82 FR 55644 - Overhead Transfer Rate Methodology

NATIONAL CREDIT UNION ADMINISTRATION

Federal Register Volume 82, Issue 224 (November 22, 2017)

Page Range		55644-55652
FR Document		2017-25222

In June 2017, the NCUA Board (Board) published a notice and request for comment on proposed changes to its Overhead Transfer Rate (OTR) methodology and sought industry comments on the proposed changes.\1\ This Final Notice discusses the comments received and provides the Board's response to the comments. This Final Notice also sets forth the new OTR methodology the Board has chosen to adopt after consideration of the public comments received. ---------------------------------------------------------------------------

Federal Register, Volume 82 Issue 224 (Wednesday, November 22, 2017)

[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)]
[Notices]
[Pages 55644-55652]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2017-25222]

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NATIONAL CREDIT UNION ADMINISTRATION

Overhead Transfer Rate Methodology

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final notice.

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SUMMARY: In June 2017, the NCUA Board (Board) published a notice and
request for comment on proposed changes to its Overhead Transfer Rate
(OTR) methodology and sought industry comments on the proposed
changes.\1\ This Final Notice discusses the comments received and
provides the Board's response to the comments. This Final Notice also
sets forth the new OTR methodology the Board has chosen to adopt after
consideration of the public comments received.
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\1\ Request for Comment Regarding Revised Overhead Transfer Rate
Methodology, 82 FR 29935 (June 30, 2017).

FOR FURTHER INFORMATION CONTACT: Russell Moore or Julie Decker, Loss/
Risk Analysis Officers, Office of Examination and Insurance, National
Credit Union Administration, 1775 Duke Street, Alexandria, Virginia
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22314 or telephone: (703) 518-6383 or (703) 518-6384.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background and Legal Authority
II. Legal Authority Comments and Responses
III. Proposed OTR Methodology Comments and Responses
IV. Final Action
V. Details of the OTR Methodology

I. Background and Legal Authority

The NCUA administers the Federal Credit Union Act (the Act), which
is comprised of three Titles: Title I--General Provisions, Title II--
Share Insurance, and Title III--Central Liquidity Facility. Pursuant to
the Act, the NCUA charters, regulates, and insures shares in federal
credit unions and insures shares and deposits in federally insured
state-chartered credit unions through the National Credit Union Share
Insurance Fund (Share Insurance Fund). The NCUA is responsible for
ensuring federally insured credit unions operate safely and soundly and
comply with all applicable laws and regulations within the NCUA's
jurisdiction.\2\ In so doing, the agency mitigates risk to the Share
Insurance Fund and prevents taxpayer-funded bailouts. The agency's
mission is to ``provide, through regulation and supervision, a safe and
sound credit union system, which promotes confidence in the national
system of cooperative credit.'' \3\ This includes protecting member
rights and deposits.
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\2\ In coordination with State Supervisory Authorities with
respect to federally insured state-chartered credit unions.
\3\ https://www.ncua.gov/About/Pages/Mission-and-Vision.aspx.
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To achieve its statutory mission, the agency incurs various
expenses, including those involved in examining and supervising
federally insured credit unions. The Board adopts an Operating Budget
in the fall of each year to fund the vast majority of the costs of
operating the agency.\4\ The 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''; \5\ and (2) ``fees and assessments (including income
earned on insurance deposits) levied on insured credit unions under
[the Act].'' \6\ 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 dual primary funding authorities effectively require
the Board to determine which expenses are appropriately paid from each
source while giving the Board broad discretion in allocating these
expenses.
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\4\ 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.
\5\ 12 U.S.C. 1783(a).
\6\ 12 U.S.C. 1766(j)(3). Other sources of income for the
Operating Budget include interest income, funds from publication
sales, parking fee income, and rental income.
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To allocate agency expenses between these two primary funding
sources, the NCUA uses the OTR. The OTR represents the formula the NCUA
uses to allocate insurance-related expenses to the Share Insurance Fund
under Title II. Almost all other operating expenses are collected
through annual Operating Fees paid by federal credit unions.\7\ 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.\8\ Second, the NCUA may not fund its entire
Operating Budget through charges to the Share Insurance Fund.\9\ The
NCUA has not imposed additional policy or regulatory limitations on its
discretion for determining the OTR.
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\7\ 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.'' 1755(b). The Board's
methodology for determining the aggregate amount of Operating Fees
was discussed in a separate Federal Register publication. 81 FR 4674
(Jan. 27, 2016).
\8\ 12 U.S.C. 1783(a).
\9\ 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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[[Page 55645]]

