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Board Action Bulletin

ALEXANDRIA, Va. (Nov. 15, 2018) – The National Credit Union Administration Board held its tenth open meeting of 2018 at the agency’s headquarters today and unanimously approved two items:

• Operating, capital, and Share Insurance Fund budgets for 2019 and 2020 to fund the agency’s essential activities and strategic priorities.
• A proposed rule to update fidelity bond requirements for corporate and natural-person credit unions, as part of the agency’s regulatory reform agenda.

The Chief Financial Officer briefed the Board on the third-quarter performance of the National Credit Union Share Insurance Fund.

Agency Budgets Set for 2019, 2020

Board members approved the budgets for 2019 and 2020. The combined operating, capital, and Share Insurance Fund administrative budgets for 2019 will be $334.8 million, a 1.1 percent increase from the 2019 funding levels approved by the Board at its November 2017 meeting. The combined budgets for 2020 will be $343.9 million, a 2.7 percent increase from 2019.

Operating budgets for both years assume 1,178 full-time equivalent positions.

Operating Budgets

Budget Component	2019	2020
Operating budget	$304.4 million	$316.2 million
Capital budget	$22 million	$18.6 million
Share Insurance Fund budget	$8.4 million	$9.1 million
Full-time equivalents	1,178	1,178

The NCUA Board adopted the budget plan after providing credit union stakeholders with a detailed description of the proposed budgets at its October 17 public briefing and considering their comments.

Overhead Transfer Rate Set at 60.5 Percent; Operating Fee Rises 2.0 Percent

The 2019 overhead transfer rate will be 60.5 percent, and the operating fee will increase by an average of 2.0 percent for natural-person credit unions with assets of more than $1 million.

Detailed information on the overhead transfer rate and operating fee is available in the 2019-2020 Budget Justification (opens new window).

Federal credit unions will fund 70.5 percent of the NCUA’s 2019 operating budget, and federally insured, state-chartered credit unions will fund 29.5 percent.

The NCUA will charge the fee in March 2019, and payments will be due April 17, 2019.

The NCUA uses the operating fee to pay the agency’s costs of regulating federal credit unions. The overhead transfer rate is a transfer from the Share Insurance Fund to cover insurance-related expenses paid by both federal credit unions and federally insured, state-chartered credit unions.

Share Insurance Fund Posts Net Income of $93.5 Million

The National Credit Union Share Insurance Fund (opens new window) posted net income of $93.5 million in the third quarter of 2018, primarily due to the decrease in the provision for insurance losses.

Third-quarter total income was $76.5 million. Operating expenses were $51.1 million. The provision for insurance losses decreased overall by $70.9 million. The fund’s net position was $15.5 billion at the end of the third quarter.

As of June 30, 2018, the Share Insurance Fund’s calculated equity ratio was 1.35 percent, based on insured shares of $1.1 trillion.

As of the end of the third quarter, six federally insured credit unions had failed, and Share Insurance Fund losses were $744.9 million. Fraud was a contributing factor in one credit union failure in the third quarter.

For the third quarter of 2018:

• The number of CAMEL codes 4 and 5 credit unions declined 3.3 percent from the second quarter of 2018 to 203 from 210. Assets for these credit unions declined 10.9 percent from the second quarter of 2018, to $11.5 billion from $12.9 billion.
• The number of CAMEL code 3 credit unions declined 3.0 percent from the second quarter of 2018 to 1,001 from 1,032. Assets for these credit unions declined 5.7 percent from the second quarter of 2018, to $55.9 billion from $59.3 billion.

The third-quarter figures are preliminary and unaudited.

Proposed Rule Updates Fidelity Bond Requirements

The Board approved proposed amendments to fidelity bond requirements (opens new window) to ensure safe and sound credit union operations and protect the National Credit Union Share Insurance Fund.

The proposed rule would:

• Strengthen oversight of fidelity bond coverage by a credit union’s board of directors;
• Ensure there is adequate time to discover and file claims following a credit union’s liquidation;
• Formalize the Office of General Counsel’s September 2017 legal opinion (opens new window) permitting a natural-person credit union to extend bond coverage to certain credit union service organizations; and
• Clarify the documents subject to the NCUA Board’s approval and require all bond forms receive approval every 10 years.

