The NCUA Staff Draft 2022-2023 Budget Justification
| Published date | 24 November 2021 |
| Citation | 86 FR 67238 |
| Record Number | 2021-25486 |
| Section | Notices |
| Court | National Credit Union Administration |
Federal Register, Volume 86 Issue 224 (Wednesday, November 24, 2021)
[Federal Register Volume 86, Number 224 (Wednesday, November 24, 2021)]
[Notices]
[Pages 67238-67299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25486]
[[Page 67237]]
Vol. 86
Wednesday,
No. 224
November 24, 2021
Part IIINational Credit Union Administration-----------------------------------------------------------------------The NCUA Staff Draft 2022-2023 Budget Justification; Notice
Federal Register / Vol. 86 , No. 224 / Wednesday, November 24, 2021 /
Notices
[[Page 67238]]
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NATIONAL CREDIT UNION ADMINISTRATION
[NCUA-2021-0149]
The NCUA Staff Draft 2022-2023 Budget Justification
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice.
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SUMMARY: The NCUA's draft, ``detailed business-type budget'' is being
made available for public review as required by federal statute. The
proposed resources will finance the agency's annual operations and
capital projects, both of which are necessary for the agency to
accomplish its mission. The briefing schedule and comment instructions
are included in the SUPPLEMENTARY INFORMATION section.
DATES: Requests to deliver a statement at the budget briefing must be
received on or before November 30, 2021. Written statements and
presentations for those scheduled to appear at the budget briefing must
be received on or before 5 p.m. Eastern, December 3, 2021.
Written comments without public presentation at the budget briefing
may be submitted by December 9, 2021.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
Presentation at public budget briefing: Submit requests to
deliver a statement at the briefing to [email protected] by
November 30, 2021. Include your name, title, affiliation, mailing
address, email address, and telephone number. Copies of your
presentation must be submitted to the same email address by 5 p.m.
Eastern, December 3, 2021.
Written comments: Submit comments by December 9, 2021,
through the Federal eRulemaking Portal: http://www.regulations.gov. The
docket number is NCUA-2021-0149. Follow the instructions for submitting
comments.
Copies of the NCUA Draft 2022-2023 Budget Justification
and associated materials are also available on the NCUA website at
https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
FOR FURTHER INFORMATION CONTACT: Eugene H. Schied, Chief Financial
Officer, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428 or telephone: (703) 518-6571.
SUPPLEMENTARY INFORMATION: The following itemized list details the
documents attached to this notice and made available for public review:
I. The NCUA Budget in Brief
II. Introduction and Strategic Context
III. Forecast and Enterprise Challenges
IV. Key Themes of the 2022-2023 Budget
V. Operating Budget
VI. Capital Budget
VII. Share Insurance Fund Administrative Budget
VIII. Financing the NCUA Programs
IX. Appendix A: Supplemental Budget Information
X. Appendix B: Capital Projects
Section 212 of the Economic Growth, Regulatory Relief, and Consumer
Protection Act amended 12 U.S.C. 1789(b)(1)(A) to require the NCUA
Board (Board) to ``make publicly available and publish in the Federal
Register a draft of the detailed business-type budget.'' Although 12
U.S.C. 1789(b)(1)(A) requires publication of a ``business-type budget''
only for the agency operations arising under the Federal Credit Union
Act's subchapter on insurance activities, in the interest of
transparency the Board is providing the agency's entire staff draft
2022-2023 Budget Justification (draft budget) in this Notice.
The draft budget details the resources required to support NCUA's
mission. The draft budget includes personnel and dollar estimates for
three major budget components: (1) The Operating Budget; (2) the
Capital Budget; and (3) the Share Insurance Fund Administrative Budget.
The resources proposed in the draft budget will be used to carry out
the agency's annual operations.
The NCUA staff will present its draft budget to the Board at a
budget briefing open to the public and scheduled for Wednesday,
December 8, 2021 at 2:00 p.m. Eastern. Due to the COVID-19 pandemic,
the budget briefing will be open to the public via live webcast only.
Visit the agency's homepage (www.ncua.gov) to access the provided
webcast link.
If you wish to participate in the briefing and deliver a statement,
you must email a request to [email protected] by November 30,
2021. Your request must include your name, title, affiliation, mailing
address, email address, and telephone number. The NCUA will work to
accommodate as many public statements as possible at the December 7,
2021 budget briefing. The Board Secretary will inform you if you have
been approved to make a presentation and how much time you will be
allotted. A written copy of your presentation must be delivered to the
Board Secretary via email at [email protected] by 5 p.m. Eastern,
December 3, 2021.
Written comments on the draft budget will also be accepted by
December 9, 2021, through the Federal eRulemaking Portal: http://www.regulations.gov. The docket number is NCUA-2021-0149. Commenters
should follow the portal instructions for submitting comments.
All comments should provide specific, actionable recommendations
rather than general remarks. The Board will review and consider any
comments from the public prior to approving the budget.
By the National Credit Union Administration Board on November
17, 2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
I. The NCUA Budget in Brief
Proposed 2022 and 2023 Budgets
The National Credit Union Administration's (NCUA) 2018-2022
Strategic Plan sets forth the agency's goals and objectives that form
the basis for determining resource needs and allocations. The annual
budget provides the resources to execute the strategic plan, to
implement important initiatives, and to undertake the NCUA's major
programs: Examination and supervision, insurance, credit union
development, consumer financial protection, and asset management.
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[GRAPHIC] [TIFF OMITTED] TN24NO21.002
The NCUA's 2022-2023 budget justification includes three separate
budgets: The Operating Budget, the Capital Budget, and the National
Credit Union Share Insurance Fund Administrative Budget. Combined,
these three budgets total $345.3 million for 2022, which is 0.5 percent
more than the initial 2022 funding level approved by the NCUA Board as
part of the two-year 2021-2022 budget, and 1.2 percent higher than the
comparable level funded by the Board for 2021.
Four significant factors, when combined, result in the 1.2 percent
budget growth between 2021 and 2022:
1. A proposed 48 FTE net increase in permanent agency staffing
compared to 2021, which will support critical areas necessary to
operate as an effective federal financial regulator capable of
addressing emerging issues.
2. A proposed increase of $8.6 million in travel funding for
2022 compared to 2021. Although the agency expects pandemic-related
considerations will result in continued remote and offsite
examinations during the first quarter of 2022, the draft budget
assumes that onsite examinations and related travel will resume in
the spring of 2022. The agency anticipates that travel in 2022 will
occur at a lower level than in previous years due to lessons learned
during the pandemic about remote work.
3. A proposed reduction to the Capital Budget of $5.8 million in
2022 compared to 2021, mainly driven by the completion of the latest
phase of the Modern Examination and Risk Identification Tool (MERIT)
project. In 2021, all NCUA examiners were trained to use the new
MERIT system. MERIT was fully deployed to all NCUA examiners in the
fall of 2021. In 2022, capital investments in Examination and
Supervision Solution and Infrastructure Hosting (ESS&IH) will allow
the NCUA to address rollout issues reported by the broader user base
and continue to enhance MERIT and the ESS suite of applications
based on user feedback.
4. A proposed decrease of $1.7 million to the Share Insurance
Fund (SIF) Administrative Expenses Budget, which results from the
wind down of the NCUA Guaranteed Notes (NGN) program in 2022.
Staffing levels for 2021 and 2022 reflect the agency's current
staffing requirements and proposed staffing enhancements related to
agency programs and initiatives.
Operating Budget
The proposed 2022 Operating Budget is $326.0 million. Staffing
levels are requested to increase by a net 48 FTEs compared to the 2021
Board-approved budget.\1\
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\1\ The published 2021 FTE level approved by the Board was 1,187
for the Operating Budget. In August 2021, the NCUA Board approved
seven additional FTEs. The revised 2022 Operating Budget proposes 48
more FTEs, for a total of 1,242.
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The 2022 Operating Budget increases approximately $11.4 million, or
3.6 percent, compared to the 2021 Board-approved budget. The Operating
Budget estimate for 2023 is $369.3 million and includes eight
additional FTEs compared to the 2022 proposed level.
The following chart presents the major categories of spending
supported by the 2022 budget, while specific adjustments to the 2021
Board-approved budget are discussed in further detail below:
[GRAPHIC] [TIFF OMITTED] TN24NO21.003
Note: Minor rounding differences may occur in totals.
Total Staffing. The Operating Budget funds 1,242 FTEs in 2022,
while five additional FTEs are funded by the CLF, resulting in a net
increase of 48 FTEs
[[Page 67240]]
compared to the 2021 levels approved by the Board. Additional staff
have been added to several offices as discussed later in this document.
Since 2018 and despite significant credit union asset growth, total
NCUA staffing has remained within a relatively narrow range, as shown
in the chart below.
[GRAPHIC] [TIFF OMITTED] TN24NO21.004
Note: Total NCUA staffing includes five FTEs funded by the Central
Liquidity Facility in 2022.
Pay and Benefits. Pay and benefits increase by $16.7 million in
2022, or 6.9 percent, for a budget of $257.5 million. The increase is
mainly due to the proposed staffing of critical areas necessary to
operate as an effective federal financial regulator capable of
addressing emerging issues. The 2022 budget recommends 48 new FTEs,
which includes 29 new regional FTEs to support expanded examination
criteria for federal credit unions, three new regional FTEs to support
expanded specialist examiners, five new FTEs for the Office of Consumer
and Financial Protection (OCFP) positions to support fair lending and
financial education and literacy programs, two new FTEs for the Office
of Credit Union Resource Expansion (CURE) positions to support a new
small credit union program initiative, and making permanent eight FTEs
that are currently filled within the total NCUA staffing plan. These
increases are offset by a reduction of one FTE in the Office of
Examination and Insurance (E&I) and a reduction of five other FTEs by
concluding the NGN program.
The remaining increase in pay and benefits--nearly $2.3 million--is
the result of the Office of Personnel Management (OPM) increasing the
mandatory employer contribution for the Federal Employee Retirement
System (FERS). Required FERS payments to OPM increase from 17.3 percent
of covered employees' salaries to 18.4 percent, a change of 110 basis
points. Nearly all NCUA employees are covered by FERS, which includes a
defined benefit pension funded by both employee and employer
contributions.
Travel. The travel budget increases by $8.5 million in 2022, or
69.7 percent, for a budget of $20.8 million. The large increase in
travel does not represent a typical annual travel adjustment because
the 2021 budget was unusually low due to restricted travel during the
pandemic. The 2022 requested budget assumes that pandemic-related
travel reductions will continue through the first quarter of 2022 and
will resume to near pre-pandemic levels later in the year.
Additionally, the NCUA plans to hold more internal and external meeting
events in 2022 than in the pandemic-restricted environment of 2021. A
leadership and training conference is planned for the NCUA senior
leaders and managers to support professional development and employee
engagement. The NCUA also plans to host three outreach roundtables to
support stakeholder discussions about issues affecting the credit union
system.
The NCUA continues working to contain travel costs by expanding
offsite examination work and using technology-driven training. In
future budgets, the NCUA will determine how such adjustments to its
examination approach will help mitigate growth in travel costs.
Rent, Communications, and Utilities. The budget for rent,
communications, and utilities decreases by $2.0 million in 2022, or
28.2 percent, for a budget of $5.2 million. This funding pays for
space-related costs, telecommunications services, data capacity
contracts, and information technology network support. The decrease in
2022 is primarily due to the agency's transition to the General
Services Administration (GSA)-managed Enterprise Infrastructure
Solutions (EIS). EIS is the federal government's contract for
enterprise telecommunications and networking solutions. By
transitioning to EIS, the NCUA's annual telecommunications costs will
decrease by approximately $2.2 million, as well as benefit from the
comprehensive solution EIS provides to address all aspects of federal
agency IT telecommunications and infrastructure requirements.
Administrative Expenses. Admin is trative expenses decrease by $0.2
million in 2022, or 4.0 percent, for a budget of $5.8 million. The
decrease to the administrative expenses budget category largely results
from lower costs for the NCUA's share of the Federal Financial
Institutions Examination Council (FFIEC) costs and lower supplies,
materials, and subscription costs from the ongoing use of telework in
2022.
Contracted Services. Contracted services expenses decrease by $11.6
million in 2022, or 23.9 percent, for a total budget of $36.7 million.
However, $23.0 million of unspent budget amounts from prior years will
be used to pay for 2022 Contracted Services expenses. Therefore, the
total cost of all contracted services in 2022 is estimated to be $59.7
million, an increase of $11.4 million compared to the 2021 budget.
Contracted services funding pays for products and services acquired
in the commercial marketplace and includes critical mission support
services such as
[[Page 67241]]
information technology hardware and software support, accounting and
auditing services, and specialized subject matter expertise. The
majority of funding in the contracted services category supports the
NCUA's robust supervision framework and includes funding for tools used
to identify and resolve risk concerns such as interest rate risk,
credit risk, and industry concentration risk. Further, it addresses new
and evolving operational risks such as cybersecurity threats.
Capital Budget
The proposed 2022 Capital Budget is $13.1 million.
The 2022 Capital Budget is $5.8 million less than the preliminary
2022 funding level approved by the Board in December 2020, and $5.8
million less than the 2021 Board-approved budget.
The Capital Budget fully supports the NCUA's effort to modernize
its IT infrastructure and applications. The 2022 budget for capital
projects decreases largely because of the deployment of MERIT, the
replacement for the legacy Automated Integrated Regulatory Examination
System (AIRES). Capital funding for MERIT in 2022 will fund bug fixes
and other modest system enhancements. Other IT investments funded in
the 2022 Capital Budget include the planned deployment of new laptops
on the Windows 11 platform, ongoing enhancements and upgrades to
decades-old legacy systems, network servers, and systems to ensure the
agency's cybersecurity posture complies with Executive Order 14208, and
various hardware investments to refresh agency networks and ensure
staff have the tools necessary to achieve the agency's mission. The
2022 budget includes $3.3 million for IT software development projects
that will continue replacement of the NCUA's decades-old and obsolete
information technology systems, and $8.3 million in other IT
investments for 2022. The NCUA's facilities require $1.5 million in
capital investments.
Share Insurance Fund Administrative Expenses
The proposed 2022 Share Insurance Fund Administrative budget is
$6.2 million.