In 1972, the Government Accountability Office recommended the NCUA
adopt a method for properly 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.\10\ The NCUA has since used an allocation
methodology, known as the OTR, to determine how much of the Operating
Budget to fund with a requisition from the Share Insurance Fund.
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\10\ http://www.gao.gov/assets/210/203181.pdf.
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The NCUA has employed various allocation methods over the years,
with the methodology adopted in 2003. For a chronological history of
the OTR, refer to Overhead Transfer Rate (OTR)--Timeline at https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/overhead-transfer-rate-chronology.pdf. For a detailed explanation of the prior
methodology, refer to Federal Register--NCUA Request for Comment
Regarding Overhead Transfer Rate Methodology at https://www.federalregister.gov/documents/2016/01/27/2016-01626/request-for-comment-regarding-overhead-transfer-rate-methodology.
In January of 2016, the Board voluntarily published its OTR
methodology in the Federal Register and invited industry comment.\11\
In June 2017, the Board proposed changes to the OTR methodology in the
Federal Register and requested comments on the proposed changes.\12\
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\11\ Request for Comment Regarding Overhead Transfer Rate
Methodology, 81 FR 4804 (Jan. 27, 2016).
\12\ Request for Comment Regarding Revised Overhead Transfer
Rate Methodology, 82 FR 29935 (June 30, 2017). The OTR does not
require notice-and-comment procedures. The NCUA's legal analysis
with respect to the OTR and Administrative Procedure Act processes
is available at the following Web page: https://www.ncua.gov/Legal/Documents/Opinion/OL2015-0818.pdf.
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Within the 60-day comment period, the NCUA received 26 comment
letters on the OTR methodology. The commenters included federal credit
unions, federally insured state-chartered credit unions, national
credit union trade organizations, state leagues, state supervisory
authorities, and a credit union service organization (CUSO).

II. Legal Authority Comments and Responses

In response to its initial OTR notice in January 2016, the NCUA
received a variety of comments related to the legal authority to
requisition funds from the Share Insurance Fund to cover a portion of
the Operating Budget. Several of the 2016 commenters stated the agency
does not have authority or discretion to establish and determine the
OTR. Some commenters asserted that the NCUA lacks the legal authority
to use the Share Insurance Fund to cover costs of operating the agency.
Other commenters claimed the NCUA has only very narrow authority to
allocate costs, has too broadly interpreted its authority, and may
assign to the Share Insurance Fund only those costs directly associated
with share insurance payments for failed or troubled credit unions.
Some commenters insisted the NCUA is required to fund the vast majority
of the cost of operating the agency through Operating Fees charged to
federal credit unions, claiming Congress intended that Operating Fees
were to subsidize costs in managing risk to the Share Insurance Fund.
Finally, some commenters insisted that the Board must use APA notice-
and-comment processes to establish the OTR. To the extent commenters
explained their positions, they read various limitations into the
provisions the NCUA cites in Section I above and the response below and
pointed to the Act's legislative history.
In response to the June 2017 Request for Comment the NCUA received
a number of comments that reiterated the substance of or referenced
points made in the comments received in response to the January 2016
Request for Comment. While helpful, the comments did not advocate
materially new legal arguments or substantively expand on ones made in
response to the January 2016 Request for Comment. Accordingly, the
substance of the Board's responses to comments largely tracks those
published in the June 2017 notice, with minor alterations. The Board
believes this will be helpful to stakeholders in addressing questions
they may have by once again fully explaining the NCUA's legal analysis
set forth above.
Various commenters disagreed with the agency's legal analysis and
argued that some combination of 12 U.S.C. 1781(b)(1), 1782(a)(5), and
1790 also limit the NCUA's requisition of funds from the Share
Insurance Fund for the Operating Budget. Several commenters went
further and argued that Title II's legislative history indicates the
savings from the NCUA's reliance on Title I and State Supervisory
Authority examinations and reports should accrue to the benefit of the
Share Insurance Fund. Having considered these comments, the NCUA
maintains that a plain reading of the Act, as described in section I
above and in both the January 2016 and June 2017 notices, supports the
agency's legal authority and broad discretion in allocating operating
costs. As the Board previously stated, the Act's plain language does
not require an analysis of the legislative history.\13\ Even if
legislative history was applicable in this case, the plain reading of
the Act is consistent with the legislative history and does not support
commenters' interpretation that Congress intended costs savings
provisions to only accrue to the Share Insurance Fund as discussed
below.
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\13\ See, e.g., Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450
(2002).
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a. Allocation of the Cost Savings From the NCUA's Dual Roles

Multiple commenters stated that the plain language of the Act
requires the Board to structure examinations and Call Reports
originally required under Title I so they may be used for Title II
share insurance purposes. These commenters similarly stated that the
Act places requirements on the NCUA to use state regulator examinations
and reports to the maximum extent feasible.
As the Board has previously explained, Title II of the Act, in 12
U.S.C. 1781(b)(2), authorizes examinations as needed for the protection
of the Share Insurance Fund and other credit unions in addition to
those permitted under Title I, recognizing that the scope and timing of
Title I examinations does not necessarily satisfy share insurance needs
under Title II. With respect to use of state regulator exams and
reports, the Board is careful to build efficiencies wherever reasonable
in light of the NCUA's dual roles as (1) charterer and prudential
regulator of federal credit unions and (2) insurer of federal credit
unions and federally insured state-chartered credit unions. This
ensures the NCUA uses state regulator examinations and reports to the
maximum extent feasible for purposes of insurance. Efficiencies gained
from the NCUA's dual role provide cost savings and help avoid
subjecting credit unions to the burden of redundant examinations.
Further, the Act's provisions on cost savings do not prohibit the
NCUA from allocating insurance-related operating expenses to the Share
Insurance Fund through the OTR under 12 U.S.C. 1783(a). Specifically,
12 U.S.C. 1781(b)(1) requires the NCUA to adjust the way it conducts
examinations of federal credit unions so they may be ``utilized for
share insurance purposes.'' This provision does result in cost savings.
However, it does not preclude the NCUA from allocating the costs of the
``share insurance purposes'' portion of federal credit union
examinations to