The changes are part of the agency’s regulatory reform agenda.

Comment on the proposed rule must be received within 60 days of publication in the Federal Register.

The NCUA tweets all open Board meetings live. Follow @TheNCUA (opens new window) on Twitter, and access Board Action Memorandums and NCUA rule changes at www.ncua.gov. The NCUA also live streams, archives and posts videos of open Board meetings online.

ALEXANDRIA, Va. (Nov. 16, 2018) – Six federally insured credit union liquidations in the first three quarters of 2018 resulted in a $744.9 million loss to the National Credit Union Share Insurance Fund.

The six liquidated credit unions were: St. Elizabeth’s Credit Union, First Jersey Credit Union, Louisville Metro Police Officers Credit Union, Greater Christ Baptist Church Credit Union, Melrose Credit Union, and LOMTO Federal Credit Union.

The NCUA maintains a Conservatorships and Liquidations webpage with more information.

At the NCUA’s Nov. 15 open Board meeting, the Chief Financial Officer reported $744.9 million in losses to the National Credit Union Share Insurance Fund due to the six credit union failures through Sept. 30. That figure is the loss calculated at the time each credit union was liquidated. The loss figure can change depending on the performance of the remaining assets of the credit unions.

The NCUA continues to evaluate all courses of action that will maximize potential recoveries from the assets of the liquidated credit unions and minimize losses to the Share Insurance Fund. The fund has sufficient equity and reserves to cover anticipated losses.

The Federal Financial Institutions Examination Council (FFIEC) will hold a webinar on December 6, 2018, to promote awareness and understanding of efforts to develop alternative reference rates to LIBOR, because of the uncertainty as to continued availability of LIBOR after 2021.

The December webinar will provide participants with background information on LIBOR and recent developments in the market, including initiatives of the Alternative Reference Rates Committee (ARRC (opens new window)). The agencies will also answer questions submitted by participants.

This webinar and other communication activities are part of a broader FFIEC initiative that will inform supervised financial institutions and examiners about the potential transition from LIBOR, including the effect on institutions and financial products. Staff from FFIEC member agencies will supplement information produced by the ARRC to clarify and highlight potential impacts to supervised financial institutions and to answer questions about the potential transition from LIBOR to an alternative reference rate.

To register, please visit the industry outreach registration website (opens new window).

ALEXANDRIA, Va. (Nov. 20, 2018) – The National Credit Union Administration Board today released its monthly meeting schedule for 2019. Open Board meetings are scheduled to begin at 10 a.m. Eastern on the following dates:

• Jan. 17
• Feb. 14
• March 14
• April 18
• May 16
• June 20
• July 18
• Sept. 19
• Oct. 24
• Nov. 21
• Dec. 12

No meeting is scheduled for August. The meeting schedule is subject to change. The Board meeting calendar is available online on the agency’s website.

Agendas are posted on the NCUA’s public website one week in advance of each open Board meeting. Copies of Board memorandums and other documents related to the items considered are available online at the start of each meeting.

The NCUA’s Board holds open meetings at the agency’s central office located at 1775 Duke St., Alexandria, Virginia, and offers a livestream available through the NCUA.gov website. The NCUA also provides live updates during all open Board meetings on Twitter; follow @TheNCUA (opens new window).

ALEXANDRIA, Va. (Nov. 20, 2018) – The video recordings of the National Credit Union Administration’s Oct. 17, 2018, public budget briefing and Oct. 18, 2018, open Board meeting are now available on the agency’s website.

The NCUA posts videos of past Board meetings on the Board Actions webpage. Videos of the annual budget briefings, along with extensive materials related to the agency’s budget, are posted on the Budget and Supplementary Materials page.

At the October open meeting, the Board unanimously approved two items:

• A supplemental final rule that amends the agency’s 2015 risk-based capital rule to delay the effective date of the rule until Jan. 1, 2020 and raise the asset threshold for a complex credit union from $100 million to $500 million.
• A proposed rule to clarify, update, and simplify federal credit union bylaws.