The 2022 Share Insurance Fund Administrative Budget is $1.5 million
less than the preliminary 2022 funding level approved by the Board in
December 2020, and $1.7 million less than the 2021 Board-approved
budget. The decrease in the Share Insurance Fund Administrative Budget
is primarily driven by the completion of the NGN program, which is
expected to substantially conclude in 2022. The remaining costs are
attributed to the costs associated with tools and technology used by
the Office of National Examinations and Supervision (ONES) to oversee
credit union-run stress testing for the largest credit unions, travel
for state examiners attending NCUA-sponsored training, audit support
for the Share Insurance Fund's financial statements, and certain
insurance-related expenses for Asset Management and Assistance Center
(AMAC) operations.
2022 Operating Budget--Use of Surplus Funds
Various public health restrictions instituted in response to the
COVID-19 pandemic resulted in much lower-than-planned spending on
employee travel in 2021, as the agency continued remote and offsite
examinations and work. The NCUA currently estimates that the agency
will end 2021 having under-spent the Board-approved budget by
approximately $15.0 million, mostly due to a reduction in travel and
other operating expenses. Approximately $14.0 million in surplus budget
from 2020 is also projected to remain available at the end of the year.
The NCUA's response to the coronavirus pandemic led to a number of
unplanned and unbudgeted expenses, particularly for new requirements
for cybersecurity, employee relocations, human capital support, and
executive briefings and analysis support. In September 2021, the NCUA
Board reallocated $4.0 million of the projected surplus for the
following purposes:
Cybersecurity Support: $906,780 was approved to implement
cybersecurity requirements in 2021 for the NCUA's systems, services,
and information holdings.
Employee Relocations: $939,686 was approved for expected
employee relocation costs in 2021.
Human Capital Analytical Support: $550,000 was approved
for analysis of the NCUA's compensation plans and for support analytic
and consultative work about the NCUA's diversity, equity, and inclusion
programs and practices.
Executive Briefings and Analysis: $40,000 was approved for
new executive briefings and analysis support.
Employees' accrued leave payout: $1.6 million was approved
for payout of employees' accrued leave in 2021.
Of the remaining surplus balances, the 2022 budget proposes using
$23.0 million to offset the costs of planned contract services
spending, reducing the agency's overall budget by that amount.
Budget Trends
As shown in the chart below, the relative size of the NCUA budget
(dotted line) continues to decline when compared to balance sheets at
federally insured credit unions (solid line).
[[Page 67242]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.005
This trend illustrates the greater operating efficiencies the NCUA
has attained in the last several years relative to the size of the
credit union system. Additionally, the NCUA has improved its operating
efficiencies more aggressively than other financial industry regulators
(dotted line compared to dashed line).
Federal Compliance Cost
As a federal agency, the NCUA is required to devote significant
resources to numerous compliance activities required by federal law,
regulations, or, in some cases, Executive Orders. These requirements
dictate how many of the agency's activities are implemented and the
associated costs. These compliance activities affect the level of
resources needed in areas such as information technology acquisitions
and management, human capital processes, financial management processes
and reporting, privacy compliance, and physical and cyber security
programs.
Financial Management
Federal law, regulations, and government-wide guidance promulgated
by the Office of Management and Budget (OMB), the Government
Accountability Office (GAO), and the Department of the Treasury place
numerous requirements on federal agencies, including the NCUA,
regarding the management of public funds. Government-wide financial
management compliance requirements include: Financial statement audits,
improper payments, prompt payments, internal controls, and procurement
audits, enterprise risk management, strategic planning, and public
reporting of financial and other information.
Information Technology (IT)
There are numerous laws, regulations, and required guidance
concerning information technology used by the federal government. Many
of the requirements cover IT security, such as the Federal Information
Security Management Act. Other requirements cover records management,
paperwork reduction, information technology acquisition, cybersecurity
spending, and accessible technology and continuity.
Human Capital and Equal Opportunity
Like other federal agencies, the NCUA is subject to an array of
human capital-related laws, regulations, and other mandatory guidance
issued by OPM, the Equal Employment Opportunity Commission, and OMB.
Human capital compliance requirements include procedures related to
hiring; management engagement with public unions and collective
bargaining; employee discipline and removal procedures; required
training for supervisors and employees; employee work-life and benefits
programs; equal employment opportunity and required diversity and
inclusion programs; and storage and retention of human resource
records. The NCUA is also required by law to ``maintain comparability
with other federal bank regulatory agencies'' when setting employee
salaries.
Security
The NCUA's security posture is driven by numerous legal and
regulatory requirements covering the full range of security functions.
The NCUA is required to comply with mandatory requirements for
personnel security; physical security; emergency management and
continuity; communications and information security; and insider threat
activities. In addition to meeting specific legislative mandates, as a
federal agency the NCUA is required to follow guidance from, but not
limited to, the Office of the Director of National Intelligence, the
Department of Defense, OPM, and the Federal Emergency Management
Agency.
General Compliance Activities
The NCUA also has other general compliance activities that cut
across numerous offices. For example, the NCUA expends resources
complying with the Privacy Act; Government in the Sunshine Act;
multiple laws and regulations related to government ethics standards;
and various reporting and other requirements set forth by the Federal
Credit Union Act and other statutes.
[[Page 67243]]
Federal retirement costs are an example of mandatory payments to
other federal agencies. As discussed earlier in this document, the cost
of mandatory contributions to OPM for most NCUA employees' retirement
system will increase from 17.3 to 18.4 percent of their salaries, based
on the OPM Board of Actuaries of the Civil Service Retirement System
recommendations. The budget impact of these additional retirement costs
in 2022 is an increase of approximately $3.4 million over 2021.
BILLING CODE 7535-01-P
[GRAPHIC] [TIFF OMITTED] TN24NO21.006
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[GRAPHIC] [TIFF OMITTED] TN24NO21.007
II. Introduction and Strategic Context
History
For more than 100 years, credit unions have provided financial
services to their members in the United States. Credit unions are
unique depository institutions created not for profit, but to serve
their members as credit cooperatives.
President Franklin Roosevelt signed the Federal Credit Union Act
into law in 1934 during the Great Depression, enabling credit unions to
be organized throughout the United States under charters approved by
the federal government. The law's goal was to make credit available to
Americans and promote thrift through a national system of nonprofit,
cooperative credit unions. In the years since the passage of the
Federal Credit Union Act, credit unions have evolved and are larger and
more complex today than those first institutions. But, credit unions
continue to provide needed financial services to millions of Americans.
The NCUA is the independent federal agency established in 1970 by
the U.S. Congress to regulate, charter, and supervise federal credit
unions. With the backing of the full faith and credit of the United
States, the NCUA operates and manages the National Credit Union Share
Insurance Fund, insuring the deposits of the account holders in all
federal credit unions and the vast majority of state-chartered credit
unions. No credit union member has ever lost a penny of deposits
insured by the Share Insurance Fund.
As of June 2021, the NCUA is responsible for the regulation and
supervision of 5,029 federally insured credit unions, which have
approximately 127.2 million members and nearly $2 trillion in assets
across all states and U.S. territories.\2\
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\2\ Source: The NCUA quarterly call report data, Q2 2021.
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Authority
Pursuant to the Federal Credit Union Act, authority for management
of the NCUA is vested in the NCUA Board. It is the Board's
responsibility to determine the resources necessary to carry out the
NCUA's responsibilities under the Act.\3\ The Board is authorized to
expend such funds and perform such other functions or acts as it deems
necessary or appropriate in accordance with the rules, regulations, or
policies it establishes.\4\
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\3\ See 12 U.S.C. 1752a(a).
\4\ See 12 U.S.C. 1766(i)(2).
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Upon determination of the budgeted annual expenses for the agency's
operations, the Board determines a fee schedule to assess federal
credit unions. The Board gives consideration to the ability of federal
credit unions to pay such a fee and the necessity of the expenses the
NCUA will incur in carrying out its responsibilities in connection with
federal credit unions.\5\ In December 2020, the Board approved a final
rule with changes to its regulation and methodology for determining the
fees due from federal credit unions.\6\
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\5\ See 12 U.S.C. 1755(a)-(b).
\6\ See https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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Pursuant to the law, fees collected are deposited in the agency's
Operating Fund at the Treasury of the United States, and those fees are
expended by the Board to defray the cost of carrying out the agency's
operations, including
[[Page 67245]]
the examination and supervision of federal credit unions.\7\ In
accordance with its authority \8\ to use the Share Insurance Fund to
carry out its insurance-related responsibilities, the Board approved an
Overhead Transfer Rate methodology and authorized the Office of the
Chief Financial Officer to transfer resources from the Share Insurance
Fund to the Operating Fund to account for insurance-related expenses.
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\7\ See 12 U.S.C. 1755(d).
\8\ See 12 U.S.C. 1783(a).
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Mission, Goals, and Strategy
The NCUA's 2022-2026 Strategic Plan is currently under development.
The NCUA budget provides the resources necessary for the NCUA to
address the agency's strategic priorities and related programs, to
identify key challenges facing the credit union industry, and to
leverage agency strengths to help credit unions address those
challenges.
Organization, Major Agency Programs, and Workforce
The NCUA operates its headquarters in Alexandria, Virginia, to
administer and oversee its major programs and support functions; its
AMAC in Austin, Texas, to liquidate credit unions and recover assets;
and three regional offices to carry out the agency's supervision and
examination program. Reporting to these regional offices, the NCUA has
credit union examiners responsible for a portfolio of credit unions
covering all 50 states, the District of Columbia, Guam, Puerto Rico,
and the U.S. Virgin Islands.
The following organizational chart \9\ reflects the agency's
current structure, and the map shows each region's geographical
alignment:
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\9\ The Board Secretary is an organizational component of the
NCUA Board.
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[GRAPHIC] [TIFF OMITTED] TN24NO21.009
BILLING CODE 7535-01-C
The NCUA's regional offices carry out the agency's examination
program. The NCUA uses an extended examination cycle for well-managed,
low-risk federal credit unions with assets of less than $1 billion.
Additionally, the NCUA's examiners perform streamlined examination
procedures for financially and operationally sound credit unions with
assets less than $50 million.
In addition, the ONES examines corporate credit unions and large
consumer credit unions with assets over $10 billion. Consumer credit
unions fall within ONES' purview based on assets reported on the first
quarter call report for the preceding year. In April 2020, the NCUA
Board provided regulatory relief to credit unions meeting certain asset
thresholds, which were effective through year-end 2020. This asset
threshold relief was subsequently extended through year-end 2021. The
relief allows credit unions to use assets reported on their March 31,
2020, call report to determine applicability of certain regulations. As
a result of this relief, no new large credit unions will enter ONES in
2022. ONES will continue to examine and supervise 11 consumer credit
unions with 23.5 million members, accounting for $369.5 billion in
credit union assets. The next effective measurement period, which will
use actual assets reported, is the March 31, 2022, call report. ONES
anticipates at least nine credit unions will meet or exceed the $10
billion threshold, and under existing regulations will fall within the
supervisory purview of ONES beginning January 1, 2023. The staff draft
budget proposes the resources necessary for examiners in the NCUA
regions, in conjunction with ONES, to continue to supervise credit
unions with reported assets between $10 billion and $15 billion in
2022. Any formal change to the $10 billion threshold for a consumer
credit union to be supervised by ONES must be approved by the NCUA
Board.
In 2022 and 2023, the agency's workforce will undertake tasks in
all of the NCUA's major programs:
Supervision: The supervision program contributes to the safety and
soundness of the credit union system, thereby protecting the interests
of all credit union stakeholders. The NCUA's supervision is driven by
identifying and resolving risk in seven primary areas:
Interest rate risk,
liquidity risk,
credit risk, including asset concentration risk,
reputation risk,
transaction risk,
compliance risk, and,
strategic risk, including operational risks such as
cybersecurity and fraud.
The NCUA supervises federally insured credit unions through
examinations by enforcing regulations, taking administrative actions,
and conserving or liquidating severely troubled institutions as needed
to manage risk.
Insurance: The NCUA manages the Share Insurance Fund, which
provides insurance up to at least $250,000 per individual depositor for
funds held at federally insured credit unions. The Share Insurance Fund
is capitalized by credit unions and through retained earnings. The
equity ratio is the overall capitalization of the insurance fund to
protect against unexpected losses from the failure of credit unions.
The Normal Operating Level (NOL) is the desired equity level for the
Share Insurance Fund. Pursuant to the Federal Credit Union Act, the
NCUA Board sets the NOL between 1.20 percent and 1.50 percent.
Credit Union Development: Through chartering and field of
membership services, training, and resource assistance, the NCUA
supports development of small, minority, newly chartered, and low-
income designated credit unions. One source of assistance is the
Community Development Revolving Loan Fund, which provides loans and
technical assistance grants to credit unions serving low-income
members. This support results in improved access to financial services,
an opportunity for increased member savings, and improved employment
opportunities in low-income communities.
The NCUA charters new federal credit unions, as well as approves
[[Page 67248]]
modifications to existing federal charters and their fields of
membership.
Consumer Financial Protection: The NCUA protects consumers through
supervision and enforcement of federal consumer financial protection
laws, regulations, and requirements. The NCUA also develops financial
literacy tools and information for consumers and promotes financial
education programs for credit unions to assist members in making more
informed financial decisions.
NCUA's consumer financial protection mission goes hand-in-hand with
the agency's safety and soundness mission. The agency strives to
achieve a proper balance between the oversight needed to ensure
consumers are protected and credit unions' ability to provide service
to their member-owners. In addition, the NCUA's Consumer Assistance
Center provides an avenue through which credit union members can report
and resolve concerns they may have about the products and services they
have received from their credit unions.
When it comes to working with credit unions, the NCUA's goal is to
facilitate their safe and sound operation while ensuring they fully
comply with applicable laws, including consumer financial protection
and fair lending laws. Toward that end, the agency emphasizes a
compliance approach over an enforcement approach. We strive to detect
and resolve problems and violations in credit unions through
supervision and examination procedures before they become
insurmountable.
Asset Management: The NCUA conducts liquidations of failed credit
unions and performs management and recovery of assets through the AMAC.
This office manages and resolves assets acquired from liquidated credit
unions. The AMAC provides specialized resources to the NCUA regional
offices with reviews of large, complex loan portfolios and actual or
potential bond claims. It also participates in the operational phases
of conservatorships and records reconstruction. The AMAC seeks to
minimize credit union failure costs to the Share Insurance Fund.
