October 18, 2018

Exam cycles, cost-saving efforts discussed during NCUA budget briefing

Kucey testifying
Jeanne Kucey, NAFCU Board Chair, testifies Wednesday before the NCUA Board on its proposed 2019-2020 budgets.

NAFCU Board of Directors Chair Jeanne Kucey, during testimony yesterday on the NCUA's proposed budgets for 2019 and 2020, reiterated NAFCU's recommendation of expanding eligibility for an extended 18-month exam cycle for all well-run, low risk credit unions "to reduce burdens and achieve additional savings."

"Expanding eligibility for extended exams could materially decrease the agency's operating budget," Kucey said. "It must also be noted that Congress recently expanded extended exam cycles to more banks above $1 billion as part of S. 2155. The NCUA should follow suit and take action to do so for credit unions as well."

NCUA Chairman J. Mark McWatters, following witness testimony, said the NCUA is looking at the extended exam cycles issue and might consider a hybrid approach to what was approved for banks in S. 2155.

Kucey, McWatters
Kucey talks with NCUA Chairman J. Mark McWatters after the budget briefing.

Kucey, president and CEO of JetStream Federal Credit Union (Miami Lakes, Fla.), thanked the NCUA for its transparency during the budget process. However, Kucey noted that the $304.3 million proposed operating budget for 2019 represents a 71 percent increase in the NCUA's budget over a decade – even as the industry has seen a 25 percent reduction of credit unions during the same period – and offered ways to save money.

"The industry needs a strong NCUA, so I am not suggesting the budget be arbitrarily slashed," Kucey said. "What I am suggesting, though, is that there be an ongoing, agency-wide commitment to eliminating duplicity and creating an efficient budget that can be maintained long-term without relying on annual increases."

Some of Kucey's cost-saving recommendations included:

  • Returning the National Credit Union Share Insurance Fund's (NCUSIF) normal operating level (NOL) to 1.3 percent as soon as possible. Kucey said the 2018 refunds "was a good first step," but said returning the NOL to its historic level "will allow [credit unions] to put those dollars to work, helping our members."
  • Reconsidering the NCUA's conservative approach to supervision, saying that "the NCUA cannot realistically eliminate all risks as credit unions accumulate more assets. Accordingly, NAFCU urges the NCUA to moderate supervision based on objective indicators."
  • Better coordinating resources and expertise with other regulators, including state supervisory authorities, as it continues to work on its reorganization plan and examination modernization initiatives. She also expressed support for the NCUA's investment in technology to help reduce exam burdens and identify at-risk credit unions.

  • Reconsidering the agency's request for third-party vendor authority. Kucey warned that such authority "may significantly derail the goal of minimizing budget increases." NAFCU supports strong cybersecurity protections, but has opposed granting NCUA such authority, arguing that granting such authority is unnecessary, costly and would not necessarily result in better supervision of credit unions.

  • Seeking ways to reduce expenses related to contracted services, which saw the largest increase from the 2018 budget to the 2019 proposed budget.

The NCUA Board will finalize the proposed budget later this year. The board meets today on other issues; see what's on the agenda here.