December 03, 2020

Long to NCUA: Budget increases not necessary to adapt, innovate

Curt LongDuring yesterday's NCUA Board 2021-2022 budget briefing, NAFCU Chief Economist and Vice President of Research Curt Long thanked the board for its budget transparency and stakeholder engagement, and encouraged the agency to "continue to find ways of adapting to the changing environment and transitioning to new supervision and examination methods that do not result in significant year-over-year budget increases."

Long noted that while the agency's 2021 budget is a 0.1 percent decrease from its 2020 approved budget – due to travel-related savings amid the coronavirus pandemic – the 2022 estimated operating budget would be an 8.3 percent increase from the 2021 budget should it be approved as proposed.

Among Long's recommendations to achieve budget reductions is continuing to pursue exam modernization efforts and find cost-saving opportunities in the transition to primarily virtual exams. With the travel-related savings in 2020, Long argued that those funds should not be automatically allocated for travel costs next year.

"The COVID-19 pandemic has required the agency to conduct virtual exams and begin gathering more information for the transition to primarily virtual exams within the next five to ten years," Long said. "Considering the cost savings from 2020 due to reduced travel expenses, the NCUA should quickly pivot to more virtual exams going forward, and incorporate lessons learned to achieve reductions by cutting unnecessary travel and other expenses…[T]his is an opportunity to determine how much travel is ideal for examiners and credit unions, reduce costs by cutting travel expenses across the board, and transition to more offsite, virtual examinations as the infrastructure has already been set up because of the COVID-19 pandemic.

"Examiners and the agency overall have seen that much of the day-to-day work can be achieved remotely and should be moving forward, as many industries rely on more and more remote workers. Although NAFCU’s members support continued in-person interaction with examiners during the exam process instead of a fully virtual exam posture, some efficiencies can be achieved with respect to the amount of travel required for examiners," Long added.

Long advised the NCUA to conduct a cost-benefit analysis for each new full-time equivalents and for each new program and initiative to keep the budget in check. He also flagged the increase in expenses for contracted services, noting that "this portion of the operating budget continues to see one of the largest percentage increases in 2021, totaling $47.8 million or a 10.3 percent increase compared to 2020."

"Although NAFCU strongly supports the agency’s efforts to modernize its examination and supervision solution by transitioning to the Modern Examination Risk Identification Tool (MERIT), this goes beyond the projected 9.3 percent increase in contracted services expenses for MERIT outlined in the 2020 and 2021 Budget Justification," Long said. "Incremental increases like this, although relatively minor on their own, compound an already growing annual budget."

Long outlined several other recommendations for the NCUA to improve the efficiency of its budget during his testimony, including by:

  • preserving the strength of the National Credit Union Share Insurance Fund (NCUSIF) and avoiding unnecessary assessments on credit unions;
  • achieving a reasonable and tailored budget for cybersecurity expenses; and
  • supporting financial inclusion through the NCUA's new Advancing Communities through Credit, Education, Stability and Support (ACCESS) Initiative, with a focus on enhancing field of membership (FOM) and other growth opportunities.

After his testimony, NCUA Chairman Rodney Hood asked Long about NAFCU's support of ACCESS. Long said "it points in the direction of expanding credit unions' field of membership authorities" and will allow credit unions to better serve low-income and underserved communities.

Long also reiterated the association's opposition to tying budget increases to the industry's increase in assets in questioning with NCUA Board Member Todd Harper, highlighting the consolidation of the industry and the smaller size of most credit unions compared to banks.

NAFCU is committed to ensuring a strong, independent NCUA as credit unions' sole industry regulator and fostering a strong, collaborative relationship with the agency. The association will continue to advocate for credit unions' best interests.