ACCESS (Advancing Communities through Credit, Education, Stability,
and Support): The ACCESS Initiative is intended to foster financial
inclusion and address the financial disparities experienced by
minority, underserved, and unbanked populations. Through ACCESS, the
NCUA provides resources to assist credit unions with their outreach
strategies. Resources include educational webinars and the
identification of grants and other financial resources to support the
development and implementation of financial products and services to
assist members experiencing financial hardship. The NCUA will also
evaluate ways to refresh and modernize regulations, policies, and
programs in support of greater financial inclusion within the credit
union system.
Cross-Agency Collaboration: The NCUA also performs stakeholder
outreach and is involved in numerous cross-agency initiatives. The NCUA
conducts stakeholder outreach to clearly understand the needs of the
credit union system. The NCUA seeks input from all of its stakeholders,
including the Administration, Congress, State Supervisory Authorities,
credit union members, credit unions, and their associations.
The NCUA collaborates with the other financial regulatory agencies
through several financial councils. Significant councils include the
Financial Stability Oversight Council, the FFIEC, and the Financial and
Banking Information Infrastructure Committee. These councils and their
many associated taskforces and working groups contribute to the success
of the NCUA's mission by providing the agency with access to critical
financial and market information and opportunities to share information
on critical issues and threats to the nation's financial
infrastructure, among other benefits.
Budget Process--Strategy to Budget
The NCUA's budget process starts with a review of the agency's
strategic framework, including its goals and objectives. The strategic
framework sets the agency's direction and guides resource requests,
ensuring the agency's resources and workforce are allocated and aligned
to agency priorities and initiatives.
Each regional and central office director at the NCUA develops an
initial budget request identifying the resources necessary for their
office to support the NCUA's mission, goals, and objectives. These
budgets are developed to ensure each office's requirements are
individually justified and remain consistent with the agency's overall
strategic framework.
One of the primary inputs in the development process is a
comprehensive workload analysis that estimates the amount of time
necessary to conduct examinations and supervise federally insured
credit unions in order to carry out the NCUA's dual mission as insurer
and regulator. This analysis starts with a field-level review of every
federally insured credit union to estimate the number of workload hours
needed for the budget year. The workload estimates are then refined by
regional managers and further reviewed by NCUA executive leadership for
the annual budget proposal. The workload analysis accounts for the
efforts of over 66 percent of the NCUA workforce and is the foundation
for the budgets of the regional offices and ONES.
In addition to the workload analysis, from which central office
budget staff derive related personnel and travel cost estimates, each
NCUA office submits estimates for fixed and recurring expenses, such as
rental payments for leased property, operations and maintenance for
owned facilities or equipment, supplies, telecommunications services,
major capital investments, and other administrative and contracted
services costs.
Because information technology investments impact all offices
within the agency, the NCUA has established an Information Technology
Prioritization Council (ITPC). The ITPC meets several times each year
to consider, analyze, and prioritize major information technology
investments to ensure they are aligned with the NCUA's strategic
framework. These focused reviews result in a mutually agreed-upon
budget recommendation to support the NCUA's top short-term and long-
term information technology needs and investment priorities.
Once compiled for the entire agency, all office budget submissions
undergo thorough reviews by the responsible regional and central office
directors, the Chief Financial Officer, and the NCUA's executive
leadership. Through a series of presentations and briefings by the
relevant office executives, the NCUA Executive Director formulates an
agency-wide budget recommendation for consideration by the Board.
The NCUA Board has an ongoing commitment to transparency around the
agency's finances and budgeting processes. As such, the Office of the
Chief Financial Officer has made draft budgets available for public
comment via the agency's website and solicited public comments before
presenting final budget recommendations for the Board's approval.
Furthermore, Section 212 of the Economic Growth, Regulatory Relief, and
Consumer Protection Act, Public Law 115-174, enacted May 24, 2018,
requires that the NCUA ``make publicly available and publish in the
Federal Register a draft of the detailed business-type budget.'' To
fulfill this requirement, the Board delegated to the Executive Director
the authority to publish the draft budget before submitting it for
Board approval. This
[[Page 67249]]
draft budget will appear in the Federal Register for public comment.
This 2022-2023 budget justification document includes comparisons
to the Board approved 2021-2022 budget and includes a summary
description of the major spending items in each budget category to
provide transparency and promote understanding of the use of budgeted
resources. Estimates are provided by major budget category, office, and
cost element.
The NCUA also posts supporting documentation for its budget request
on the NCUA website to assist the public in understanding its budget
development process. The budget request for 2022 represents the NCUA's
projections of operating and capital costs for the year and is subject
to approval by the Board.
Commitment to Financial Stewardship
The NCUA funds its activities through operating fees levied on all
federal credit unions and through reimbursements from the Share
Insurance Fund, which is funded by both federal credit unions and
federally insured state-chartered credit unions. The Overhead Transfer
Rate (OTR) calculation determines the annual amount that the Share
Insurance Fund reimburses the Operating Fund to pay for the NCUA's
insurance-related activities. At the end of each calendar year, the
NCUA's financial transactions are subject to audit in accordance with
Generally Accepted Government Auditing Standards.\10\
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\10\ See 12 U.S.C. 1783(b) and 1789(b).
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The Board and the agency are committed to providing sound financial
stewardship. In recent years, the NCUA Chief Financial Officer, with
support and direction from the Executive Director and Board, has worked
to improve the NCUA's financial management, financial reporting, and
budget processes.
The NCUA is the only Financial Institutions Reform, Recovery, and
Enforcement Act (FIRREA) agency that publishes a detailed draft budget
in the Federal Register and solicits public comments on it at a meeting
with its Board and other agency leadership. The NCUA's 2022-2023 budget
justification conforms with federal budgetary concepts, which increases
transparency of the agency's planned financial activity. The NCUA first
revised its financial presentations for such consistency in its 2018-
2019 budget.
The NCUA works diligently to maintain strong internal controls for
financial transactions, in accordance with sound financial management
policies and practices. Based on the results of the NCUA's assessments
conducted through the course of 2020, the agency provided an unmodified
Statement of Assurance (signed February 16, 2021) that its management
had established and maintained effective controls to achieve the
objectives of the Federal Managers Financial Integrity Act (FMFIA) and
OMB Circular A-123. Specifically, the NCUA supports the internal
control objectives of reporting, operations, and compliance, as well as
its integration with overarching risk management activities. Within the
Office of the Chief Financial Officer, the Internal Controls Assessment
Team (ICAT) continues to mature the agency-wide internal control
program, strengthen the overall system of internal controls, promote
the importance of identifying risk, and ensure the agency has
identified appropriate responses to mitigate identified risks. The
agency's internal controls are designed and operated in accordance with
the requirements of the Government Accountability Office's Standards
for Internal Controls in the Federal Government (Green Book).
Enterprise Risk Management
The NCUA uses an Enterprise Risk Management (ERM) program to
evaluate various factors arising from its operations and activities
(both internal to the agency and external in the industry) that can
impact the agency's performance relative to its mission, vision, and
performance outcomes. Agency priority risks include both internal
considerations, such as the agency's control framework, information
security posture, and external factors such as credit union
diversification risk. All of these risks can materially impact the
agency's ability to achieve its mission.
The NCUA's ERM Council provides oversight of the agency's
enterprise risk management activities. Through the ERM program,
established in 2015, the agency is identifying, analyzing, and managing
risks that could affect the achievement of its strategic objectives.
Overall, the NCUA's ERM program promotes effective awareness and
management of risks, which, when combined with robust measurement and
communication, are central to cost-effective decision-making and risk
optimization within the agency. This holistic evaluation of how the
agency pursues its goals and objectives is guided by the agency's
appetite for risk and considers resource availability or limitations.
In addition, the agency's risk appetite helps the NCUA's employees
align risks with opportunities when making decisions and allocating
resources to achieve the agency's strategic goals and objectives.
The NCUA first adopted its enterprise risk appetite statement in
the 2018-2022 Strategic Plan.\11\ The enterprise risk appetite
statement is part of the NCUA's overall management approach.
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\11\ https://www.ncua.gov/files/agenda-items/AG20180125Item3b.pdf.
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The NCUA recognizes that risk is unavoidable and sometimes inherent
in carrying out the agency's mandate. The NCUA is positioned to accept
greater risks in some areas than in others; however, the risk appetite
establishes boundaries for the agency and its programs. Collaboration
across programs and functions is a fundamental part of ensuring the
agency stays within its risk appetite boundaries, and the NCUA will
identify, assess, prioritize, respond to, and monitor risks to an
acceptable level.
III. Forecast and Enterprise Challenges
Economic Outlook
The economic environment is a key determinant of credit union
performance. Last year was one of the most challenging for the economy
in U.S. history. The global pandemic and measures taken to combat the
spread of COVID-19 plunged the U.S. economy into recession at the start
of 2020. More than 22 million nonfarm payroll jobs were lost, and the
unemployment rate increased to an 80-year high of 14.8 percent.
The federal government responded quickly, establishing loan
programs for affected businesses and providing financial relief to
households in the form of stimulus payments and enhanced benefit
payments to unemployed workers. Federal Reserve policymakers cut short-
term interest rates, increased the Federal Reserve's asset holdings,
and established a number of lending programs to support the flow of
credit to households, businesses, and state and local governments.
Interest rates across the maturity spectrum fell to historically low
levels.
Economic activity picked up considerably in mid-2020, in response
to these policy measures and the relaxation of restrictions on business
and consumer activity put in place by state and local governments in
the early days of the pandemic. The availability of a COVID-19 vaccine
also provided significant support for economic activity. By the spring
of 2021 the economy had returned to its pre-recession level of output.
As of September 2021, just over 17 million
[[Page 67250]]
jobs had been added back to nonfarm payrolls, and the unemployment rate
had declined to 4.8 percent.
Credit union performance over the past year has been influenced by
the pandemic and associated recession, but credit unions in the
aggregate turned in a solid performance. Federally insured credit
unions added 4.9 million members over the year, boosting credit union
membership to 127.2 million in the second quarter of 2021. Credit union
assets rose by 13.0 percent to $1.98 trillion. Total loans outstanding
at federally insured credit unions increased 5.0 percent to $1.19
trillion, and the system-wide delinquency rate declined 12 basis points
to a modest 46 basis points. Credit union shares and deposits increased
by 15.0 percent over the year to $1.71 trillion in the second quarter
of 2021, reflecting the boost to income from federal emergency relief
payments to individuals and the sharp, economy-wide increase in
personal savings.
The credit union system's net worth increased by 9.9 percent over
the year to $201.1 billion in the second quarter of 2021. The jump in
assets led to a drop in the credit union system's composite net worth
ratio. However, at a composite net worth ratio of 10.17 percent, the
credit union system remains very well-capitalized. The overall
liquidity position of credit unions improved. Cash and short-term
investments as a percentage of assets rose from 17.6 percent in the
second quarter of 2020 to 18.5 percent in the second quarter of 2021,
reflecting a 19 percent increase in cash and short-term investments.
The near-term outlook for the U.S. economy and credit unions is
generally favorable. A consensus of forecasters \12\ projects strong
growth, falling unemployment, and low interest rates over the next
year. Real Gross Domestic Product (GDP) is projected to grow 3.5
percent over the four quarters of 2022 following a strong 5.5 percent
increase during 2021. Robust growth will continue to spur job creation,
driving the unemployment rate down to 4 percent by the fourth quarter
of 2022.
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\12\ Based on forecasts submitted in early October 2021 and
published in Blue Chip Economic Indicators, October 11, 2021.
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Inflation climbed sharply in 2021, reflecting the combination of
strong demand as the economy rebounds and COVID-related supply-chain
dislocations that have curtailed production and distribution and
contributed to shortages of some products. Consumer price inflation was
5.4 percent over the year ending in September 2021, up sharply from
levels closer to 1.75 percent during the last period of economic
expansion from mid-2009 through 2019. The consensus view is that recent
high inflation readings are temporary, and price pressures will ease as
supply bottlenecks are resolved. Forecasters expect price growth to
retreat to around 2.25 percent by mid-2022 and hold there over the next
several years. These forecasts are consistent with the Federal
Reserve's stated objective for inflation to ``moderately exceed 2
percent for some time'' so that inflation over time averages 2 percent.
The most recent projections prepared by Federal Reserve
policymakers, published in late September 2021, indicate inflation is
expected to ease in 2022 and that the Federal Reserve is likely to hold
off on raising the federal funds target rate until late next year.\13\
The median policymaker forecast shows the Federal Reserve's short-term
policy rate rising slightly from its current range of 0 to 0.25 percent
to 0.3 percent in the fourth quarter of 2022 and reaching 1.0 percent
in late 2023. Analysts expect other short-term interest rates, which
largely determine credit union interest payments, will remain close to
their current historically low levels through the end of 2022 and move
modestly higher in 2023. Longer-term rates, which largely determine the
interest payments received by credit unions, are expected to edge
higher as the economy strengthens.
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\13\ Federal Open Market Committee, Summary of Economic
Projections, September 22, 2021 (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20210922.pdf).
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Improving economic conditions should benefit credit unions. Strong
growth and rising employment will boost household income, spending, and
loan demand. Lower unemployment will bolster credit quality. Rising
longer-term interest rates imply higher loan rates, and relatively low
short-term interest rates will keep deposit rates in check.
Despite the favorable near-term outlook, credit unions may still
face a difficult environment in the upcoming budget year. The end of
forbearance programs, moratoria on evictions and foreclosures, and
other COVID-related support will lead to financial stress for many
households, particularly those at the bottom of the income distribution
that were hit hardest by the recession. Credit union delinquency rates
could begin to rise. The low interest rate environment may also pose a
challenge, especially for credit unions that rely primarily on
investment income.
There are also risks on the horizon that could hinder the economic
recovery, affecting credit union performance. For example, the
emergence of a new COVID-19 variant could exacerbate existing economic
dislocations or trigger new dislocations, delaying the economy's return
to more normal performance. If economic conditions weaken, the labor
market recovery could stall. Under these circumstances, interest rates
could remain low for an extended period of time. Alternatively, higher-
than-expected inflation for a prolonged period could spur Federal
Reserve policymakers to remove monetary policy accommodation earlier
and more aggressively than expected, causing short-term interest rates
to rise sooner than anticipated. Tighter credit conditions typically
constrain consumer and business borrowing and spending and cause
economic growth to slow. If short-term interest rates rise more than
long-term interest rates, the yield curve will flatten, putting
downward pressure on credit union net interest margins. The NCUA, like
credit unions, will need to remain flexible and prepare for a variety
of economic outcomes that could affect credit union performance and
agency resource requirements.
