Reasons for the increase NCUA cited include the following:

- 3.5% salary increases for staff;

- 13% increase in travel, primarily due to higher travel costs and field staff spending more time with credit unions; and

- An increase in staff by seven to address emerging risk issues.

People need to get raises in today's economic climate, so I can't argue with the merit increases. I am always for paying people what they deserve. Yes, NCUA pays better than most agencies, but if you're getting what you pay for, it's hard to argue. Hopefully credit unions are getting that.

The increase in travel to me is a good, good sign. There is no question in my mind that we haven't seen the end of the mortgage and subprime problems. The Norlarco CU story has been ugly. If more time in credit unions is going to help NCUA examiners stop a credit union from getting involved in speculative real estate loans a thousand miles away in another state, I am all for it. That story has affected all credit unions publicly and depending on what's done with the bad loans it could even lead to an assessment from the NCUSIF.

A seven-employee increase to me is not even material, but the industry needs to hold the agency accountable for its reasons. I think the agency should be doing more to make credit unions' compliance lives easier. I am amazed by how many credit unions don't understand what it takes to comply with BSA. That's NCUA's fault, no one else's. It is NCUA's job to ensure credit unions know their role with BSA. Must credit unions have automated systems to really comply with BSA? Are you better to over-SAR, then under-SAR? Should credit unions be doing their own police work with BSA? These are all things we still hear credit unions questioning. Does NCUA need more staff, or better-trained examiners to deal with BSA and mortgage issues?

On the mortgage issue, most credit unions aren't going down the dangerous, speculative roads that Norlarco did. We're talking about an industry where 3,700 of the 8,500 credit unions are under $10 million in assets and another 3,400 have less than $100 million! So while I think NCUA clearly needs to have examiners with very high mortgage IQs, I think the trade associations should keep a close eye on the agency expanding staff year over year, also considering the decline in the number of credit unions. By the way on Norlarco, to me that story doubly hurts because of the participation angle. Credit unions who weren't on the ground floor of Norlarco's loans, were still hurt by participating in them. What does that say about examiners keeping an eye on participation, often viewed as a key tool to help credit unions fill a gap in their ALM plan or stay below a cap.

- Overhead Transfer Rate declining from 53.3% to 52.3%. Why would I bring this seemingly benign stat into focus? Those of us who aren't newcomers to credit unions remember the intense scrutiny that has been put on the OTR. Once almost an obscure thing to credit unions, it came into focus when credit unions, especially state charters, began to question how the rate is calculated. OTR scrutiny was at its height in 2001 and 2002 when the OTR was 66% and 62% respectively. In many ways, calculation of the OTR is still a mystery. The OTR is supposed to reflect how much work is done with insurance-related items, not general regulatory work. Or rather, when compliance work is outpacing insurance-related work, the OTR should go down and the operating fee should go up.

The decrease in the OTR is minimal, so not much to say, but NCUA did make a point of noting the potential for the OTR to increase in 2009 due to more insurance-related work. NCUA is letting the industry know that there will be more focus on insurance work this year that might lead to an increase. It cites MBL, mortgage lending, third party relationship due diligence, interest rate risk issues, and geographic concentrations of emerging risks. Hmmm, this is insurance-related? I guess so, but isn't this compliance work as well? I still do not think NCUA has delineated enough for credit unions what determines a change to the OTR as compared with the operating fee, which it projects will increase 9.1% next year. Why something falls into OTR and why something falls into general compliance work should be clearly stated or NCUA can be viewed as making moves just to protect its fund. It's not a big issue this year, but as always state charters will be scrutinizing the OTR going forward.

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