No other independent financial regulator discloses its proposed budget and provides justification with the detail, care, and scope of its budget than the federal regulator of credit unions, its top official said Wednesday in a public briefing on the agency’s budget.
“I’m proud of that,” said National Credit Union Administration (NCUA) Board Chairman J. Mark McWatters, as he opened the first hearing mandated under the regulatory relief law passed this spring (the Economic Growth, Regulatory Relief and Consumer Protection Act [EGRRCPA] of 2018 [S. 2155].)
“I’m happy that we’re doing it and I hope that it continues well into the future. I see it as a part of our commitment to maintaining the public trust,” McWatters said.
The focus of the hearing was the 2019-20 budget for the agency, which NCUA has said will rise to approximately $334.8 million in 2019 and $343.9 million in 2020. The proposed 2019 budget figure represents an increase of about $13.9 million from the approved 2018 budget of $320.9 million. For 2020, the agency anticipates another increase of $9.1 million overall.
The agency’s board expects to consider finalizing the budget at its Nov. 15 meeting.
In other comments, McWatters touched on recurring criticism of the agency’s budget that it keeps rising, while the number of credit unions the agency supervises keeps falling.
“Now, I’m troubled by this because I hear it from very sophisticated observers of the credit union system and I suspect they already know the answer when they ask the question,” McWatters said, reading from a statement. “But, for the record, I want to take a couple of minutes to address this.”
He acknowledged that the is going down, but he asserted that the number of larger, more complex credit unions is rising and the credit union system as a whole is expanding.
“Consolidation is taking small credit unions with relatively simple business plans out of the industry,” he said. “Over just the one year ending June 30, 2018, the number of credit unions with $100 million or less in assets fell by 226. But, the number of credit unions with at least $1 billion in assets rose by 20 to bring the total for that category to more than 300 credit unions. And system-wide, over that same time, assets rose by almost $80 billion to bring the system to $1.4 trillion in assets.”
McWatters additionally asserted that as the overall credit unions system gets larger, and the number of credit unions goes down, the remaining credit unions are larger. “They’re engaging in more complex transactions and, as they seek to improve member services, they’re pushing the envelope on a number of fronts, in areas like secondary capital, business lending, rising levels of indirect lending, and loosening terms — like lengthening auto loans — on a variety of loan products,” he said.
He added that there is “no doubt that larger credit unions engage in more complex activities” and are subject to a wider array of economic forces than smaller credit unions. He said small and large credit unions alike are faced with an “ever-more complex financial world that includes cyber risks, cryptocurrencies, and challenges from non-bank lenders — just to name a few — to which they have to respond and react.”
For NCUA, McWatters explained, that means examinations and reports that require more data and processing systems to develop an accurate picture of a credit union’s financial health. “And it means more highly trained specialists to interpret that picture. In sum, these forces require NCUA to acquire and deploy resources to maintain safety and soundness,” he said.
(In video, NCUA’s McWatters discusses the need of the agency to “keep pace” with changes in the credit union system through its budget to maintain safety and soundness.)