Trade associations are hopeful the NCUA will reduceits 2013 operating budget during its monthly board meeting July 25.While the board's open meeting agenda has not yet been released,historically the federal regulator makes mid-year adjustments tothe operating budget and announces the annual corporate assessmentrate in July.

Representatives from both CUNA and NAFCU noted that in the pastthree years, the NCUA has reduced the operating budget during themid-year review. Given the improvement in the economy and on creditunion financial reports, and what both groups said was an unjustified2013 budget increase, a reduction is warranted, they said.

In November, the NCUA Board approved a $251.4 million budget forfiscal year 2013, which represented a 6.1% jump from the 2012 budget. However, that amount included ahefty 7.5% increase in pay and benefits, which hinged uponPresident Barack Obama approving an increase in the generalschedule pay scale. Obama did include a pay increase in his 2013budget, but it was only 0.5%.

That would make the agency's 7.5% increase inconsistent withother federal agencies, said NAFCU SeniorRegulatory Affairs Counsel Tessema Tefferi. Incomparison, Tefferi said, FDIC decreased its 2013 budget by18%.

CUNA Senior Vice President and Deputy General Counsel Mary Dunnechoed that observation, saying the 2013 budget increase was out ofline with banking agencies.

And further, said NAFCU Chief Economist David Carrier, when therate of inflation is just 2%, a 7.5% pay increase is hard tojustify, even following a two-year pay freeze.

Carrier also stressed that improving financials don't justifyincreased staffing costs. According to the NCUA's National CreditUnion Share Insurance Fund financial reports, as of Dec. 31, 2012.there were 369 CAMEL 4 and 5 credit unions, a reduction from 2011'syear-end figure of 409. The amount of insured shares thoseinstitutions represent has been more dramatically reduced. As of2012 year end, CAMEL 4 and 5 institutions represented $16.0 billionworth of insured shares, or about 2.02% of total insured shares.That's down significantly from 2011's year-end figure of $26.3billion.

And, there were 170 fewer credit unions coded CAMEL 3 as ofDecember 2012 compared to the year prior, representing a $20.6billion decrease in insured shared. “At a timewhen the number and assets of CAMEL 4 and 5 credit unions aredeclining so dramatically, it's hard to accept a 7% increase inNCUA's budget for staffing,” Carrier said. “We hope that the budgetrevision will reflect a more realistic assessment of actualcosts.”

Dunn said second guessing additional costs for safety andsoundness when credit union system performance has improved is alegitimate policy question.

The NCUA's proposed derivatives rule includes cost estimates that could run as high as $16 million during thefirst three years. That estimate includes between $3.8 and $6.5million to hire contract employees to create the program, processapplications and assist with supervision, and an additional $1.8million to $3.6 million to hire six to 12 new full-time equivalentin-house supervisory employees. The additional staffing costs wouldcome in 2014, according to the proposed rule.

Dunn said CUNA will strongly oppose the agency's estimated costsand proposed fee structure that would require credit unions to payfor the increased authority in its comment letter. She said thetrade, which is working on its own cost estimate for derivativessupervision, would be more willing to support more realistic coststhat aren't based upon a worst case scenario. “The NCUA hasn'tprovided enough information so credit unions can be sure that'swhat it costs,” she said. “I think even NCUA has said they're noteven sure this will be cost at the end of the day, so let's not setup a fee structure based upon estimates.”

She said based upon CUNA's own estimates, the NCUA couldpotentially manage the program within the bounds of current budgetprovisions. She stressed that CUNA appreciates that the NCUA “didthe right thing by going forward with the derivativesproposal.”