Other Risk Factors and Trends
In addition to the risks associated with movements and trends in
the general economy, the NCUA and credit unions will need to address
increasing exposure to the risks associated with a variety of
technological and structural changes. Increased concentration of loan
portfolios, development of alternative loan and deposit products,
technology-driven changes in the financial landscape, continued
industry consolidation, and ongoing demographic changes will continue
to shape the environment facing credit unions. The physical effects of
climate change along with efforts to address climate change and
transition to a low-carbon economy pose significant risks to the U.S.
economy and the U.S. financial system.
Cybersecurity: Credit unions' use of technology exposes the credit
union system to emerging cyber-enabled risk and threats. The prevalence
of ransomware, malware, social engineering, business email compromise
attacks, and other forms of cyber intrusion create ongoing challenges
at credit unions of all sizes and will require ongoing efforts for
rapid detection, protection, response, and recovery. These trends are
likely to continue, and even accelerate, in the foreseeable future.
[[Page 67251]]
Lending trends: Increasing concentrations in select loan types and
the introduction of new types of lending by credit unions emphasize the
need for long-term risk diversification and effective risk management
tools and practices, along with expertise to properly manage
concentrations of risk.
Financial Landscape and Technology: Financial products that mimic
deposit and loan accounts, such as mobile payment systems, pre-paid
shopping cards, and peer-to-peer lending platforms, pose a competitive
challenge to credit unions and banks alike. The increasing popularity
and adoption of these products and services could lead to a reduction
in financial intermediation. Credit unions also face a range of
challenges from financial technology (fintech) companies in the areas
of lending and the provision of other services. For example,
underwriting and lending may be automated at a cost below levels
associated with more traditional financial institutions, but may not be
subject to the same safeguards that credit unions and other traditional
financial institutions face. The emergence and increasing importance of
digital currencies may pose both risks and opportunities for credit
unions. Technological changes outside the financial sector may also
lead to changes in consumer behavior that indirectly affect credit
unions. COVID-19 is accelerating many of these trends, resulting in a
profound reshaping of consumer behaviors.
Membership trends: While overall credit union membership continues
to grow, more than half (55 percent) of federally insured credit unions
had fewer members at the end of the second quarter of 2021 than a year
earlier. Demographic changes are likely to lead to further declines in
membership at some credit unions. All credit unions need to consider
whether their product mix is consistent with their members' needs and
demographic profile.
Fraud: There is increased opportunity for fraud due to challenges
caused by the COVID-19 pandemic. These frauds could create additional
risks to credit unions or the Share Insurance Fund.
Smaller credit unions' challenges and industry consolidation: Small
credit unions face challenges to their long-term viability for a
variety of reasons, including weak earnings, declining membership, high
loan delinquencies, and elevated non-interest expenses. These
challenges have contributed to the steady downward trend in the number
of small, federally insured credit unions in operation. As of June 30,
2021, there were 2,582 small federally insured credit unions holding
less than $50 million in assets -29 percent less than five years
earlier.\14\ Over the same period the number of federally insured
credit unions with assets of at least $500 million rose 38 percent to
680. These 680 credit unions account for 79 percent of credit union
members and 83 percent of credit union assets. If current consolidation
trends persist, there will be fewer credit unions in operation in
future years, and those that remain will be considerably larger and
more complex. Large credit unions tend to offer more complex products
and services. Consolidation means the risks posed by individual
institutions will become more significant to the Share Insurance Fund.
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\14\ Note: The decrease in the number of small credit unions
includes those for which asset growth resulted in exceeding the
small credit union threshold at the end of the reported period.
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Climate-related financial risks: On October 21, 2021, the Financial
Stability Oversight Council (FSOC), of which NCUA is a member agency,
released its Report on Climate-Related Financial Risk.\15\ The report
finds that ``climate change is an emerging threat to the financial
stability of the United States,'' and that the number--and cost--of
extreme weather and climate-related disaster events is increasing. Each
year, natural disasters like hurricanes, wildfires, droughts, and
floods impose a substantial financial toll on households and businesses
alike. Economic and financial disruptions, and uncertainties arising
from both the physical effects of climate change and efforts to
transition away from carbon-intensive energy sources and industrial
processes, could affect credit unions across many dimensions. For
instance, disruptions in economic activity caused by climate-related
weather events (e.g., flooding or wildfires) may affect household
income and the ability to stay current on household financial
obligations in affected areas. The property damage associated with such
events could affect the value of homes and any associated mortgages.
The collateral value of motor vehicles may also be affected as
consumers transition away from fossil fuels towards electric and hybrid
automobiles. Finally, a credit union's field of membership is often
tied to a specific industry, like oil refining or agriculture. The
movement to renewable energy and changing weather patterns will likely
impact many of these industries in the years ahead.
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\15\ https://home.treasury.gov/system/files/261/FSOC-Climate-Report.pdf.
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Credit unions will need to consider climate-related financial risks
and how they could affect their membership and institutional
performance. Measuring, monitoring, and mitigating climate-related
financial risks presents a number of complex conceptual and practical
challenges not only for credit unions but also for the NCUA. The NCUA
Board will determine the appropriateness of adapting its risk
monitoring framework to account for climate-related threats to
financial stability, the credit union system, and the Share Insurance
Fund. In 2021, the NCUA convened an internal Climate Financial Risk
Working Group composed of experts from across the agency to develop in-
house expertise on climate-related financial risks and evaluate whether
existing regulatory tools, policies, and examination procedures are
sufficient for capturing and addressing these risks.
IV. Key Themes of the 2022-2023 Budget
Overview
The staff draft 2022-2023 budget supports the agency's priorities
and goals. The resources and initiatives proposed in the budget support
the NCUA's mission to maintain a safe and sound credit union system.
The draft budget includes funding for the NCUA to increase
permanent staffing in critical areas necessary to operate as an
effective federal financial regulator capable of addressing emerging
issues and responding to changes in economic conditions that may impact
the credit union system. The NCUA employees are the agency's most
valuable resource for achieving its mission, and the agency is
committed to a workplace and a workforce with integrity,
accountability, transparency, inclusivity, and proficiency. The agency
will continue investing in its workforce through training and
development, ensuring employees have the skills they need to do their
work effectively.
The draft 2022-2023 budget proposes investments across a range of
agency priorities, including:
Additional examiner staff in the NCUA's three regions,
which will enable the NCUA to address the growing complexity within the
credit union system and increase annual examinations for certain credit
unions;
New program and staff resources to provide greater
assistance to small credit unions;
Additional staff dedicated to fair lending;
Resources for the NCUA's ACCESS initiative, which is
focused on improving financial inclusion;
Expanded and ongoing efforts to ensure robust
cybersecurity in the credit union system and at the agency;
[[Page 67252]]
Increased offsite examination work and use of data
analytics through the Virtual Examination project; and,
Critical investments in new information technology systems
and infrastructure, including enhancements to the agency's data
reporting services and MERIT.
The efficiency and effectiveness of the agency's workforce is
dependent upon the resiliency of the NCUA's information technology
systems and the availability of modern analytical tools. The NCUA is
committed to implementing its new technology responsibly and delivering
secure, reliable, and innovative solutions. The investments funded in
the NCUA's Capital Budget will provide the tools and technology the
workforce needs to achieve the NCUA mission.
The COVID-19 pandemic also remains a consideration for the agency's
priorities and budgets for 2022 and 2023. The effects of the pandemic
impact the draft budget by reducing planned travel expenses due to the
shift to more remote and offsite examination and other work and by
increasing information technology expenses required to support this
offsite and remote work.
Examination Outlook and Virtual Examinations
Plans for the NCUA's 2022 examination program priorities are in
place to incorporate updates related to regulatory considerations and
revisions to some of the exam program components. The priorities for
the 2022 examination program will include information security, payment
systems, credit risk, the Allowance for Loan and Lease Losses account,
Bank Secrecy Act (BSA) and Anti-Money Laundering (AML), internal
controls, and consumer protections. The draft budget includes resources
to increase the NCUA's cadre of highly-trained specialist examiners and
to expand requirements for annual examinations for certain credit
unions that had previously been on an extended examination cycle.
Cyberattacks pose significant risks to the financial system.
Because of continued attacks on the nation's financial sector and the
broader national critical infrastructure, the NCUA places credit union
cybersecurity as a top supervisory priority and enterprise risk
objective.
To meet these challenges, the NCUA engages in interagency
cybersecurity preparedness as members of the Federal Financial
Institutions Examination Council and the Financial and Banking
Information Infrastructure Committee. The NCUA monitors cyber threats
identified by federal and non-federal sources and shares relevant
information about them with the credit union industry and financial
sector partners.
In 2021 the NCUA piloted a new information security examination
program. The NCUA established a working group of regional and
headquarters staff to review and incorporate changes into the program
to be scalable to the institution's complexity and size. The NCUA plans
to provide examiner training and testing of the program for the first
six months of 2022 and deploy the improved program no later than the
end of the third quarter 2022.
In November 2017, the NCUA Board approved funding to explore
methods to conduct more examination work offsite--referred to as the
Virtual Examination project. Staff is identifying new and emerging data
sources and methods to access the data, exploring advancements in
analytical techniques, and considering how other technologies can be
harnessed to automate or streamline various aspects of the examination
process. Since March 2020, the NCUA staff has conducted the majority of
its examination work while fully offsite, with only a few exceptions
for the most problematic and challenging cases. The Virtual Examination
project team plans to build upon this work by integrating lessons
learned during the pandemic.
Effective virtual examinations will lead to greater use of
standardized interaction protocols, advanced analytical capabilities,
and better-informed subject matter experts. This should result in more
consistent and accurate supervisory determinations, provide greater
clarity and consistency with respect to how the agency conducts
supervisory oversight, and reduce coordination challenges between
agency and credit union staff. A full transformation involves iterative
and incremental steps over several years.
Support for Small Credit Unions
Small credit unions with less than $100 million in assets are in a
unique position to improve financial inclusion by offering their
communities access to credit and other services. The draft budget
proposes new staff and resources for the NCUA to improve the support
provided to small credit unions. Such support includes efforts to
better tailor regulations and supervision to the needs of small credit
unions, staff training about the unique needs of small credit unions
and their role serving underserved communities, expanding opportunities
for small credit unions to receive support through NCUA grants,
training, and other initiatives, and fostering partnerships with
external organizations that can support small credit unions.
Fair Lending
The NCUA uses onsite examinations, supervision contacts, and data
analysis to ensure credit unions comply with fair lending laws and
regulations. The draft budget proposes staff resources to enhance the
NCUA's fair lending programs and increase fair lending examinations by
50 percent and fair lending supervision contacts by 25 percent.
Consumer financial protection and fair and equitable access to credit
is vital to members of credit unions. These additional resources will
enable the NCUA to strengthen its consumer financial protection
program.
ACCESS and Financial Inclusion
At its heart, financial inclusion means expanding access to safe
and affordable financial services for unbanked and underserved people
and communities. The financial services industry--of which credit
unions are an important part--plays a key role in helping families
achieve financial freedom by building generational wealth, helping
entrepreneurs to get their small businesses off the ground, and helping
to create jobs and strengthen communities. The NCUA has a role to play
in making sure that credit unions can support overlooked or underserved
areas.
The NCUA's ACCESS initiative--Advancing Communities through Credit,
Education, Stability, and Support--began by reviewing NCUA regulations,
processes, and procedures to expand opportunities for greater access to
savings, credit, and other financial services provided by credit
unions.\16\ The five initial ACCESS focus areas are:
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\16\ https://www.ncua.gov/access.
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Chartering new credit unions;
Field of membership;
Low-income designation;
Minority depository institution (MDI) preservation; and
Consumer engagement and outreach.
For 2022, the NCUA's ACCESS initiative will build on the work done
in 2021 and begin to actively engage credit union industry leaders and
stakeholders to identify additional ways to help new, small, low-income
designated and MDI credit unions to grow and prosper. The ACCESS
initiative will also be focused on ways credit unions can help close
the wealth gap, better address the financial needs of communities of
color,
[[Page 67253]]
and better appeal to the unserved and underserved.
NCUA Cybersecurity
The NCUA's approach to agency cybersecurity is founded on the
National Institute of Standards and Technology's (NIST) Cybersecurity
Framework (CSF), which guides and constrains how network boundaries,
mobile and fixed end points (e.g., an iPhone or computer), and data are
provisioned, managed and protected. The CSF requirements are reinforced
by Executive Order 14208: Improving the Nation's Cybersecurity. The
draft budget bolsters the NCUA's to-date cybersecurity efforts and
enables the agency to align its efforts with the requirements of the
Executive Order. To effectively manage cybersecurity risk to systems,
assets, data, and mission capabilities, and to prioritize efforts
consistent with the NCUA's risk management strategy and business needs,
the budget invests in resources and technologies to enhance several of
the NCUA's CSF functional areas.
The draft budget will strengthen the NCUA's ``Identify'' functional
area by making investments in asset management, governance, and risk
assessment. The draft budget will strengthen the NCUA's ``Protect''
functional area by making investments in enterprise protection
capabilities, automated patch management, and enterprise comply-to-
connect capabilities, and by incorporating cloud-native capabilities
into defensive network operations. These investments will help the NCUA
further develop and implement appropriate safeguards for critical
information technology infrastructure services and strengthen NCUA
capabilities to limit or contain the impact of potential cybersecurity
events. The draft budget will strengthen the NCUA's ``Detect''
functional area by making investments in cybersecurity situational
awareness through ``big data'' analytics. Investments in both human and
technology resources will help the NCUA enhance existing processes and
ability to identify cybersecurity events.
Regulatory Improvements
The NCUA has undertaken a series of regulatory improvements in
recent years and will continue to update and improve regulations to
maintain a modern and effective regulatory framework. The NCUA website
includes additional detailed information about all proposed and final
rules for the past several years at: https://www.ncua.gov/regulation-supervision/rules-regulations/proposed-pending-recently-final-regulations/.
The NCUA's Annual Report includes the results of the regulatory
reviews the agency completes on a yearly basis. The NCUA's current
performance target for regulatory review is to review one-third of the
agency's regulations on an annual basis.
