fees collected from federal credit unions. The
explicit and implicit distribution of total Operating Budget costs for
federal credit unions and federally insured, state-chartered credit
unions is outlined in the table below:
[GRAPHIC] [TIFF OMITTED] TN19NO20.034
Concurrent with its request for comment regarding the OTR
methodology, the Board also published proposed changes to the
methodology used to compute the NCUA's Operating Fee \42\. Included as
part of the proposed changes, the Board proposed applying the OTR to
the NCUA's Capital Budget in the same manner as it applies the OTR to
the Operating Budget. The Board is reviewing public comments received
about this proposal before making a final decision about the
applicability of the OTR to the Capital Budget.
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\42\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate
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By applying the four principles in a manner that incorporates all
Operating and Capital Budget activities, the OTR for 2021 is estimated
to be 62.3 percent, the same result as applying the four principles to
the Operating Budget alone.
To determine the funds transferred from the Share Insurance Fund to
the Operating Fund, the OTR is applied to actual expenses incurred each
month. Therefore, the rate calculated by the OTR formula is multiplied
by each month's actual operating expenditures and the product of that
calculation is transferred from the Share Insurance Fund to the
Operating Fund. This monthly reconciliation to actual operating
expenditures captures the variance between actual and budgeted amounts,
so when the NCUA's expenditures are less than budgeted, the amount
charged to the Share Insurance Fund is also less--and those lower
expenditures benefit both federally chartered and state chartered
credit unions.
The use of insured shares in calculating the OTR was eliminated
from the OTR methodology adopted by the Board in 2017. However, insured
shares are used for informational purposes to reflect the fundamental
economics with respect to how the implicit costs of the OTR are borne
by federal and state-chartered credit unions. Use of insured shares is
consistent with the mutual nature of the Share Insurance Fund and part
of the statutory scheme related to Share Insurance Fund deposits,
premiums and dividends.\43\ The number, size, and health of federal and
state credit unions affects the NCUA's workload budget, which in turn
is one of the variables in the OTR methodology.
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\43\ 12 U.S.C. 1782(c)(2) and (3).
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The primary driver of the increase in the estimated 2021 OTR is the
increase in examination and supervision time for federally insured
state-chartered credit unions. Calendar year 2021 marks the end of the
first, five-year cycle associated with the Exam Flexibility Initiative
that extended the NCUA exam time for eligible institutions. The
increase in budgeted time for FISCU examination and supervision for
2021 is due to program obligations associated with examination
scheduling and scope requirements. Normal fluctuations in the workload
budget from one calendar year to the next are also variables that tend
to influence the change in the calculated OTR compared to previous
years. Workload budget variables include, but are not limited to,
changes in CAMEL ratings, the number and size of credit unions that
meet the annual exam and extended exam eligibility criteria, credit
unions with emerging risk indicators, variations in individual state
regulator programs, and fluctuations in the timing of examinations
related to a particular calendar year.
CUSOs are at times subject to review during the examination of a
federally insured credit union. The OTR methodology captures CUSO-
related time within the scope of the examination and supervision of
federally insured credit unions under Principle 1 for federal credit
unions and Principle 2 for federally insured state-chartered credit
unions.
The time designated for separate, stand-alone reviews of CUSOs and
third-party vendors is accounted for separately in the NCUA's workload
budget and is covered by Principle 2 only. The Board has no direct
regulatory authority with respect to CUSOs and there is no support to
allocate time specifically designated for CUSO and third-party vendor
reviews as anything other than the NCUA's role as insurer. The stand-
alone review of CUSOs and third-party vendors is to identify and
address risk to federally insured credit unions. These reviews are not
intended to identify whether credit unions are complying with the
lending and investment limitations with CUSOs. That is determined as
part of the examination of the credit union.
The following chart illustrates the share of the Operating Budget
paid by federal credit unions (FCUs, 69%) and federally insured, state-
chartered credit unions (FISCUs, 31%).
[[Page 74122]]
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Operating Fee
The Board delegated authority to the Chief Financial Officer to
administer the methodology approved by the Board for calculating the
Operating Fee, and to set the fee schedule as calculated per the
approved methodology. In 2020, the Board published \44\ in the Federal
Register several proposed changes to the Operating Fee methodology, and
requested public comments about those changes. This section illustrates
how the Operating Fee is calculated using the current, Board-approved
Operating Fee methodology and also shows how the Operating Fee would be
calculated if the Board adopts all of the changes it has proposed to
the methodology.
