NCUA Reduces Budget 1.1% Mid-Year, Matz Cites Potential Staffing Shortage

ALEXANDRIA, Va.-Though NCUA’s 1.1% budget reduction at its mid-year review was touted by NCUA Chairman JoAnn Johnson, NCUA Board Member Debbie Matz expressed concern about the agency’s 35 vacancies. Johnson applauded the net budget reduction of nearly $1.7 million as “very fiscally responsible.” She pointed to $40,000 in savings from implementation of NCUA’s Express mail system, whereby credit unions can sign up to receive letters, risk alerts, and other important documents electronically from NCUA. NCUA Chief Financial Officer Dennis Winans was unsure how many credit unions were taking advantage of the system, but he said the number grows each month. “We’ll continue promoting that because it’s very worthwhile,” the chairman said of her initiative. The agency’s quality of life initiative, which encompasses broadband use for examiners that have it available to them in their area, Winans said, has increased productivity. However, NCUA’s savings mainly came from nearly $2.9 million out of employee pay for positions that have not been filled. Region II alone requested an $80,000 increase to its overtime budget because of an estimated 3,750 hours needed to complete examinations due to current vacancies in the staff. Matz said this is a “systemic problem at NCUA,” noting that the agency is 7,500 examination hours behind nationwide. She said NCUA Executive Director Len Skiles informed her that a 2% deficit, or 19 full-time equivalents, is the maximum the agency really should have; beyond that, it is difficult to catch up. As previously noted, NCUA has 35 vacancies, though Winans noted that seven of those are filled but have not started in the position, and one is for the vacant board seat. He added that the agency had 59 vacancies at this time last year. At the current rate, Matz said, it will take three and a half years to fill the vacancies. While she mentioned the 3,700 hours of overtime, Matz also emphasized NCUA is “paying an untold human cost.” Winans said the agency has put new programs in place to get the positions filled more quickly. The staffing situation is not only a problem for the agency, but also the credit unions it regulates. Matz said it is not surprising that NCUA is seeing a rise in the number of `troubled’ credit unions (those with CAMEL 4 and 5 ratings) and the percentage of insured shares in those credit unions has crept over the 1% mark as Winans showed in his presentation of the quarterly insurance fund report. The NCUSIF report demonstrated a net gain of 26 problem credit unions; 115 fell into the category, while 57 climbed up to CAMEL 3 and the remaining 32 were either merged or liquidated. The NCUA Board also considered a proposed regulation that would permit low-income credit unions to release their secondary capital that no longer counts toward net worth with NCUA approval, which stemmed from the Capital Summit held last year. The proposal also amends the disclosure forms given to investors so they know in no uncertain terms before they make the investment that it is uninsured. Additionally, it requires credit unions to submit their plans for the funds to the regional director, and state supervisor if applicable, for approval. Under the current rule, secondary capital must be discounted 20% each year beginning at five years remaining maturity. Holding onto these funds can cause an otherwise well-capitalized credit union to fall into trouble with Prompt Corrective Action. Approval for redemption hinges on six criteria: * The LICU must be “well capitalized” or approved case-by-case for “adequately capitalized;” * The secondary capital must be on deposit at least two years; * The secondary capital must not be necessary to cover losses prior to final maturity; * The LICU’s recordkeeping is up-to-date and reconciled; * The proposed redemption will not jeopardize other funding, such as matching funds; and * The request to redeem must be approved by the credit union’s board. Finally, the secondary capital disclosure form was amended to clarify that the investor must sign the form as well as date it showing when the investor read and acknowledged the form. It also conforms to the other provision of the proposal by eliminating the statements that the funds cannot be redeemed prior to maturity. The proposal went out with a 60-day comment period. The agency is also looking into lowering the net worth ratio necessary for RegFlex eligibility from 9% to 7%, the required level to be well-capitalized under PCA. The trade off for this is that qualifying credit unions have to have six consecutive quarters at that capital level, rather than just the one at 9%. Chairman Johnson pointed out that 3,457 credit unions are currently eligible for RegFlex and another 462 would be under the change. Matz highlighted that nearly two-thirds of the credit unions that would newly qualify are under $50 million in assets. NAFCU Director of Regulatory Affairs Gwen Baker said she is unsure what the trade association’s stance will be on the extended capital level provision and will be seeking comments from its membership. The proposal also eliminates requirements on NCUA to notify a credit union when it is eligible for RegFlex other than when the credit union has applied because it only meets one of either the net worth minimum or the CAMEL rating minimum and not both to automatically qualify. Though outside the scope of this particular proposal, NCUA asked for public comment on other regulations that deserve RegFlex consideration. CUNA Associate General Counsel Mary Dunn pointed out that certain RegFlex credit unions should be exempt from basic safety and soundness areas of the member business lending regulation, such as the required loan-to-value ratios, because it is already addressed under other regulations. The Riggs Bank Rule Another interesting rule surfaced at the meeting involving examiners working for CUs. Following the appearance of impropriety when an examiner from the Office of the Comptroller of the Currency-who examined the former Riggs Bank-went to work for the institution and it was discovered the examiner had withheld negative information from the agency, Congress quickly passed a law to prevent the dubious circumstances in the future. The banking agencies, including NCUA, are required to issue regulations on post-employment restrictions that apply to certain senior NCUA examiners, beginning Dec. 17 under Public Law 108-458. The proposal would prohibit senior NCUA examiners from working for an institution they examined for two or more months during their last 12 months of employment with NCUA. A senior examiner is one “who has continuing, broad, and lead responsibility for examining a particular federally-insured credit union, routinely interacts with officers or employees of the credit union, and devotes a substantial portion of his or her time to supervising or examining that credit union.” NCUA Staff Attorney Regina Metz said this rule would apply to less than 10 NCUA examiners. The agency also issued a proposal to clarify its rule on when the purchase of assets and assumption of liabilities by federally insured credit unions requires NCUA Board approval. Under the same proposed regulation, NCUA is seeking comment on whether to remove the requirement for federally insured state chartered credit unions to establish reserves under Part 741.3(a)(2) for nonconforming investments, and instead, requiring the nonconforming investments to be investment grade. [email protected]