V. Operating Budget
Overview
The NCUA Operating Budget is the annual plan for resources required
for the agency to conduct activities prescribed by the Federal Credit
Union Act of 1934. These activities include: (1) Chartering new federal
credit unions; (2) approving field of membership applications of
federal credit unions; (3) promulgating regulations and providing
guidance; (4) performing regulatory compliance and safety and soundness
examinations; (5) implementing and administering enforcement actions,
such as prohibition orders, orders to cease and desist, orders of
conservatorship and orders of liquidation; and (6) administering the
National Credit Union Share Insurance Fund.
Staffing
The staffing levels proposed for 2022 reflect the resource
requirements that support the NCUA's continued efforts to improve the
examination process and enhance the efficiency and effectiveness of the
supervisory process. The 2022-2023 budget includes funding for the NCUA
to increase permanent staffing in critical areas necessary to operate
as an effective federal financial regulator capable of addressing
emerging issues.
The 2022 budget supports a total agency staffing level of 1,247
full-time equivalents.\17\ This is an increase of 48 FTEs compared to
the agency's revised 2021 staffing level of 1,199. The 2021 budget,
approved by the NCUA Board on December 18, 2020, funded a staffing
level of 1,192 FTEs. On September 23, 2021, the NCUA Board approved
seven additional FTEs. The additional Board-approved FTEs for 2021
included: Three positions for the Office of Ethics Counsel (Ethics
Attorney, Ethics Specialist, and Staff Assistant), two positions for
the Chief Information Officer (Cybersecurity Operations and Service
Delivery Manager), one new Cybersecurity Advisory and Coordinator
position in the Office of the Executive Director, and one new Special
Assistant position in the Office of the Board Secretary.
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\17\ 1,242 FTEs are funded by the Operating Budget and five FTEs
are funded by the Central Liquidity Facility.
---------------------------------------------------------------------------
The proposed changes for the 2022 staffing level include:
Increasing by 29 FTEs the NCUA's regional staff of
examiners and supervisory examiners to support more frequent
examinations for certain federal credit unions;
Increasing by three FTEs the NCUA's regional staff to
expand the agency's cadre of specialist examiners;
Increasing by five FTEs the Office of Consumer and
Financial Protection to increase the number of fair lending
examinations and reviews and to strengthen the agency's efforts to
promote financial inclusion and outreach;
Increasing by two FTEs the Office of Credit Union
Resources and Expansion to initiate a new program that supports small
credit unions;
Adding seven new FTEs in various other NCUA headquarters
offices;
Making permanent eight FTEs that are currently filled
within the total NCUA staffing plan;
Reducing by five FTEs the Office of the Chief Financial
Officer and the Office of Examination and Insurance (E&I) by concluding
the NGN program; and
Reducing by one FTE the Office of E&I by reorganizing
responsibilities within the office.
The new 2022 FTEs are described in greater detail below, while the
chart illustrates the NCUA's staffing levels in recent years.\18\
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\18\ Full-time equivalent employment is the total number of
regular straight-time hours (i.e., not including comp time or
holiday hours) worked by employees, divided by the number of
compensable hours applicable to the fiscal year, as defined by OMB
Circular No. A-11. The NCUA uses the number of full-time equivalent
employees projected in the budget to build its estimated pay and
benefits calculations. The actual number of persons employed will
vary at any point in time, based on vacancies, use of part-time
employees, etc.
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[[Page 67254]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.010
Request for New Staff in 2022: +46 FTEs
The staff draft budget includes funding for 46 new FTEs in 2022, as
detailed below:
Regional Credit Union Examiners +29 FTEs
The COVID-19 pandemic has resulted in challenging economic
conditions that may take years to resolve fully. While federal policy
and spending have managed to blunt the most severe economic effects of
the pandemic, future economic conditions may change rapidly,
particularly in communities of modest means that are served by credit
unions. Therefore, it is prudent to expand the criteria for credit
unions that meet the requirements for an annual examination to include
(1) credit unions with assets between $500 million and $1 billion that
have otherwise previously qualified for an extended examination cycle
based on the current Exam Flexibility Initiative criteria, and (2)
credit unions with assets more than $250 million and evaluated as
facing a higher risk of business or economic challenges. This expansion
of the annual examination requirement necessitates an increase in the
examination workforce by 29 FTEs.
Regional Specialist Examiners +3 FTEs
The NCUA last evaluated its needs for specialist examiners in 2018.
Since that time the number of credit unions with more than $100 million
in assets has grown and the complexity of and risks to financial
services' information and payments systems has also increased. In
response to these dynamics within the credit union system, the NCUA
conducted an analysis of its needs for specialist examiners. Three
disciplines in particular are in need of additional specialists:
Regional electronic payments specialists (REPSs), regional information
systems officers (RISOs), and regional lending specialists (RLSs). The
NCUA expects to establish 11 new REPSs, 8 new RISOs, and 4 new RLSs in
its three regions. Specialist Examiners contribute to conducting
examination and supervision work, but at a lower level than examiners.
Therefore, the repurposing of existing authorized positions
necessitates a net increase of three examiner FTEs to account for the
reduction in productive time.
Small Credit Union Program Officers +2 FTEs
The NCUA, as administrator of the Federal Credit Union Act, assists
credit unions with their mission and purpose of promoting thrift among
their members and creating a source of credit for provident or
productive purposes. Small credit unions with less than $100 million in
assets are in a unique position to improve financial inclusion by
offering credit and other services to their communities. These two new
positions in CURE will be responsible for identifying and developing
additional programs to address the needs of small credit unions. Such
support could include efforts to recognize the differences between
small and large credit unions in regulations, policies, and guidance;
developing training for examination staff about the unique needs of
small credit unions and their role serving underserved communities;
promoting opportunities for small credit unions to receive support
through NCUA grants, training, and other initiatives; and developing
partnerships with external organizations that can support small credit
unions.
Fair Lending Analysts +3 FTEs
Three new positions within OCFP will enhance the NCUA's fair
lending function by increasing fair lending examinations by 50 percent
(from 30 to 45 annually) and fair lending supervision contacts by 25
percent (from 40 to 50 annually). The additional staff will focus on
serving as Examiner-In-Charge for and performing fair lending
examinations and supervision
[[Page 67255]]
contacts, and recommending corrective action when required. These
analysts will also serve as technical advisors and function as a
regional resource for fair lending and other consumer financial
protection laws and regulations affecting credit unions. Additionally,
the analysts will participate on FFIEC subcommittees as well as other
interagency and internal working groups.
Fair Lending Supervisor +1 FTE
The expansion of NCUA's fair lending work will require a full-time
supervisor to oversee the added examination workload and ensure a more
equitably balanced supervisor-to-staff ratio within OCFP. Adding an
additional supervisor to oversee workload focused primarily on
conducting examinations will also help foster a more independent
quality control process. The new supervisor will provide leadership and
direction to staff responsible for developing, monitoring, evaluating,
and maintaining NCUA's fair lending program.
Financial Inclusion and Outreach Analyst +1 FTE
This new position within OCFP will be responsible for developing,
coordinating, and implementing the NCUA's strategic stakeholder
relationships related to community affairs, economic inclusion, and
financial education and literacy activities. The new analyst's
portfolio will include consumer financial inclusion/literacy issues
that will require stakeholder engagement and coordination (e.g., Elder
Financial Abuse, Cybersecurity, FinTech and Financial Literacy,
Financial Counseling/Education, Young Savings and Financial Education
Programs, Underserved Outreach/Economic Inclusion). This analyst will
work with NCUA's other financial literacy staff to bring together the
appropriate parties, resources, and information in order to advance
NCUA's financial literacy and consumer financial protection policy
priorities. Such efforts will include hosting annual consumer financial
protection forums, hosting regional consumer financial protection
summits, holding meetings with external groups and regional and central
office stakeholders, creating memorandums of understanding (MOUs) or
formal collaborations, hosting webinars or training workshops, and
creating industry or supervisory guidance to support the financial
education and inclusion needs of credit unions, their member-owners,
and the communities served.
Associate Director, Office of Examination and Insurance +1 FTE
This new position within E&I will provide executive leadership and
oversight for development of the agency's examination and supervision
programs. Additionally, this position will oversee policy and
rulemaking functions that help ensure the safety and soundness of the
credit union system and help manage expanded workload while ensuring
timely delivery of agency initiatives.
System Specialist, Office of Examination and Insurance +1 FTE
This new position within E&I will manage the continuing operations
and maintenance of the new MERIT system as well as other software
updates planned for ongoing maintenance in 2022. Systems-related
workload has generally grown within the E&I Systems Division because of
tasks required to comply with increasing levels of security and
administrative requirements.
Bank Secrecy Officer, Office of Examination and Insurance +1 FTE
This new position within E&I will support the growing requirements
related to Bank Secrecy Act (BSA) policy, guidance, and interagency and
law enforcement engagement. BSA has received increased focus and reform
and efficiency improvements, and interagency initiatives have increased
materially over the last two years. The workload is expected to
increase as fintech, digital currency, distributed payments, and the
broad range of new requirements associated with the Anti-Money
Laundering Act and the Corporate Transparency Act of 2020 are developed
and implemented. The NCUA, like the other financial service agencies,
has an active role to play in virtually all of the new requirements,
including staffing and supporting two new subcommittees of the BSA
Advisory Group focusing on privacy, security, and innovation.
Division Director, Human Capital Systems and Planning +1 FTE
This new position within the Office of Human Resources will manage
human capital, strategic workforce and succession planning, data
analytics, workforce management prioritization, human capital systems
administration, reporting, and compensation analysis. This role is
essential for the day-to-day management of the Division's functions and
the continuing human capital data analysis and planning needed to
recruit, hire, and retain a high-performing workforce.
Senior Website Administrator, Office of External Affairs and
Communications +1 FTE
This new position within the Office of External Affairs and
Communications (OEAC) will supplement the existing website
Administrator. Currently, the agency has one federal employee
overseeing and managing the NCUA website and Section 508 compliance
requirements, supported by contract staff. Demand for website support
and Section 508 compliance continues to increase; new compliance
requests are 25 percent higher in 2021 than 2019. The growing workload
also includes compliance testing as part of the development of new
systems under the Enterprise Solution Modernization program and as part
of the new emphasis for NCUA online/virtual training.
Speechwriter, Office of External Affairs and Communications +1 FTE
This new position within OEAC will manage the increasing demand for
external communications. The new speechwriter position would work side-
by-side with OEAC's current Writer/Editor. Prior to 2019, the number of
speaking events was limited to a few dozen per year. However, starting
in 2019, the tempo of Board and Chairman remarks increased--setting a
new standard for communications.
Asset Management and Assistance Center (AMAC) President +1 FTE
The NCUA requires a dedicated AMAC President position to provide
leadership and serve as the key advisor to the NCUA Board on AMAC
matters, including liquidation payouts, managing assets acquired from
liquidations, and managing recoveries for the National Credit Union
Share Insurance Fund (NCUSIF). This position is necessary to separate
oversight of AMAC's activities from those of the Southern Region and
provide dedicated leadership over AMAC operations. This role will also
oversee AMAC's responsibility for providing assistance and advice
pertaining to conservatorships, real estate and consumer loans,
appraisals, bond claim analysis, and reconstructing accounting records.
Additional Adjustments to Authorized Staffing: +2 FTEs (NET)
In addition to the new positions proposed for 2022, the budget also
includes resources to make permanent the following adjustments to the
agency's staffing and within the overall 2021 Board-authorized staffing
levels:
[[Page 67256]]
Office of National Examinations and Supervision: Five FTEs
to support the supervision of large consumer credit unions: One
national supervision technician, one national lending specialist, one
national supervision analyst, one financial data analyst, and one
national information systems officer.
Office of Business Innovation: One special assistant to
support the growing systems requirements, analytics development
expansion, and implementation and execution of a business intelligence
capability plan.
Office of General Counsel: One labor relations attorney to
manage growing workload requirements.
Office of the Executive Director: One ACCESS coordinator
position will serve as a Program Officer and technical authority for
NCUA's Advancing Communities through Credit, Education, Stability and
Support programs. This position will be responsible for development and
implementation of policies, strategies, and programs to support the
goals and objectives of ACCESS, and will serve as a point of contact
between the public and NCUA Regions and Offices to address questions or
resolve issues regarding financial equity and inclusion.
NCUA Guaranteed Notes Program: Reduction of five positions
that supported the NGN program, which will be concluded in 2022.
Office of Examinations and Insurance: Reduction of one
supervisory position by reorganizing responsibilities within the
office.
Like any government agency, the NCUA manages its changing workload
within its overall authorized budgetary and staff resource levels. The
NCUA Board has delegated to the Executive Director the authority to
adjust staffing within total allocated resources to best respond to
changing agency priorities and trends within the credit union system.
The Executive Director must maintain total NCUA staffing at or below
the resource levels approved within the budget, and promptly inform the
Board of any significant changes to the agency's staffing allocations
within the approved resource totals.
Special Surge Workforce
In 2021, the NCUA Board provided temporary COVID-19 hiring
authority to respond to uncertainties in the credit union system. This
authority continues through 2022 and provides the NCUA the ability to
hire and retain for a term appointment, without a reduction to their
federal annuity, up to 30 individuals who have retired from federal
service into a position classified in the Credit Union Examiner 0580
occupational series. This authority allows the NCUA to add staff who
are already trained and have experience examining depository financial
institutions so as to be better prepared to respond to any elevated
levels of problem institutions that occur in 2022. These positions are
two-year, not-to-exceed appointments, meaning that any employees hired
under this program can serve a maximum of two years, and the
appointments can be ended prior to the end of the two-year term if they
are no longer needed. These positions are funded in 2022 by using
unspent 2020 Operating Budget funds not otherwise made available to
offset the costs of 2022 agency operations, which is anticipated to be
sufficient to fund the positions in 2022.
Budget Category Descriptions and Major Changes
There are five major expenditure categories in the NCUA budget.
This section explains how these expenditures support the NCUA's
operations and presents a transparent overview of the Operating Budget.
[GRAPHIC] [TIFF OMITTED] TN24NO21.011
[[Page 67257]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.012
Actual expenses for the Operating Fund are reported monthly in the
Operating Fund Financial Highlights posted on the NCUA website. Share
Insurance Fund Financial Reports and Statements, which are also posted
to the NCUA website, detail reimbursements made to the Operating Fund
for NCUA expenses.