The NCUA posts these videos as part of the agency’s ongoing efforts to provide transparency and to allow those unable to attend Board meetings or budget briefings the opportunity to become better informed. An interval between the meeting and posting is necessary for the videos to comply with Section 508 of the Rehabilitation Act for the hearing and visually impaired.

ALEXANDRIA, Va. (Nov. 26, 2018) – The National Credit Union Administration has selected Andrew Leventis as its new Chief Economist.

Leventis will begin his duties on Dec. 10. He succeeds Ralph Monaco, who is retiring at the end of the year after seven years with the NCUA and more than 26 years in public service.

“I want to congratulate Andrew on his selection and welcome him to the NCUA,” Board Chairman J. Mark McWatters said. “I also want to congratulate Ralph on his retirement and thank him for his exemplary service to this agency. I have depended on his guidance and judgment, and I’m confident Andrew will continue that level of professionalism.”

Leventis joins the NCUA from the Federal Housing Finance Agency, where he served since 2005, most recently as Deputy Chief Economist. Prior to his government service, he had extensive private-sector experience as an economist and decision engineer.

Leventis holds master’s and doctoral degrees in economics from Princeton University and a bachelor’s degree in quantitative economics from Stanford University.

The Federal Financial Institutions Examination Council today provided a second update on its Examination Modernization Project.

The project identifies and assesses ways to improve the effectiveness, efficiency, and quality of community financial institutions safety and soundness examination processes, particularly through increased use of technology.  The project is a follow-up to the review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act.  FFIEC members with safety and soundness examination responsibilities expect these efforts to help reduce unnecessary regulatory burden on community financial institutions.

On March 22, 2018, the FFIEC issued a press release (opens new window) providing a first update on the Examination Modernization Project.  That update noted the steps taken to improve the examination process, which included the identification of areas with the potential for the most meaningful supervisory burden reduction.  This second update is focused on tailoring examination plans and procedures based on risk, which is another area that holds promise for reducing burden.

A risk-focused supervision process is where more resources are used to address institutions or areas that present heightened risk versus those that do not.  As an initial step in enhancing their respective risk-focused approaches to supervision, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the State Liaison Committee reviewed and compared principles and processes for risk focusing examinations of community financial institutions.  This review concluded that the state and federal regulators have developed and implemented similar programs and processes for risk tailoring examinations.  Common risk tailoring principles and practices include:

• Recognizing there are financial institutions, or areas within institutions, that present low risk, and in those cases, minimum examination procedures are generally sufficient to assess the institution’s condition and risks.
• Allocating more examination resources to higher risk areas and fewer resources to lower risk areas.
• Using data from the quarterly Call Report filings to monitor changes to the institution’s business model, complexity, and risk profile between examinations.
• Leveraging available information, including analyses and conclusions from ongoing offsite monitoring and previous examinations to determine the financial institution’s risk profile and the scope of the next examination.
• Considering the financial institution’s ability to identify and control risks when risk-focusing examinations.
• Tailoring the pre-examination request list to the institution’s business model, complexity, and risk profile.
• Contacting institutions between examinations or prior to finalizing the scope of the examination to help inform an examiner’s assessment of an institution’s risk profile.
• Following up between examinations on institutions’ actions taken to address areas in need of improvement.

The FRB, FDIC, NCUA, OCC, and SLC each committed to issue reinforcing and clarifying examiner guidance to their examination staffs on these risk-focused examination principles if necessary.  Examiner guidance has or will cover the following community financial institution examination risk-focusing practices:

• Consider the unique risk profile, complexity, and business model of the institution when developing an examination plan.
• Analyze existing information such as Call Report data, publicly available information, and confidential supervisory information to help identify areas of higher and lower risk when planning examinations.
• Monitor financial institutions between examinations.
• Tailor the document request list based on the financial institution’s business model, complexity, risk profile and planned scope of review.
• Apply examination procedures in a way that reduces the level of review of low risk institutions or low risk areas.
• Discuss financial conditions, risk profiles, new or expanded business lines, and pertinent new supervisory or regulatory information with institution management prior to finalizing the scope of review.

