The NCUA announced its budget increase at the last board meetingmuch to the dismay of the industry that supports it financially.While some acknowledged additional spending might be necessary tohandle problem credit unions and the corporates, others weredownright-I'll clean it up-mad.

The day after the board meeting, NAFCU President/CEO Fred Becker sent a letter to the NCUA that“seriously questioned” whether more than $1 million worth ofpaintings, furniture replacement and bathroom upgrades were 100%necessary at a time when credit unions are so badly hurting. Healso pointed out that the NCUA has a higher ratio of examiners toassets than the FDIC, which supervises more complexinstitutions.

The 2011 NCUA budget equals approximately 2.1 basis points. Thatis on top of the anticipated 20-35 basis point assessment for 2011. Credit unions' ROAaccording to the NCUA's own third-quarter statistics was at 45basis points. How can credit unions survive at this rate?

One element that would be helpful is a return to public annualbudget hearings. The agency is always free to do what it wants, butat least with the hearings, industry representatives had a chanceto be speak. Sometimes changes were even made because the board andstaff took into account the public input.

The NCUA was required to give its employees who are part of theNational Treasury Employees Union a 6.1% pay increase. “At a timewhen the country is at war and the soldier who just won the Medalof Honor for risking his life to save his comrades can only lookforward to a 1.9% pay raise, it is outrageous that the NCUA israising salaries at a higher rate,” Becker said.

The NCUA-NTEU is at the end of its three-year lifespan. Perhapsmore appropriate arrangements can be made this time around.Particularly as report after report has been coming out of theNCUA's inspector general criticizing the agency on everything fromWesCorp to computer security to the losses at 10 failed creditunions.

The IG wasn't picking out obscure details either.Recommendations in this last report included improving guidance toexaminers on assigning CAMEL ratings to credit unions thatimplement revised business plans and reemphasizing the examinationguidance for third-party relationships. If the NCUA and stateexaminers had been more aggressive in their oversight of 10 failedcredit unions, losses to the NCUSIF could have been stopped ormitigated, according to the IG's report. Those are credit unions'funds being paid out, too.

Every organization can improve, but this is a lot of majorproblems. By the time you'll be reading this, Chairman Matz will betestifying before Congress on these matters.

What might help the agency with the budget concerns is PresidentObama's proposal last week for a two-year federal governmentemployee pay freeze. TheFIRREA agencies are not typically required to follow regulargovernment pay guidelines, but the NCUA and others may choose topresent a united front with the rest of the government. ChairmanMatz is of the same political party as President Obama and may bewise to curry favor with him. The agency isn't confirming anythinguntil details are released by the Office of Management and Budgetand the Office of Personnel Management.

It also would not hurt agency relations with credit unions totrim a million or two from the budget. I'm not suggesting theagency should do anything simply to improve relations with theindustry it regulates; it just would be a potentially positivebyproduct.

Another big chunk of the NCUA budget is the addition of morethan 70 employees for 2011. Federal credit unions pick up that tabwhether the agency fills all these positions or not. When I askedif the agency had filled all of the more than 70 new positionscreated in the 2010 budget, I did not hear back from theagency.

Meanwhile, the agency has been traversing the country explainingits legacy assets plan to ensure it is understood and how importantthe timing is. Chairman Matz said last week on Credit Union TimesON AIR that so far there hasn't been a run on the corporates, whichhas been a positive.

There's been more than a slow trickle too, judging by the stats.According to statistics from CUNA 7.2% of credit union surplusfunds are in corporates as of September. That's down from 13.9% ayear ago and 19.7% in 2007.

Interestingly at the same time, credit union funds in banks haveincreased from 8.4% in 2007 to 13.4% as of September. Governmentinvestments have benefitted too. But the point is credit unionsneed to balance out whether going outside the system is worthpossibly being shut out later, which was the reason corporatecredit unions were started, WesCorp founder Dick Johnson said atthe California-Nevada Credit Union Leagues annual conference. Goingoutside is certainly an option but maintaining an intra-systemsolution is also a wise idea but the effort must be led by thecredit unions and no one else.

The banks have enough business. Credit unions have touted allthe good work they've done over the last couple of years as thebanks retrenched. There's no denying credit unions have saved theirmembers gobs of money or their cars when they needed refinancingout of a bad loan. You'd think credit unions would be gainingmarket share. Credit unions nonrevolving loan market sharedecreased from 13.0% in September 2009 to 12.4% in September 2010while banks were up from 30.8% to 33.3%.