NCUA BoardMember J. Mark McWatters read the following prepared remarks duringthe agency's November board meeting. McWatters voted no on the 2015operating budget and overhead transfer rate, and called for thereinstatement of NCUA budget hearings, which were discontinued in2010.

Statement by J. Mark McWatters

NCUA Board Member

As the newest member of the NCUA board I have learned muchregarding the budgetary process over the past few months. I amdismayed by the increase in the 2015 Budget, the historic climb inthe overhead transfer rate over the past several years, and certainaspects of the budgetary process employed by NCUA. As a board, weshould remain mindful that we are spending other peoples' money –that is, the scarce resources of federal and state chartered creditunions and their members. Any allocation of these funds shouldfollow only after thoughtful reflection as to the necessity of theexpenditures and whether the costs have been undertaken in the mostefficient, effective, transparent and fully accountable manner.

The board's job, in my view, is not merely to follow the scriptset by other financial regulators, but to lead and to set thestandard of transparency and accountability for all suchregulators. Over the past several weeks I have argued for enhancedbudgetary transparency and welcome the additional disclosure notedin the Board Action Memorandum and on the NCUA website. That said,the board should further enhance the transparency of the budgetaryprocess and NCUA's operations by disclosing or undertaking each ofthe following:

1. Additional detail regarding each of the followingexpenditures: Employee Pay and Benefits, Travel,Rent/Communications/Utilities, Administrative, and ContractedServices;

2. A detailed analysis of how the NCUA may reduce theexpenditures noted in item 1 above;

3. The submission of the methodology employed by the NCUA incalculating the OTR for public comment, and a detailed descriptionof the methodology adopted by the NCUA following a thoughtfulanalysis of the comments received;

4. A detailed analysis of expenditures among the NCUA, theNational Credit Union Share Insurance Fund, the Temporary CorporateCredit Union Stabilization Fund, and the Central LiquidityFacility;

5. A detailed analysis of why the NCUA's budget has increased byover 50% in the past five years, as well as a year-by-year analysisof all such increases;

6. A detailed analysis of all cost savings programs implementedby NCUA over the past five years;

7. A detailed analysis of all expenditures incurred by the NCUAto support the Financial Stability Oversight Council;

8. A detailed analysis of all expenditures incurred by the NCUAin implementing the Sensitive Compartmented InformationFacility;

9. A detailed analysis of all expenditures that the NCUAanticipates to incur with respect to the proposed risk based networth rule, as well as all other proposed rules;

10. A formal cost-benefit analysis with respect to each rule orregulation proposed by the NCUA, as well as a detailed descriptionof the methodology employed by the NCUA in conducting suchanalysis; and

11. A detailed reconciliation of how the NCUA plans to allocatebudget expenditures to achieve its strategic goals.

Next year, I strongly encourage the board to deliver theproposed budget and calculation of the proposed OTR to the creditunion community and general public at least two weeks prior to aformal budget hearing. At that hearing NCUA staff should formallypresent the proposed budget and OTR to the public in a detailed,understandable and transparent manner supported by written analysisposted on the NCUA website. The agency should afford the public theopportunity to submit written comments regarding the proposedbudget and OTR and to make presentations to the board in an openmeeting. The board should not formally act on the proposed budgetor OTR until it has reflected upon and given due consideration tothe comments. This approach, while somewhat cumbersome, willmaterially enhance the transparency and inclusiveness of thebudgetary process.

I also have two specific observations regarding the budget andthe budgetary process that I wish to highlight.

First, the NCUA appears overly concerned withhead count or, in government-speak, with increasing the number ofFTEs. This is myopic. If the NCUA truly needs to retain theservices of additional professional staff so as to discharge itsmandate in a competent manner, the agency should do so withoutneedless hand wringing. The NCUA, however, should clearlyarticulate to the credit union community – to those who pay thebills – why current staffing needs are inadequate, why additionalexpertise is truly needed as opposed to merely desirable, the mostefficient and effective approach to obtaining the necessaryprofessional competence, and the full-cost of retaining therequired employees and independent contractors. The NCUA shouldmake every effort to minimize these costs, as well as the costsassociated with all employees and contractors, and should vet allretention decisions in a transparent and fully accountablemanner.

Second, some commentators have argued that the NCUA should notinvest credit union funded resources in seemingly non-corefunctions such as the Office of Small Credit Union Initiatives, asassisted by the Office of the Chief Economist, and the Office ofConsumer Protection. To me, assisting the underserved in obtainingfinancial services at an affordable price is an absolutely criticalmission of the credit union community. Given the overarchingsignificance of the mandate to serve credit union members of modestmeans, I welcome and support NCUA's work in this area.

In anticipation of the next budgetary cycle, I invite interestedparties to communicate their issues and concerns directly to myoffice. I particularly welcome specific, concrete observationsregarding the budget and the budgetary process as opposed togeneral, vague comments that often offer little in the way ofmeaningful guidance. For example, and certainly without limitation,I welcome your specific, detailed comments regarding the agenda andmechanics of a public hearing on the budget, the overalltransparency of the budget and budgetary process, and themethodology employed in calculating the OTR. I very much appreciateyour assistance in this endeavor.

Having expressed my views regarding the 2015 budget, I cannot ingood conscience vote to approve the budget.

I also will find it challenging to vote in favor of another NCUAbudget unless the transparency of the budget and the budgetaryprocess is materially enhanced and the credit union community andgeneral public are afforded sufficient opportunity to comment onthe proposed budget and the OTR prior to action by the board.

Thank you.