Examiners will generally discuss the examination plan and its rationale with institution management at the beginning of the examination.

The FFIEC members may take further actions on the other areas of the examination process as the Examination Modernization Project progresses.

The FFIEC was established in March 1979 to prescribe uniform principles, standards, and report forms and to promote uniformity in the supervision of financial institutions.  It also conducts schools for examiners employed by the five federal member agencies represented on the FFIEC and makes those schools available to employees of state agencies that supervise financial institutions.  The Council consists of the following six voting members: a member of the FRB; the Chairman of the FDIC; the Director of the Bureau of Consumer Financial Protection (BCFP); the Comptroller of the Currency; the Chairman of the NCUA; and the Chairman of the SLC.

Read the latest issue of The NCUA Report online

ALEXANDRIA, Va. (Nov. 27, 2018) – The National Credit Union Administration released today the fourth quarter edition of its online newsletter.

The latest issue of The NCUA Report features a joint column from NCUA Board Chairman J. Mark McWatters and Board Member Rick Metsger, as well as articles from several NCUA offices on the agency’s initiatives and information on regulatory, supervisory, and compliance issues affecting federally insured credit unions.

Articles in the fourth quarter 2018 issue include:

• Board Message: Working Together Works Better
• How to Submit Requests to Serve A Local Community Using the Narrative Approach
• How the Enterprise Solution Modernization Program Will Benefit Credit Unions
• Agencies and Institutions Gather to Discuss Improving Diversity
• How NCUA’s Revised Merger Rule Will Impact Mergers Going Forward

The NCUA Report newsletter highlights important regulatory information that credit union managers, staff, and volunteers need to know. Users can access The NCUA Report’s articles in HTML format or view the entire issue as an interactive PDF file (opens new window). Previous issues are available on the NCUA’s website.

The next quarterly issue of the newsletter will be available in February 2019. If interested, users can subscribe to NCUA’s online newsletter (opens new window).

ALEXANDRIA, Va. (Dec. 3, 2018) – The National Credit Union Administration, the Financial Crimes Enforcement Network and three other federal depository institutions regulators issued today a joint statement encouraging depository institutions to explore innovative approaches to meet their Bank Secrecy Act and anti-money laundering compliance obligations and to further strengthen the financial system against illicit financial activity.

The joint-agency statement (opens new window) recognizes that private sector innovation, including new ways of using existing tools or adopting new technologies, can help combat money laundering, terrorist financing, and other illicit financial activity. Depository institutions are encouraged to implement innovative approaches responsibly where appropriate. The statement also makes clear that regulators are committed to continued engagement with the private sector to modernize and innovate in their BSA/AML compliance programs.

The NCUA establishes no new supervisory expectations related to the use of innovative strategies or technology like those discussed in the joint-agency statement and a credit union’s participation in such innovations related to BSA/AML compliance will not affect the agency’s assessment.

Regulators also welcome industry’s feedback on how they can best support innovative efforts through supervisory processes, regulations, and guidance. Those wishing to share such feedback in writing may do so by sending their submission electronically to FinCEN at [email protected].

Today’s statement is the result of a working group formed by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, FinCEN, the NCUA, the Office of the Comptroller of the Currency and Treasury’s Office of Terrorism and Financial Intelligence aimed at improving the effectiveness and efficiency of the BSA/AML regime.

ALEXANDRIA, Va. (Dec. 6, 2018) – Data on the financial performance of federally insured credit unions for the quarter ending Sept. 30, 2018, are now available from the National Credit Union Administration.

The NCUA’s Quarterly Credit Union Data Summary reports include an overview of the quarterly Call Report data as well as tables showing the recent history of major credit union performance indicators.

The NCUA also makes extensive credit union system performance data available in the Credit Union Analysis section of NCUA.gov. The analysis section includes quarterly data summaries as well as detailed financial information and graphics packages illustrating financial trends in federally insured credit unions.