WASHINGTON-During remarks at NCUA's Fifth Annual Budget Briefingand Public Forum, credit union representatives breathed a sigh ofrelief when NCUA Executive Director Len Skiles announced that theagency was not expecting to assess an insurance premium for 2006.After Hurricanes Rita and Katrina hit, there was a concern thatlosses could lead to a premium but the situation has not reachedthose proportions at this time. “We would have to go through $200million before we hit the 1.25% in equity ratio,” Skiles explained.That is the point where the NCUA Board could consider assessing aninsurance premium; a premium must be assessed at 1.2%. “We do notexpect that to happen,” he concluded. He added that the agencycould reexamine the premium option if necessary in 2006. CUNArepresentative Paul Parish, CEO of Wings Financial Federal CreditUnion, said he was pleased that no premiums would be necessary.However, he urged NCUA, “We would encourage that in the event thatshould come up, if there is a need for an extra premium, CUNA wouldlike to say do your best to communicate that ahead of time and letcredit unions know why it's taking place.” NAFCU President and CEOFred Becker, who presented for the trade group, noted that it is apositive that insurance premiums are likely not necessary “but it'swhat the fact that you don't think you'll need the insurancepremium means.” He followed up after the briefing, “It really showshow the system works together.” This cooperation among creditunions to aid those in dire straits is exactly why the largercredit unions should not be taxed because they are the ones helpingout the smaller ones and if larger credit unions go away, so wouldthat synergy, Becker pointed out. Particularly in light of themassive hurricanes, the credit union trades were glad to see NCUAkeep a handle on its budget. Skiles announced that NCUA's 2006budget rose about $2.8 million, or 1.92%, to $150.8 million for2006 over 2005. In 2006, NCUA will hold its regional conferences,which traditionally boost the agency's budget in even-numberedyears. “Once again, this proposed budget represents the continuedwise use of the agency's resources,” NCUA Chairman JoAnn Johnsonsaid. “This proposal reflects our strong commitment to maintaininga fiscally responsible budget for achieving the NCUA's mission,while also making certain that America's credit union system hasthe regulatory resources necessary in ensuring safety andsoundness.” Skiles credited NCUA employees with keeping a leash onthe budget. “We have, probably most importantly, pushedaccountability of the budget process down to the lowest levelspossible,” he said. He noted that President George W. Bush recentlyheld a meeting with top level appointees, including Johnson and shereported back that he said, “It's not your money; it's the people'smoney,” which is the way the agency tries to view the process. “Wehave to have a budget that allows us to meet our missionobjectives, but, at the same time, also needs to meet contingenciesthat invariably come up,” Skiles stated. He added that he wouldlike to keep the difference between NCUA's actual spending and thebudget to less than 5%. Right now, Skiles said it is about 5.2% butby the end of the year, it should reach 2.8%. By comparison, hesaid, for 2004 the variance was 10.9%, which was when the agencyactually returned $9 million in operating fees to the federalcredit unions. As is typical, pay and benefits accounted for 74.5%of the agency's budget; add travel in and that becomes 83.7%,according to NCUA's figures. The agency did trim approximatelythree full-time equivalents-none of which were from the fieldstaff-to bring staffing to 957.92 FTEs. NCUA has had a problem withvacancies the last few years and despite hiring 85 new employees,it still has a net shortfall of 42 FTEs, 13.5 of which are in thefield. These open FTEs have led to a portion of NCUA's budgetarysavings. The executive director also emphasized that 61, or about7%, of NCUA staff will be eligible to retire in 2006, whichratchets up the importance of filling vacancies. The decline in thenumber of federally insured credit unions has brought a drop inagency staffing since 2000 (See chart below). But simply comparingthe number of credit unions to the number of examiners does notprovide a complete picture, Skiles indicated. Even though NCUA willsave about 12,000 examiner hours due to consolidation, newrequirements under the Bank Secrecy Act and Home MortgageDisclosure Act add more than 17,000 examiner hours for a net ofplus 5,300 hours, equal to four FTEs. Skiles went further to notethat he would like examiners to spend a minimum of 50% of theirtime actually in their examination and supervision duties. Betweenthe pure examination and supervision (50%) and the small creditunion program (2%), NCUA is meeting that goal. CUNA AssociateGeneral Counsel Mary Dunn applauded the agency for its budgetforum, noting it is the only federal financial institutionsregulatory body to do so. She said CUNA appreciated NCUA's efforts“to hold costs down, while at the same time provide sufficientresources.” In the future, she said CUNA feels it is important forNCUA to tie its budget into its strategic plan. Bill Hampel, CUNA'schief economist, added that he was hopeful that the agency might inthe future provide those wanting to testify with preliminary budgetfigures prior to the forum so commentary could be more specific. Heexplained that he was not looking for details, but only “top levelnumbers.” Becker was pleased with the direction of the briefing. Henoted Skiles' references to actual-to-actual expenditures duringhis presentation rather than budget-to-budget or budget-to-actualand his intention to maintain a 5% variance between the budget andspending. “He's paying more attention.” Becker commented. “It ismoney from federal credit unions in the end.” He stated in hiscomments to the sole NCUA Board member that federal credit unionsfund 74% of NCUA's budget. The overhead transfer rate, which hastypically been the highlight of the meeting as it indirectlyrelates to NCUA's budget, caused less of a scene this year. NASCUSusually dives directly into the issue of the OTR rate settingprocess, but demonstrated a `kinder, gentler' approach this timearound. The theme for NASCUS' presentation was cooperation andChair Linda Jekel, director of credit unions for Washington Statenoted how the state and federal regulators worked in concert on thefailed Columbia Credit Union conversion. The testimony was pepperedwith references to the “synergy.when the state regulator and NCUAwork in consultation and cooperation.” About a third of NASCUStestimony talked around the OTR, funds transferred from theNational Credit Union Share Insurance Fund to pay for the agency'sinsurance-related expenses. Jekel noted that NCUA's inspectorgeneral performed a review on the risk of state chartered creditunions on the NCUSIF. In it, she pointed out that the report said,“Since the state supervisory authority is the regulator ofstate-chartered credit unions, and the NCUA is the insurer, itwould appear reasonable that in most cases the state supervisoryauthority would spend more time than the insurer infederally-insured, state-chartered credit unions.” Additionally,NASCUS continued in that vein, NCUA would spend more time as theregulator of federally-chartered credit unions than as NCUA, theinsurer of federal credit unions. “Using this logic, we believe thecalculation of how the agency accounts for its regulatory andinsurance roles should reflect less time spent by the insurer ofstate-chartered credit unions, since the majority of time is spentby the state regulator in its regulatory role,” Jekel continued.“This is our observation: there are still concerns among stateregulators and state-chartered credit unions about the definitionof what NCUA deems insurance-related and what is safety andsoundness-related when allocating examination expenses.” However,there was not one direct reference to the OTR in the entirecommentary. Jekel finished up by suggesting NASCUS and NCUA furtherupdate and sign a new Document of Cooperation. “It is importantthat we continue to respect each other.it opens the door tolearning from each other,” she said. Skiles said NCUA estimates theOTR will be set at 56.7%, down from 57% in 2005. On the flip sideof the charter coin, federal credit unions' operating fees willdecline slightly, probably less than 1%, he [email protected]

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