Salaries and Benefits
The budget includes $257.5 million for employee salaries and
benefits in 2022. This change is a $16.7 million, or 6.9 percent,
increase from the 2021 Board-approved budget. Salaries and benefits
costs make up 79 percent of the annual NCUA budget. There are two
primary drivers of increased costs in 2022 for the Salaries and
Benefits category:
Merit and locality pay increases for the NCUA's employees are paid
in accordance with the agency's current Collective Bargaining Agreement
(CBA) and its merit-based pay system. Salaries are estimated to
increase 3.6 percent in aggregate compared to 2021.
Contributions for employee retirement to the Federal Employee
Retirement System, which are set by the Office of Personnel Management
and cannot be negotiated or changed by the NCUA. Driven largely by the
mandatory FERS rate adjustment, total NCUA benefits costs increase 8.4
percent in 2022 compared to 2021.
In 2022, the NCUA's compensation levels will continue to ``maintain
comparability with other federal bank regulatory agencies,'' as
required by the Federal Credit Union Act.\19\ The Salaries and Benefits
category of the budget includes all employee pay raises for 2022, such
as merit and locality increases, and those for promotions,
reassignments, and other changes, as described below.
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\19\ The Federal Credit Union Act states that, ``In setting and
adjusting the total amount of compensation and benefits for
employees of the Board, the Board shall seek to maintain
comparability with other federal bank regulatory agencies.'' See 12
U.S.C. 1766(j)(2).
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Consistent with other federal pay systems, the NCUA's compensation
includes base pay and locality pay components. The NCUA staff will be
eligible to receive an average merit-based increase of 3.0 percent, and
an additional locality adjustment ranging from 1.0 percent to 3.0
percent, depending on the geographic location.
The first-year cost of the 48 new positions added in 2022 is
estimated to be $4.0 million. Specific increases to individual offices'
salaries and benefits budgets will vary based on current pay levels,
position changes, and promotions.
Personnel compensation at the NCUA varies among every office and
region depending on work experience, skills, years of service,
supervisory or non-supervisory responsibilities, and geographic
locations. In general, more than 85 percent of the NCUA workforce has
earned a bachelor's degree or higher, compared to approximately 35
percent of the private-sector workforce. This high level of educational
achievement ensures the NCUA workforce is able to fulfill its mission
effectively and efficiently, and attracting a well-qualified workforce
requires the agency to pay employees competitive salaries.
Individual employee compensation varies based on the location where
the employee is stationed. The federal government sets locality pay
standards, which are managed by the President's Pay Agent--a council
established to make recommendations on federal pay. The council uses
data from the Occupational Employment Statistics program, collected by
the Bureau of Labor Statistics, to compare salaries in over 30
metropolitan areas and establishes recommendations for equitable
adjustments to employee salaries to account for differences between
localities.
The Office of Personnel Management's economic assumptions for
actuarial valuation of the FERS have increased significantly for 2022.
All federal agencies are expected to contribute 18.4 percent of FERS
employees' salaries to the OPM retirement system, an increase of 110
basis points compared to the 2021 level of 17.3 percent. This mandatary
contribution is prescribed in the OPM Benefits Administration Letter,
dated May 2021. The estimated impact on the NCUA budget is an increase
of approximately $3.4 million in mandatory payments to OPM, or
approximately 21 percent of the salary and benefits growth compared to
2021 levels.
The average health insurance costs for the Federal Employees Health
Benefits (FEHBP) program for 2022 are consistent with historical actual
expenses and the OPM estimate that the government share of FEHBP
premiums will increase 1.9 percent in 2022. The employee salary and
benefits category also includes costs associated with other mandatory
employer contributions such as Social Security, Medicare,
transportation subsidies, unemployment, and workers' compensation.
In past years, the NCUA adjusted its budget downward by an expected
vacancy rate for positions that are not filled during the year because
of a time lag between employee separations and hiring new staff. Since
2018, the NCUA has lowered its vacancy rate and continues to closely
monitor the hiring and attrition trends within its
[[Page 67258]]
workforce. In anticipation of the need for a full complement of staff
in 2022, and because of ongoing efforts to accelerate the agency's
hiring cycle time, the proposed 2022 budget does not include a vacancy
adjustment.
The 2023 budget request for salaries and benefits is estimated at
$273.6 million, a $16.1 million increase from the 2022 level. Included
within this total is the full-year cost impact of new positions
proposed for 2022 (approximately $4.0 million), $564,000 for eight
additional positions expected for 2023, merit and locality pay
increases consistent with the CBA and promotions (approximately $8.2
million), and associated increases in benefits for all employees
(approximately $3.4 million). The 2023 budget also includes an
inflationary adjustment given the potential for a new labor contract
with the NCUA employees' union that is currently under negotiation.
Travel
The 2022 budget includes $20.8 million for travel. This change is a
69.7 percent increase to the 2021 Board-approved budget.
There are three primary reasons for the significant travel budget
increase compared to the 2021 levels. First, the 2021 travel budget of
$12.3 million was unusually low compared to historic levels because of
pandemic-related travel restrictions. Therefore, comparisons between
2021 and 2022 travel levels are not representative of typical annual
travel adjustments. Second, the NCUA expects that although pandemic-
related travel reductions will likely continue through the first
quarter of 2022, travel will approach pre-pandemic levels for the
remainder of the upcoming year. And third, the NCUA plans an expanded
schedule of internal and external meeting events in 2022. A leadership
and training conference is planned for senior leaders and managers to
support professional development and employee engagement. The NCUA also
expects to host three outreach roundtables to support stakeholder
discussions on credit union industry issues.
The travel cost category includes expenses for employees' airfare,
lodging, meals, auto rentals, reimbursements for privately owned
vehicle usage, and other travel-related expenses. These are necessary
expenses for examiners' onsite work in credit unions. Close to two-
thirds of the NCUA's workforce is comprised of field staff who spend a
significant part of their year traveling to conduct the examination and
supervision program. During the COVID-19 pandemic, the agency and its
employees successfully transitioned to an offsite examination posture,
developing new procedures and processes to continue examination and
supervisory work. In 2022, the NCUA will continue evaluating how it can
conduct portions of its examinations remotely and offsite, which should
help constrain the growth of future travel budgets.
The NCUA staff also travel for routine and specialized training. In
2021, the NCUA had planned to conduct a series of training events to
support the nationwide rollout of MERIT; however, these training events
were changed to virtual events in 2021 due to pandemic-related
restrictions. In 2022, the NCUA expects the majority of its staff to
return to in-person training starting in the second quarter of the
year. As appropriate, agency personnel will continue to utilize more
virtual training options to help reduce travel expenses.
The 2023 budget request for travel is estimated to be $24.4
million, or a 17.5 percent increase compared to the 2022 level. This
increase reflects the return to a full-year of travel spending without
pandemic-related restrictions and supports travel for a national
training conference for all employees.
Rent, Communications, and Utilities
The 2022 budget includes $5.2 million for rent, communications, and
utilities. This is a $2.0 million decrease, or 28.2 percent less than
the 2021 Board-approved budget. The Rent, Communications, and Utilities
budget funds the agency's telecommunications and information technology
network expenses and facility rental costs.
Telecommunication charges include leased data lines, domestic and
international voice (including mobile), and other network charges.
Telecommunication costs also include the circuits and any associated
usage fees for providing voice or data telecommunications service
between data centers, office locations, the internet, and any customer,
supplier, or partner.
The 2022 budget includes funding to support procurement of
additional circuits and express routers for Microsoft365
implementation, the agency's data connectivity at NCUA disaster
recovery sites, and transition to the GSA-managed Enterprise
Infrastructure Solutions. EIS is the federal government's contract for
enterprise telecommunications and networking solutions. By
transitioning to EIS, the NCUA will benefit from the comprehensive
solution EIS provides to address all aspects of federal agency IT,
telecommunications, and infrastructure requirements. This new
acquisition strategy with a new vendor reduced the agency's annual
telecommunications by approximately $2.2 million, accounting for most
of the Rent, Communications, and Utilities budget decrease compared to
2021. Other cost reductions were attributed to a new award for Federal
Relay Services, saving $170,000.
Office building leases, meeting space rentals, office utilities,
and postage expenses are also included in this budget category.
Facility costs are approximately $720,000 in 2022 for office space
rental for the Western Region, insurance, and ancillary costs for the
NCUA Central Office. The annual utility costs for the Central Office
and regional offices are estimated at $453,000.
The 2022 budget also includes $686,000 for event rental costs for
examiner meetings, a leadership conference, three roundtable events,
and credit union examiner training events.
The 2023 budget request for the Rent, Communications, and Utilities
category is estimated to be $5.4 million, or a 4.0 percent increase
compared to 2022. The $200,000 increase is primarily associated with
audio-visual and telecommunication expenses for the planned NCUA
national training conference.
Administrative Expenses
The 2022 budget includes $5.8 million for administrative expenses.
This is a decrease of $241,000, or 4.0 percent, compared to the 2021
Board-approved budget. Recurring costs in the Administrative Expenses
category include the annual reimbursement to the Federal Financial
Institutions Examination Council, employee relocation expenses,
recruitment and advertising expenses, shipping, printing,
subscriptions, examiner training and meeting supplies, office
furniture, and employee supplies and materials.
As part of the FFIEC, the NCUA shares in costs for joint actions
and services that affect the financial services industry. The FFIEC
costs are estimated to be $82,000 lower in 2022 than 2021 for a total
NCUA cost sharing payment of $1.3 million.
The ongoing use of telework in 2022 is expect to lower supplies,
materials, and subscription costs for an estimated savings of $294,000
compared with the 2021 budget.
The 2022 budget includes $1.0 million for employee relocations, an
increase of $250,000 compared to the 2021 budget. Relocation costs are
paid by the NCUA to employees who are
[[Page 67259]]
competitively selected for a promotion or new job within the agency in
a different geographic area than where they live.
The 2023 budget request for Administrative Services is estimated to
be $6.0 million, or a 3.9 percent increase to support administrative
expenses for the planned NCUA national training conference.
Contracted Services
The 2022 budget includes $36.7 million for contracted services.
This is a $11.6 million decrease, or 23.9 percent, compared to the 2021
Board-approved budget. However, $23.0 million of unspent budget amounts
from prior years will be used to pay for 2022 contracted services
expenses. Therefore, the total planned budget for contracted services
in 2022 is approximately $59.7 million.
The Contracted Services budget category includes the agency's costs
incurred when products and services are acquired in the commercial
marketplace. Acquiring specific expertise or services from contract
providers is often the most cost-effective approach to fulfill the
NCUA's mission. Such services include critical mission support, such as
information technology equipment and software development, accounting
and auditing services, and specialized subject matter expertise that
enable staff to focus on core mission execution.
The majority of funding in the Contracted Services category
supports the NCUA's robust supervision framework and includes funding
for tools used to identify and resolve risk concerns such as interest
rate risk, credit risk, and industry concentration risk, as well as by
addressing new and evolving operational risks such as cybersecurity
threats. Growth in the contracted services budget category results
primarily from new operations and maintenance costs associated with
capital investments, such as the Examination and Supervision Solution
system, which is commonly known as MERIT. Other costs include core
agency business operation systems such as accounting and payroll
processing, and various recurring costs, as described in the following
seven major categories:
Information Technology Operations and Maintenance (54.4
percent of contracted services)
[cir] IT network support services and help desk support
[cir] Contractor program and web support and network and equipment
maintenance services
[cir] Administration of software products such as Microsoft Office,
Share Point, and audio visual services
Administrative Support and Other Services (12.9 percent of
contracted services)
[cir] Examination and Supervision program support
[cir] Technical support for examination and cybersecurity training
programs
[cir] Equipment maintenance services
[cir] Legal services and other expert consulting support
[cir] Other administrative mission support services for the NCUA
central office
Accounting, Procurement, Payroll, and Human Resources Systems
(5.5 percent of contracted services)
[cir] Accounting and procurement systems and support
[cir] Human resources, payroll, and employee services
[cir] Equal employment opportunity and diversity programs
Building Operations, Maintenance, and Security (7.0 percent of
contracted services)
[cir] Central office facility operations and maintenance
[cir] Building security and continuity programs
[cir] Personnel security and administrative programs
Information Technology Security (9.9 percent of contracted
services)
[cir] Enhanced secure data storage and operations
[cir] Information security programs
[cir] Security system assessment services
Training (6.9 percent of contracted services)
[cir] Examiner staff, technical and specialized training and
development
[cir] Senior executive and mission support staff professional
development
Audit and Financial Management Support (3.4 percent of
contracted services)
[cir] Annual audit support services
[cir] Material loss reviews
[cir] Investigation support services
[cir] Financial management support services
The following pie chart illustrates the breakout of the seven
categories for the total 2022 Contracted Services budget of $59.7
million, with $36.7 million funded from 2022, and $23.0 million funded
from prior year available balances.
[[Page 67260]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.013
Note: Minor rounding differences may occur in totals.
Major programs within the contracted services category include:
Training requirements for the examiner workforce. The
NCUA's most important resource is its highly educated, experienced, and
skilled workforce. It is important that staff have the proper
knowledge, skills, and abilities to perform assigned duties and meet
emerging needs. Each year, examiners complete a wide range of training
classes to ensure their skills and industry knowledge are kept up to
date, including in core areas such as capital markets, consumer
compliance, and specialized lending. Major training deliverables for
2022 include classes offered by the Federal Financial Institutions
Examination Council, updated examiner classes, and subject matter
expert training sessions for the NCUA examiners. All examiner courses
will be updated to reflect changes from the AIRES to MERIT systems.
Contracted service providers, in partnership with the NCUA subject
matter experts, will develop and design training classes for examiners
and continue work on the triennial review of the NCUA's Subject Matter
Examiner (SME) course curriculum. The NCUA's new Talent Management
System will continue to be updated to refine the current online
courses. Additionally, contracted service providers and central office
staff will continue conducting organizational development, leadership,
and teambuilding training.
Information security program. This NCUA program supports
ongoing efforts to strengthen the agency's cybersecurity and ensure its
compliance with the Federal Information System Management Act.
Agency financial management services, human resources
technology support, and payroll services. The NCUA contracts for these
back-office support services with the U.S. Department of
Transportation's Enterprise Service Center (DOT/ESC) and the General
Services Administration. The NCUA's human resource system, HR Links,
also adopted by other federal agencies, is a shared solution that
automates routine human resource tasks and improves time and attendance
functionality.