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\44\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate.
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Current Board-Approved Methodology
Based on the estimated 2021 OTR and the current methodology for
computing the Operating Fee, the share of the 2021 budget funded by the
Operating Fee is $136.8 million. This equates to 0.0149 percent of
projected federal credit union assets for December 2020. The overall
decrease for the Operating Fee is estimated at 17.7 percent below the
2020 level under the current methodology, as shown on the table on page
64.
The Operating Fee is assessed on federal credit unions based on
projected year-end assets under the current methodology. Credit unions
with assets less than $1 million are not assessed an Operating Fee. To
set the assessment scale for 2021, federal credit union asset growth is
projected through December 31, 2020. Based on the June 30, 2020 Call
Report data, annual growth is projected to be 14.3 percent at year end.
The asset level dividing points would be increased by this same
projected growth rate. Under the current methodology, assets are
indexed annually by the projected annual growth in total federal credit
union assets, which preserves the same relative relationship of the
scale to the applicable asset base.
Proposed Changes to Operating Fee Methodology
In 2020, the NCUA Board proposed changes to the methodology it uses
to determine how it apportions the Operating Fees and requested public
comment about the changes. Specifically, the Board proposed: (1)
Clarifying the treatment of capital project budgets when calculating
the operating fees; (2) clarifying the treatment of miscellaneous
revenues when calculating the operating fees; and (3) modifying the
approach for calculating the annual inflationary adjustments to the
thresholds for the operating fee rate tiers.
In a separate notice,\45\ the Board also proposed amending its rule
for determining total assets used as the basis for calculating the
Operating Fee by (1) excluding Paycheck Protection Program (PPP) loans
from the computation of a credit union's total assets and (2) using the
average of the four quarters' call report data available at the time
the Board approves the annual budget to compute total assets instead of
using the projected fourth quarter total assets.
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\45\ https://www.federalregister.gov/documents/2020/08/31/2020-16981/fees-paid-by-federal-credit-unions.
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Based on the proposed changes to the Operating Fee methodology and
the proposed changes for determining credit unions' total assets, the
share of the 2021 budget funded by the Operating Fee would be $125.3
million. This equates to 0.0147 percent of the estimated average of
federal credit union assets for the quarters ending on September 30,
2020. The overall decrease for the Operating Fee would be 19.4 percent
less than 2020, as shown on the table on page 64. The Board is
reviewing comments from the public about the proposals, as well as
responses to questions the Board asked of the public about the
Operating Fee rate scale, and may revise the Operating Fee rule,
methodology, or rate scale based on these comments.
Under the proposed changes to the determination of total assets,
the Operating Fee would be assessed on federal credit unions based on
the average of total assets reported in the fourth quarter 2019 and the
first three quarters of 2020, net of any reported PPP loans. Credit
unions with assets less than $1 million would not be assessed an
Operating Fee.
To set the assessment scale for 2021, total growth in federal
credit union assets would be calculated as the change between the
average of the four most-current quarters (i.e., the fourth quarter of
2019 and the first three quarters of 2020 in the case of the 2021
budget) and the previous four quarters (i.e., the fourth quarter of
2018 and the first three quarters of 2019), which is estimated to
[[Page 74123]]
be 11.9 percent.\46\ Under the proposed methodology, asset level
dividing points would be increased by this same growth rate in order to
preserve the same relative relationship of the scale to the applicable
asset base.
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\46\ Total assets are determined using the most-current call
report data, however 2020 third-quarter data were not available at
time of publication. The NCUA estimate for 2020 third-quarter assets
is based on projected growth, and will be revised with actual call
report data once available.
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BILLING CODE 7535-01-P
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Operating Fee Scale
To illustrate the rate for each asset tier for which Operating Fees
are charged, the tables below show the effect of the average 17.7
percent decrease in the Operating Fee for natural person federal credit
unions under the current Board-approved methodology and the 19.4
percent decrease in the Operating Fee for natural person credit unions
under the proposed changes to the methodology. The corporate federal
credit union rate scale remains unchanged from prior years.
[[Page 74124]]
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IX. Appendix A: Supplemental Budget Information
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X. Appendix B: Capital Projects
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[FR Doc. 2020-25546 Filed 11-18-20; 8:45 am]
BILLING CODE 7535-01-C