ALEXANDRIA, Va.- NCUA Executive Director Len Skiles informed attendees of NCUA’s fourth annual budget briefing that the agency should be able to bring its 2005 budget 1.3% below the 2004 figures while maintaining the same staffing level. The various office budget submissions, which the board had not approved at the time of the briefing, indicate a $1,944,000 decrease in the budget, according to Skiles, to approximately $148 million. He also predicted the overhead transfer rate would drop this year, though he declined to provide hard numbers. Additionally, the operating fund fees, paid by federal credit unions, could also come down, Skiles said. “The staff has worked very hard to manage and worked very hard to ensure needs are met, but where expenses can be reduced, we’re very pleased to do so,” NCUA Chairman JoAnn Johnson said at the event. Just last year, NCUA began considering the overhead transfer rate on an annual basis. The transfer is important to the budget because NCUA determines how much “insurance related” work was done for credit unions and uses that to determine how much of the agency’s funding will come from the insurance fund – supported by state and federal credit unions – and how much will be assessed to federal credit unions in fees. During their presentations at the budget briefing, CUNA and NASCUS both advocated a more clear delineation between regulatory and insurance functions at the agency for the purpose of determining the overhead transfer rate. “In our view,” NASCUS Chairman Roger Little stated, “These responsibilities must be appropriately segregated to properly identify the costs associated with each of these discrete functions. This is essential to ensure costs are being allocated appropriately and that federally-insured state-chartered credit unions are not subsidizing the safety and soundness examinations of federally chartered credit unions.” CUNA Examination and Supervision Subcommittee Chair Marla Marsh, president and CEO of the Kansas Credit Union League, asked that NCUA work with the subcommittee and others prior to next year’s budget review “to address the lingering problems credit unions have vocalized about the OTR, which almost always center on the agency’s opaque process for dividing insurance from regulatory costs. However, NAFCU president and CEO Fred Becker stated, “Federal credit unions pay a large percentage of the agency’s budget and I think that gets lost.” According to NAFCU, federal credit unions funded 73% of the agency’s budget through the operating fees and National Credit Union Share Insurance Fund deposits. Comparing actual expenditures each year rather than budgets has been one of NAFCU’s pet peeves and this year was no different. Becker also pointed out that federal credit unions paid 11 cents on the dollar extra in 2003 based on the difference between the budget and actual expenses. Additionally, Skiles announced that the proposed budget would maintain the same staffing level as 2004 at no more than 963 full-time equivalents. “We need to at least have the level we had last year,” NCUA Board Member Debbie Matz said after hearing the presentation. She explained that she felt the examiner resources were necessary for working with small credit unions and slowing their disappearance. Additionally, Matz expressed concerns about credit unions’ concentration in indirect lending. “We need to get our arms around that before we have a problem,” she said. On average, she cited, credit unions have 125% of their net worth in indirect lending as well as 19% of their loan portfolio. Finally, Matz said interest rate risk is of increasing importance and the agency needs sufficient staff to prevent problems and deal with them as they arise. “Credit unions still are holding a lot of long-term fixed-rate mortgages on their assets,” she said. Matz added that she knows of no problems with the agency cutting corners at this point, but added, “Examiners have been working very hard to make up for the lack of resources.” CUNA supported adequate staffing resources for the agency, but Marsh said, “At the same time, ensuring staff levels are not needlessly inflated has a positive impact on the agency, its budget and ultimately on the operating fee federal credit unions pay and also on the overhead transfer rate.” Though NAFCU’s Becker did not raise specifics of the issue during his oral testimony, NAFCU’s written submission went into detail about its feelings on full- time equivalents. “It is the consistent decline in the absolute number of federally insured credit unions, and in particular, federal credit unions, in combination with an outstanding safety and soundness track record that weighs on this board in determining the overall FTE level,” the written testimony read. “We do not discount in any way the increasing size and complexity of credit unions and the risk that size and complexity bring, but we believe that technology along with a rigorous and continuously updated training regiment will continue to provide NCUA with the necessary tools to manage this risk. “Overall, NAFCU believe that a continued decrease in the FTE level-achieved only through attrition-is a necessary result of these dynamics.” Skiles said during his report that NCUA has closed over 251 credit unions so far this year and predicted, “Sometime early next year.we’ll probably drop below 9,000 credit unions.” All three trade associations agreed on one thing. They would like to see some budget details in advance of the briefing in order to make more meaningful comments. Marsh suggested, “Our recommendation is that the agency should provide budget targets and relevant information about any new initiatives that will impact the budget in advance of the public forum so that credit unions and their representatives can provide more informed and insightful comments.” “I believe the Executive Director’s proposed budget once again demonstrates the importance of maintaining wise use of agency resources and providing the necessary resources for an effective and efficient agency,” Chairman Johnson said. “As regulator and insurer, it is vitally important that we have a budget process which is open and transparent for our stakeholders. While the recommended budget reflects our overall commitment to fiscal responsibility and ensuring a safe and sound credit union system, it is necessary for the board to review the recommendations to ensure all program objectives are met.” The NCUA board will consider both the oral comments at the public forum as well as written comments, due Nov. 12, and vote on a final 2005 agency budget at its November 18 board meeting. [email protected]

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