Audit. The NCUA Office of Inspector General contracts with
an accounting firm to conduct the annual audit of the agency's four
permanent funds. The results of these audits are posted annually on the
NCUA website and also included as part of the agency's Annual Report.
A significant share of the budget for the Contracted Services
category finances ongoing information technology infrastructure support
for the agency. The 2022 budget includes the second year of funding for
operations and maintenance of the MERIT system, which replaced the
legacy AIRES examination system in 2021. Several other of the NCUA's
core information technology systems and processes also require
additional contract support in 2022, which results in increased budgets
in the Contracted Services category, as described below.
Within the budget for the Office of Chief Information Officer
(OCIO), an additional $10.9 million compared to the 2021 budget level
is required for:
Information technology infrastructure operations and
maintenance labor support for MERIT and other NCUA legacy systems;
Application tools that support the new MERIT system and
other mission critical and business applications; and
Enhanced cybersecurity operations to support the
implementation of the Executive Order on Improving the Nation's
Cybersecurity.
Within the Office of Human Resources, contracted services increase
by $335,000 compared to the 2021 budget level, primarily for program
support for human resource capital and workforce programs, projects,
training support, and management systems.
Within the Office of Credit Union Resources and Expansion,
contracted services increase by $450,000 compared to the 2021 budget
level. Of this amount, $350,000 will support a new initiative to
support small credit unions, while $100,000 will be used to support the
NCUA's grants program and other activities that cultivate small,
minority-designated, and low-income-designated credit unions.
The Office of Minority Women and Inclusion's (OMWI) contract budget
increases by $223,000 compared to the 2021 budget level. This increase
will help OMWI achieve the goals established in the agency's Diversity
and Inclusion Strategic Plan to promote diversity and inclusion within
the agency and the credit union industry
[[Page 67261]]
and ensure equal opportunity in accordance with the mandates of Section
342 of the Dodd-Frank Act. OMWI expects to host an in-person Diversity
Equity and Inclusion Summit in 2022 to bring together credit union
professionals to: Promote the value of diversity, equity, and inclusion
for credit unions; share best diversity, equity, and inclusion
practices; and develop solutions to industry-specific challenges in
this arena. Additionally, OMWI expects to automate a critical internal
business process to ensure the agency can respond efficiently to
federally mandated Equal Employment Opportunity Commission management
directives.
Within the Office of the Chief Financial Officer, 2022 contracted
service reductions of $369,000 compared to the 2021 budget level are
associated with decreased operational costs for administrative and
logistical support (e.g., mail, distribution, copying) and reductions
of one-time 2021 contract items. In addition, parking expenses for
Central Office staff are reduced in anticipation of an increase in
employee telework.
Contracted services spending for 2023 is estimated at $59.9
million, roughly the same as 2022. Because unspent prior-year budgets
are not expected to be available again in 2023, the Contracted Services
budget increases by $23.0 million between 2022 and 2023.
VI. Capital Budget
Overview
Annually, the NCUA carries out a rigorous review process to
identify the agency's needs for information technology (IT), facility
improvements and repairs, and other multi-year capital investments. The
NCUA staff review the agency's inventory of owned facilities,
equipment, IT systems, and IT hardware to determine what requires
repair, major renovation, or replacement. The staff then make
recommendations for prioritized investments to the NCUA Board.
IT systems and hardware require significant capital expenditures
for modern organizations. The 2022 budget continues the NCUA's multi-
year investment in current and replacement IT systems. The budget fully
supports the NCUA's effort to modernize its IT infrastructure and
applications, including the first full year for field staff to use
MERIT, which is the NCUA's Examination and Supervision Solution (ESS)
project that replaces the legacy Automated Integrated Regulatory
Examination System. Other IT investments include the deployment of new
laptops on the Windows 11 platform, ongoing enhancements and upgrades
to decades-old legacy systems, network servers, and systems to ensure
the agency's cybersecurity posture complies with Executive Order 14208,
and various hardware investments to refresh agency networks and ensure
staff have the tools necessary to maintain and increase their
productivity.
Routine repairs and lifecycle-driven property renovations are also
necessary to properly maintain investments in the NCUA-owned
properties. The NCUA Facilities Manager assesses the agency's
properties to determine the need for essential repairs, replacement of
building systems that have reached the end of their engineered lives,
or renovations required to support changes in the agency's
organizational structure or address revisions to building standards and
codes.
The NCUA's staff draft 2022 capital budget is $13.1 million. The
capital budget funds the NCUA's long-term investments. The 2022 capital
budget provides $3.3 million for IT software development projects and
$8.3 million in other IT investments for 2022. The NCUA facilities
require $1.5 million in capital investments.
[GRAPHIC] [TIFF OMITTED] TN24NO21.014
Detailed descriptions of all 2022 capital projects, including a
discussion of how each project helps the agency achieve its goals and
objectives, are provided in Appendix B.
Summary of Capital Projects
Examination and Supervision Solution and Infrastructure Hosting ($0.9
Million)
The purpose of the Examination and Supervision Solution and
Infrastructure Hosting (ESS&IH) project is to deliver a new, flexible,
technical foundation to enable current and future NCUA business process
modernization initiatives. ESS&IH replaces the NCUA's legacy
examination system, AIRES, with the new MERIT system. In 2021, all NCUA
examiners were trained to use the new MERIT system. MERIT was fully
deployed to all NCUA examiners in the fall of 2021. In 2022, capital
investments in ESS&IH will allow the NCUA to address system bugs
reported by the broader user base, continue to enhance MERIT and the
ESS suite of applications based on user feedback, and bring additional
NCUA applications onto NCUA Connect to leverage this new enterprise
service to meet multi-factor authentication security requirements.
Data Reporting Solution (DRS) ($0.7 Million)
The purpose of this project is to support the NCUA's Enterprise
Solution Modernization (ESM) program. The DRS is part of the
overarching Enterprise System Modernization (ESM) program, and focused
on implementing a business intelligence (BI) solution for enhanced data
access, integrity, analytics and reporting. DRS will provide a modern
self-service BI tool for the enterprise, as well as access to data
[[Page 67262]]
to enable staff to efficiently and effectively utilize the tool. DRS
leverages other key modernization initiatives: The Enterprise Central
Data Repository (ECDR), the new enterprise data integration point and
platform to support data and analytic initiatives, as well as expanded
examination data in MERIT.
Enterprise Data Program ($0.4 Million)
The purpose of this project is the centralization, organization,
and storage of the NCUA's data. The primary goal is to enable the NCUA
to manage enterprise data as a strategic asset through its full
lifecycle (create/collect, manage/move, consume, dispose). For 2022,
the Enterprise Data Program (EDP) capital funds will be used to improve
the agency's effectiveness by maturing data management practices. This
will help ensure the use of high-quality data in operations, reporting,
and analytics. This is a highly collaborative effort to facilitate
alignment across offices and will make data-related work more effective
and efficient.
NCUA Website Development ($0.1 Million)
This project provides ongoing improvements to the website, such as
an improved user experience, and supports the ongoing maintenance needs
of the agency's public websites: NCUA.gov and MyCreditUnion.gov.
Significant Regulatory Changes ($1.0 Million)
These funds will allow for applications and databases to be updated
to accommodate any regulatory changes going into effect in 2022, which
can impact multiple legacy systems. These changes can be significant,
requiring additional time and resources to ensure affected systems are
updated before final regulations become effective. Examples of Board-
approved initiatives from 2021 include: Adding the sensitivity or ``S''
component rating to the existing CAMEL system and approval of the
Current Expected Credit Losses (CECL) Phase-in Final Rule in June of
2021.
Credit Union Locator and Research a Credit Union Updates ($0.2 Million)
The current CU Locator and Research a Credit Union websites are
public-facing websites that can be accessed through NCUA.gov. Both
websites are used externally by credit unions, credit union members,
and the public. These websites are not currently optimized for use on
mobile devices, nor Section 508 compliant. This investment will update
both CU Locator and Research a Credit Union websites to make them
responsive for mobile devices (e.g., automatically resize to the screen
size of a phone or tablet), Section 508 compliant, and add
functionalities based upon requirements gathered.
Enterprise Laptop Refresh ($5.0 Million)
The agency's current laptops are more than four years old and in
need of replacement. This capital investment will fund (1) the
selection of new, standard laptop configurations, (2) testing the new
laptops and operating system with the NCUA's existing business and
productivity applications, network, and peripherals (e.g., keyboards,
printers and scanners), (3) device acquisition, and (4) the deployment
of the new devices to all NCUA employees and contractors.
Information Technology Infrastructure, Platform and Security Refresh
($1.6 Million)
The purpose of the Information Technology (IT) Infrastructure,
Platform and Security Refresh project is to replace outdated or end-of-
life network and platform hardware, as well as to prepare the NCUA for
cloud computing adoption. This investment helps ensure business
continuity and efficient operations by improving system availability
and stability.
Hybrid Work Environment Updates ($0.3 Million)
The NCUA's current inventory of Voice over Internet Protocol (VoIP)
desk and speaker phones are end-of-life and will be replaced in 2022.
This investment will provide Microsoft Teams-compatible VoIP speaker
phones. This project will also integrate the reservation system for the
conference rooms into the NCUA's M365 service platform.
Executive Order on Improving the Nation's Cybersecurity ($1.4 Million)
This investment will ensure the NCUA complies with Executive Order
14208, Improving the Nation's Cybersecurity. The project funds will
enable the NCUA to accelerate (1) implementation of Multi-Factor
Authentication (MFA) for all NCUA applications, (2) use of a zero-trust
architecture for the NCUA's infrastructure and applications, and (3)
transition of computing and storage resources from on-premise to a
cloud service provider.
Central Office Heating, Ventilation, and Air Conditioning (HVAC) System
Replacement ($1.5 Million)
The NCUA central office HVAC system replacement project will
replace all HVAC systems in the headquarters building, including
cooling towers, air handlers, boilers, and all other HVAC components.
The current HVAC system is original to the facility--it is 29 years
old, obsolete, and some component parts are no longer available. HVAC
systems are the biggest users of electricity in a facility, and the
anticipated life span of major system components is approximately 20 to
25 years. The current system is at the end of its useful life, and it
is not working efficiently. In recent years, the maintenance and
operating costs have increased considerably and system components are
failing more frequently, which are clear signs of decreased
reliability.
VII. Share Insurance Fund Administrative Budget
Overview
The Share Insurance Fund Administrative Budget funds direct costs
associated with authorized Share Insurance Fund activities.\20\ Direct
costs to the Share Insurance Fund include items such as data
subscriptions and technology tools for ONES analysis of large credit
unions, travel for state examiners attending NCUA-sponsored training,
and audit support for the Share Insurance Fund's financial statements.
Beginning in 2022 the Share Insurance Fund Administrative Budget will
also include certain insurance-related expenses for AMAC operations.
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\20\ Direct costs are exclusive of any costs that are shared
with the Operating Fund through the Overhead Transfer Rate, and with
payments available upon requisition by the Board, without fiscal
year limitation, for insurance under section 1787 of this title, and
for providing assistance and making expenditures under section 1788
of this title in connection with the liquidation or threatened
liquidation of insured credit unions as it may determine to be
proper.
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The Share Insurance Fund Administrative Budget also pays for costs
associated with the Corporate System Resolution Program and related NGN
program. On June 14, 2021, the last outstanding NGN Trust matured. Most
of the remaining Corporate System Resolution Program assets held by the
NCUA will be sold in 2022. The budget for the NGN program therefore
decreases in 2022 compared to the 2021 NGN funding levels.
Budget Requirements and Description
The 2022 Share Insurance Fund Administrative budget is estimated to
be
[[Page 67263]]
$6.2 million, which is $1.7 million, or 21.7 percent, less than 2021.
The 2022 budget decrease is primarily driven by phase out of the
NGN program. Therefore the expenses required to maintain the program
decrease compared to 2021.
The 2023 requested budget supports similar workload and resources
for Share Insurance Fund direct expenses, which are expected to remain
the same as 2022 at $4.8 million, and includes no NGN related costs.
Share Insurance Fund Direct Expenses
Direct expenses to the Share Insurance Fund are estimated to be
$4.8 million in 2022, an increase of $0.3 million, or 7.4 percent,
compared to the 2021 budget level.
Direct charges to the Share Insurance Fund include $2 million for
operating and maintenance costs of the Asset and Liabilities Management
system (ALM), which allows the NCUA to build internal analytical
capabilities to conduct supervisory stress testing analyses and to
perform other quantitative risk assessments of large credit unions.
In 2022 the Share Insurance Fund will begin paying for certain
insurance-related activities and expenses of AMAC. The Share Insurance
Fund budget includes $0.4 million for these AMAC activities, such as
consulting expenses necessary to prevent or attempt to prevent a
liquidation or conservatorship, staff travel for consultation on
complex or problem cases, and an initial review of the successes and
challenges of the Corporate System Resolution Program.
The 2022 budget also includes funds related to the supervisory
responsibilities that the NCUA shares with State Supervisory
Authorities (SSAs). The Share Insurance Fund Administrative Budget
includes $1.2 million for state examiner travel to NCUA-sponsored
training classes, and $0.2 million to ensure that SSAs can use the full
functionality of the recently deployed MERIT examination system. The
2021 budget included similar amounts for these activities.
Finally, the Share Insurance Fund Administrative Budget includes
$0.9 million for the related annual financial audit and for contractor
support to ensure effective internal controls for the fund.
NGN Program
In 2017 the Board voted to close the Temporary Corporate Credit
Union Stabilization Fund. Since 2018 the Share Insurance Fund has
funded the NGN program and related administrative costs to include
employee pay, benefits, travel, and contract support required to
support the program.
The NGN program will substantially conclude in 2022, and the 2022
budget for this program decreases as a result. The NGN budget falls in
2022 by almost 60 percent, to $1.5 million from $3.5 million in 2021.
The largest expenses remaining in this budget include $0.5 million for
employee compensation and $0.6 million for third-party valuation
services required for the remaining legacy assets. The five positions
associated with the NGN program will be eliminated.
Because the NGN program will wind down in 2022, there will be no
NGN budget in 2023.
