In recent articles in Credit Union Times and other publications, it seems that some state-chartered, federal-insured credit unions have begun a public campaign to call for an end to, or at least a reduction to a de minimis level of, the Overhead Transfer which helps balance the funding of the National Credit Union Administration (NCUA) between its dual roles as regulator of federal credit unions and insurer of all federally-insured credit unions, both federal and state chartered. Historically, the Overhead Transfer is a sensitive issue. It is the credit union version of an old battle which rears its head from time to time in keeping with the decades-old Washington debate that everyone knows we need a government and wants it to work well, they just always want the other guy to pay for it. Hopefully, in these few paragraphs we can examine this issue a bit more fully and understand its importance to all credit unions. The Overhead Transfer itself is a sometimes misunderstood subject which, because it has budget implications for both the NCUA and the credit unions we regulate and insure, inevitably creates a great deal of heat when its percentage rate (the OTR) is periodically re-evaluated and adjusted. This is understandable – even though the OTR has only been adjusted twice in the 30 year history of the insurance fund. Although long time opponents of the Overhead Transfer will likely never be satisfied until NCUA changes its allocation formula to some alternative method which is certain to have critics of its own, I would like to take this opportunity to try to shed some light, rather than more heat, on this subject by addressing some of the basics of the Overhead Transfer and the OTR. It is my hope to make sure the history and rationale of the OTR are at least understood, regardless of the legitimate differences of opinion on the issue. In 1970 Congress created NCUA as the single, independent Federal agency responsible for chartering, supervising and regulating Federal Credit Unions and for managing the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF provides federal deposit insurance to both state-chartered credit unions and Federal credit unions. A mandate from Congress contained in the Federal Credit Union Act is that NCUA, in carrying out its deposit insurer role, will use the safety and soundness examinations performed by the federal and state examiners to the maximum extent feasible. The NCUA Board is also authorized to employ a separate examination staff for the NCUSIF, and is required to apportion, to the NCUSIF, all expenses it considers necessary to properly manage the NCUSIF. Rather than employing a separate staff for the NCUSIF, including examiners, the Board uses NCUA staff to carry out both functions – FCU supervisor/regulator and NCUSIF manager. This extremely cost-efficient structure benefits all federally-insured credit unions and has saved literally tens of millions of their dollars over the agency’s history. The OTR is simply an allocation of NCUA’s NCUSIF-related costs, based on an in-depth internal analysis that we have historically conducted every three years. Although there necessarily must be some subjectivity, the analysis attempts to measure, as objectively and accurately as possible, the total cost NCUA incurs in managing and overseeing the NCUSIF. This cost allocation has been done since 1970, and, as I mentioned at the outset, it has been a controversial and misunderstood subject since that time. As can be expected, the OTR becomes most controversial when the rate is adjusted for changing circumstances in the regulatory and insurance environment. The recent increase in the OTR reflects the fact that the task of assessing and controlling risk to the NCUSIF has become a much bigger job as credit unions have become larger and serve considerably more members, and their business has become more complex and now entails a far greater assortment of potential risks. Since 19870, the number of insured credit unions has decreased 4256%, but the number of insured credit union members has increased from 40.522.7 million members to 77.6 million members at yearend 2000. In just the past 10 years, NCUSIF insured deposits in credit unions (the NCUSIF’s insurance liability) have increased from $200 billion to $354 billion at yearend 2000. As a result, a much larger portion of NCUA’s resources are now necessarily devoted to the NCUSIF manager role in which all federally-insured credit unions and their members derive economic and public trust benefits. The recent increase in the OTR was approved only after a careful, in-depth analysis. Because the NCUA Board was well aware of the sensitive nature of their action in adjusting this rate for the first time since 1985 , (it increased the rate for 2001 from 50% to 66.72%), for a one-year period only. At the same time, the Board took the unprecedented step of ordering an independent study of the analysis supporting this increase. The highly-respected independent accounting firm Deloitte and Touche has been contracted and is currently performing that study. Although the OTR remains controversial and will likely have its critics as an agency funding source regardless of the outcome of the Deloitte and Touche study, I submit that all affected parties should wait to see the results of that independent study before advocating the dismantling of a regulatory and insurance structure at NCUA which has resulted in the strongest credit union financial position in history, an insurance fund which has never cost the American taxpayers a single penny and an equity level in the NCUSIF which has become a model as it has returned dividends to state and federal chartered credit unions for a record six years in a row. Obviously there is a value to federal credit union insurance. As good men and women debate NCUA’s funding structure, let’s never overlook that value. Nor should we dismantle the foundations upon which it has been built over the past 30 years.

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