Editor Paul Gentile made some insightful comments about the overhead transfer rate in his Nov. 14 column. The overhead transfer rate is a problem and we should eliminate it. There is no objective way to determine how much of the NCUA budget is related to the insurance fund and how much is related to other NCUA functions. Any overhead transfer rate calculation is a guess and the entire process lacks transparency.

NCUA should charge an examination fee based on credit union asset size and not assess the insurance fund. An examination fee is much more transparent than an overhead transfer rate. It would eliminate the disparity between state and federal credit unions. State credit unions pay a fee for their state regulator and then are again paying indirectly for NCUA by foregoing a portion of the earnings on the insurance fund. In California we pay a fee to our state regulator, The Department of Financial Institutions, for examinations and regulation. California state chartered credit unions pay the entire operating budget of our state regulator. The overhead transfer obscures how well or how poorly NCUA manages its budget. The overhead transfer rate means that state chartered credit unions are bearing a higher cost of regulation than federally chartered credit unions.

An examination fee based on assets would be a fair way to allocate examination costs to credit unions. The insurance fund earnings would either increase the fund balance or pay dividends to credit unions. None of the insurance fund earnings would be diverted to pay for NCUA's budget. NCUA each year makes an arbitrary determination of how much of its operation should be offset by the overhead transfer rate. The arbitrary nature of the transfer creates a perception (and may in fact really be a subsidy) that state chartered credit unions subsidize federally chartered credit unions by foregoing share insurance fund earnings that would otherwise reduce premiums paid by state chartered credit unions or result in dividends to state chartered credit unions.