BILLING CODE 7535-01-P
[GRAPHIC] [TIFF OMITTED] TN24NO21.015
[[Page 67264]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.016
BILLING CODE 7535-01-C
VIII. Financing the NCUA Programs
Overview
The NCUA incurs various expenses to achieve its statutory mission,
including those involved in examining and supervising federally insured
credit unions. The NCUA Board adopts an Operating Budget, a Capital
Budget, and a Share Insurance Fund Administrative Budget each year to
fund the vast majority of the costs of operating the agency.\21\ When
formulating the annual budget, the NCUA is mindful that its operating
funding comes from credit unions. The agency strives to ensure the
agency operates in an efficient, effective, transparent, and fully
accountable manner.
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\21\ Some costs are directly charged to the Share Insurance Fund
when appropriate to do so. For example, costs for training and
equipment provided to State Supervisory Authorities are directly
charged to the Share Insurance Fund.
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The Federal Credit Union Act authorizes two primary sources to fund
the Operating Budget:
1. Requisitions from the Share Insurance Fund ``for such
administrative and other expenses incurred in carrying out the
purposes of [Title II of the Act] as [the Board] may determine to be
proper''; \22\ and
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\22\ 12 U.S.C. 1783(a).
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2. ``fees and assessments (including income earned on insurance
deposits) levied on insured credit unions under [the Act].'' \23\
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\23\ 12 U.S.C. 1766(j)(3). Other sources of income for the
Operating Budget have included interest income, funds from
publication sales, parking fee income, and rental income.
Among the fees levied under the Act are annual Operating Fees,
which are required for federal credit unions under 12 U.S.C. 1755 ``and
may be expended by the Board to defray the expenses incurred in
carrying out the provisions of [the Act,] including the examination and
supervision of [federal credit unions].''
Taken together, these authorities effectively require the Board to
determine which expenses are appropriately paid from each source while
giving the Board broad discretion in allocating expenses.
In 1972, the Government Accountability Office recommended the NCUA
adopt a method for allocating Operating Budget costs--that is, the
portion of the NCUA's budget funded by requisitions from the Share
Insurance Fund and the portion covered by Operating Fees paid by
federal credit unions.\24\ The NCUA has since used an allocation
methodology known as the Overhead Transfer Rate (OTR) to
[[Page 67265]]
determine how much of the Operating Budget to fund with a requisition
from the Share Insurance Fund.
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\24\ http://www.gao.gov/assets/210/203181.pdf.
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The NCUA uses the OTR methodology to allocate agency expenses
between these two primary funding sources. Specifically, the OTR is the
formula the NCUA uses to allocate insurance-related expenses to the
Share Insurance Fund under Title II of the Act. Almost all other
operating expenses are funded through collecting annual Operating Fees
paid by federal credit unions.\25\
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\25\ Annual Operating Fees must ``be determined according to a
schedule, or schedules, or other method determined by the NCUA Board
to be appropriate, which gives due consideration to the expenses of
the [NCUA] in carrying out its responsibilities under the [Act] and
to the ability of [FCUs] to pay the fee.'' 12 U.S.C. 1755(b).
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Two statutory provisions directly limit the Board's discretion with
respect to Share Insurance Fund requisitions for the NCUA's Operating
Budget and, hence, the OTR. First, expenses funded from the Share
Insurance Fund must carry out the purposes of Title II of the Act,
which relate to share insurance.\26\ Second, the NCUA may not fund its
entire Operating Budget through charges to the Share Insurance
Fund.\27\ The NCUA has not imposed additional policy or regulatory
limitations on its discretion for determining the OTR.
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\26\ 12 U.S.C. 1783(a).
\27\ The Act in 12 U.S.C. 1755(a) states, ``[i]n accordance with
rules prescribed by the Board, each [federal credit union] shall pay
to the [NCUA] an annual operating fee which may be composed of one
or more charges identified as to the function or functions for which
assessed.'' See also 12 U.S.C. 1766(j)(3).
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Overhead Transfer Rate (OTR)
The NCUA conducts a comprehensive workload analysis annually. This
analysis estimates the amount of time necessary to conduct examinations
and supervise federally insured credit unions in order to carry out the
NCUA's dual mission as insurer and regulator. This analysis starts with
a field-level review of every federally insured credit union to
estimate the number of workload hours needed for the current year.
These estimates are informed by the overall parameters of the NCUA's
examination program, as most recently updated by the Exam Flexibility
Initiative approved by the Board.\28\ The workload estimates are then
refined by regional managers and submitted to the NCUA headquarters for
the annual budget proposal. The OTR methodology accounts for the costs
of the NCUA, not the costs of state regulators. Therefore, there are no
calculations made for state examiner hours.
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\28\ The Exam Flexibility Initiative started with the January 1,
2017, examination cycle, and it allows for extended examination
cycles for eligible credit unions. Letters to Credit Unions 16-CU-
12, December 2016.
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There have not been any major changes to the parameters of the
examination program since the current OTR methodology went into
effect.\29\ The minor variations in the OTR since 2018 are the result
of routine, small fluctuations in the variables that affect the OTR,
including normal fluctuations in the workload budget from one calendar
year to the next.
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\29\ On November 16, 2017, the NCUA Board adopted a new
methodology for calculating the OTR starting with the 2018 OTR. 82
FR 55644, November 22, 2017.
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The NCUA Board approved the current methodology for calculating the
OTR at its November 2017 open meeting.\30\ In 2020, the Board published
in the Federal Register a request for comment regarding the OTR
methodology but did not propose or adopt any changes to the current
methodology.\31\ The OTR is designed to cover the NCUA's costs of
examining and supervising the risk to the Share Insurance Fund posed by
all federally insured credit unions, as well as the costs of
administering the fund. The OTR represents the percentage of the
agency's operating budget paid for by a transfer from the Share
Insurance Fund. Federally insured credit unions are not billed for and
do not have to remit the OTR amount; instead, it is transferred
directly to the Operating Fund from the Share Insurance Fund. This
transfer, therefore, represents a cost to all federally insured credit
unions.
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\30\ 82 FR 55644 (Nov. 22, 2017).
\31\ https://www.federalregister.gov/documents/2020/08/31/2020-17009/request-for-comment-regarding-national-credit-union-administration-overhead-transfer-rate.
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The OTR formula uses the following underlying principles to
allocate agency operating costs:
1. Time spent examining and supervising federal credit unions is
allocated as 50 percent insurance related.\32\
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\32\ The 50 percent allocation mathematically emulates an
examination and supervision program design where the NCUA would
alternate examinations, and/or conduct joint examinations, between
its insurance function and its prudential regulator function if they
were separate units within the NCUA. It reflects an equal sharing of
supervisory responsibilities between the NCUA's dual roles as
charterer/prudential regulator and insurer given both roles have a
vested interest in the safety and soundness of federal credit
unions. It is consistent with the alternating examinations the FDIC
and state regulators conduct for insured state-chartered banks as
mandated by Congress. Further, it reflects that the NCUA is
responsible for managing risk to the Share Insurance Fund and
therefore should not rely solely on examinations and supervision
conducted by the prudential regulator.
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2. All time and costs the NCUA spends supervising or evaluating
the risks posed by federally insured, state-chartered credit unions
or other entities that the NCUA does not charter or regulate (for
example, third-party vendors and Credit Union Service Organizations
(CUSOs)) are allocated as 100 percent insurance related.\33\
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\33\ The NCUA does not charter state-chartered credit unions nor
serve as their prudential regulator. The NCUA's role with respect to
federally insured state-chartered credit unions is as insurer.
Therefore, all examination and supervision work and other agency
costs attributable to insured state-chartered credit unions is
allocated as 100 percent insurance related.
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3. Time and costs related to the NCUA's role as charterer and
enforcer of consumer protection and other non-insurance based laws
governing the operation of credit unions (like field of membership
requirements) are allocated as 0 percent insurance related.\34\
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\34\ As the federal agency with the responsibility to charter
federal credit unions and enforce non-insurance related laws
governing how credit unions operate in the marketplace, the NCUA
resources allocated to these functions are properly assigned to its
role as charterer/prudential regulator.
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4. Time and costs related to the NCUA's role in administering
federal share insurance and the Share Insurance Fund are allocated
as 100 percent insurance related.\35\
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\35\ The NCUA conducts liquidations of credit unions, insured
share payouts, and other resolution activities in its role as
insurer. Also, activities related to share insurance, such as
answering consumer inquiries about insurance coverage, are a
function of the NCUA's role as insurer.
These four principles are applied to the activities and costs of
the agency to determine the portion of the agency's budget that is
funded by the Share Insurance Fund. Based on the Board-approved
methodology and the proposed staff draft budget, the OTR for 2022 is
110 basis points (1.1 percent) higher than 2021, and estimated to be
63.4 percent. Thus, 63.4 percent of the total Operating Budget is
estimated to be paid out of the Share Insurance Fund. The remaining
36.6 percent of the Operating Budget is estimated to be paid for by
Operating Fees collected from federal credit unions. The explicit and
implicit distribution of total Operating Budget costs for federal
credit unions and federally insured, state-chartered credit unions is
outlined in the table below:
[[Page 67266]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.017
To determine the funds transferred from the Share Insurance Fund to
the Operating Fund, the OTR is applied to actual expenses incurred each
month. Therefore, the rate calculated by the OTR formula is multiplied
by each month's actual operating expenditures and the product of that
calculation is transferred from the Share Insurance Fund to the
Operating Fund. This monthly reconciliation to actual operating
expenditures captures the variance between actual and budgeted amounts,
so when the NCUA's expenditures are less than budgeted, the amount
charged to the Share Insurance Fund is also less--and those lower
expenditures benefit both federally chartered and state chartered
credit unions.
The use of insured shares in calculating the OTR was eliminated
from the OTR methodology adopted by the Board in 2017. However, insured
shares are used for informational purposes to reflect the fundamental
economics with respect to how the implicit costs of the OTR are borne
by federal and state-chartered credit unions. Use of insured shares is
consistent with the mutual nature of the Share Insurance Fund and part
of the statutory scheme related to Share Insurance Fund deposits,
premiums, and dividends.\36\ The number, size, and health of federal
and state credit unions affects the NCUA's workload budget, which in
turn is one of the variables in the OTR methodology.
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\36\ 12 U.S.C. 1782(c)(2) and (3).
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The primary driver of the increase in the estimated 2022 OTR is the
proposed increase in examination and supervision time for federally
insured credit unions that results from proposals in the staff draft
budget to conduct annual examinations for certain credit unions, and
other program obligations associated with examination scheduling and
scope requirements. Normal fluctuations in the workload budget from one
calendar year to the next are also variables that influence the change
in the calculated OTR compared to previous years. Workload budget
variables include, but are not limited to, changes in CAMEL ratings,
the number and size of credit unions that meet the annual exam and
extended exam eligibility criteria, credit unions with emerging risk
indicators, variations in individual state regulator programs, one-time
events (e.g., the implementation of the new MERIT examination system,
COVID-19 pandemic economic impacts) and fluctuations in the timing of
examinations related to a particular calendar year.
CUSOs are at times subject to review during the examination of a
federally insured credit union. The OTR methodology captures CUSO-
related time within the scope of the examination and supervision of
federally insured credit unions under Principle 1 for federal credit
unions and Principle 2 for federally insured state-chartered credit
unions. The time designated for separate, standalone reviews of CUSOs
and third-party vendors is accounted for separately in the NCUA's
workload budget and is covered by Principle 2 only. The standalone
review of CUSOs and third-party vendors is to identify and address risk
to federally insured credit unions.
The following chart illustrates the share of the Operating Budget
paid by federal credit unions (FCUs, 68.3%) and federally insured,
state-chartered credit unions (FISCUs, 31.7%).
[[Page 67267]]
[GRAPHIC] [TIFF OMITTED] TN24NO21.018
Operating Fee
The Board delegated authority to the Chief Financial Officer to
administer the methodology approved by the Board for calculating the
Operating Fee and to set the fee schedule as calculated per the
approved methodology. In 2020, the Board approved and published in the
Federal Register several changes to the Operating Fee methodology,
which form the basis for how the Operating Fee is calculated in this
section.\37\
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\37\ https://www.govinfo.gov/content/pkg/FR-2020-12-31/pdf/2020-28490.pdf.
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To determine the annual Operating Fee assessed on federal credit
unions, the NCUA first calculates the average of total assets reported
in the preceding year's fourth quarter and the first three quarters of
the current year, net of any reported Paycheck Protection Program (PPP)
loans. Credit unions with assets less than $1 million are not assessed
an Operating Fee and their assets are therefore excluded from this
calculation.
Based on the Board-approved Operating Fee methodology, which is
summarized in the following tables, the share of the 2022 budget funded
by the Operating Fee is $123.6 million. This equates to 0.0128 percent
of the estimated actual average of federal credit union assets for the
four quarters ending on September 30, 2021. The overall decrease for
the Operating Fee would be 11.2 percent less than 2021, as shown on the
table on page 59.
As part of the Board-approved Operating Fee methodology, the NCUA
can adjust the share of the budget funded by the Operating Fee based on
an analysis of the agency's forward cash flow requirements compared to
past years' collections that were not spent as planned. Any projected
surplus cash from past years' fee collections not required to finance
agency operations can accordingly be used to lower the Operating Fee
share of the proposed budget. Because such cash surpluses result from
past years' Operating Fee collections, they do not offset the portion
of the budget funded by the Overhead Transfer Rate.
To set the assessment scale for 2022, total growth in federal
credit union assets is calculated as the change between the average of
the four most-current quarters (i.e., the fourth quarter of 2020 and
the first three quarters of 2021) and the previous four quarters (i.e.,
the fourth quarter of 2019 and the first three quarters of 2020), which
is estimated to be 14.3 percent.\38\ Asset level dividing points are
likewise increased by this same growth rate in order to preserve the
same relative relationship of the scale to the applicable asset base.
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\38\ For the staff draft budget, total assets are determined
using the 2021 second quarter data based on actual call report data.
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Operating Fee Scale
To illustrate the rate for each asset tier for which Operating Fees
are charged, the tables below show the effect of the average 11.2
percent decrease in the Operating Fee for natural person federal credit
unions. The corporate federal credit union rate scale remains unchanged
from prior years.
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IX. Appendix A: Supplemental Budget Information
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X. Appendix B: Capital Projects
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[FR Doc. 2021-25486 Filed 11-23-21; 8:45 am]
BILLING CODE 7535-01-C