[[Page 55646]]

the Share Insurance Fund.\14\ The Board thus disagrees with commenters
that argued the Act requires the cost-savings of the NCUA's dual roles
to accrue specifically to the Share Insurance Fund.
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\14\ With respect to call reports and other ongoing reports
submitted by federally insured credit unions, 12 U.S.C. 1782(a)(5)
is also a cost savings provision but does not preclude allocating
insurance-related costs of the applicable data collections to the
Share Insurance Fund.
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b. 12 U.S.C. 1790--Prohibition of Discrimination Based on Charter Type

With respect to 12 U.S.C. 1790, the Board agrees with commenters
stating that this provision should inform the NCUA's interpretation of
Title II so that it consciously avoids discrimination against federally
insured state-chartered credit unions to the benefit of federal credit
unions.\15\ However, the Board does not believe that either the prior
OTR process or the one adopted in this Final Notice discriminates
against federally insured state-chartered credit unions or federal
credit unions to the benefit of the other.
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\15\ 12 U.S.C. 1790 (``It is not the purpose of this subchapter
to discriminate in any manner against State-chartered credit unions
and in favor of Federal credit unions, but it is the purpose of this
subchapter to provide all credit unions with the same opportunity to
obtain and enjoy the benefits of this subchapter.'').
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As background, all federally insured credit unions are subject to
the same requirements for funding the Share Insurance Fund.
Specifically, Sec. 1782(c)(1)(A)(i) requires that ``[e]ach insured
credit union shall pay to and maintain with the [Share Insurance Fund]
a deposit in an amount equaling 1 per centum of the credit union's
insured shares.'' Section 1782(c)(2)(A) requires that ``[e]ach insured
credit union shall, at such times as the Board prescribes (but not more
than twice in any calendar year), pay to the Fund a premium charge for
insurance in an amount stated as a percentage of insured shares (which
shall be the same for all insured credit unions).'' Thus, in funding
the Share Insurance Fund, federal credit unions and federally insured
state-chartered credit unions are not treated any differently.
Similarly, requisitions from the Share Insurance Fund used to fund the
insurance-related expenses of the NCUA's Operating Budget under Sec.
1783(a) do not distinguish between federal credit unions and federally
insured state-chartered credit unions.
In response to the June 2017 Request for Comment one commenter
stated that the primary goal of the proposed changes was to reduce the
complexity of the OTR methodology. The commenter stated that the NCUA's
primary goal should be to ensure fair and equitable treatment of
federal credit unions and federally insured state-chartered credit
unions in the allocation of insurance-related activities. However, the
Board has always approached the OTR with the goal that it be fair and
equitable to both charter types. The Board believes the new method
continues to provide a fair and equitable distribution of Title I and
Title II costs while recognizing that somewhat less precision can make
the process more cost effective and understandable. In other words,
fairness and equity among charter types is more than a goal, they have
been and continue to be fundamental to the OTR methodology.

c. Title II Operating Costs

The Act clearly permits expenses related to insurance to be funded
by the Share Insurance Fund, regardless of charter. Specifically, 12
U.S.C. 1783(a) allows expenses ``incurred in carrying out the purposes
of [Title II]'' to be allocated to the Share Insurance Fund. The costs
the NCUA incurs in safeguarding the Share Insurance Fund relate to the
risks in federal credit unions and federally insured state-chartered
credit unions. The Act provides the Board with specific authorities
that relate to costs the NCUA incurs in carrying out its obligations
under Title II. For instance, Title II of the Act authorizes the Board
``to appoint examiners who shall have the power, on its behalf, to
examine any insured credit union . . . whenever in the judgment of the
Board an examination is necessary to determine the condition of any
such credit union for insurance purposes.'' \16\ Further, Title II
authorizes the Board to implement regulations applicable to all insured
credit unions to address risk to the Share Insurance Fund. Title II
states the Board may ``prescribe such rules and regulations as it may
deem necessary and appropriate to carry out the provisions of this
subchapter.'' \17\ Title II also grants the Board the following
authorities relevant to agency operating costs:
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\16\ 12 U.S.C. 1784(a).
\17\ 12 U.S.C. 1789(a)(11).
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``appoint such officers and employees as are not otherwise
provided for in this chapter;'' \18\
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\18\ 12 U.S.C. 1789(a)(4).
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``employ experts and consultants or organizations
thereof;'' \19\
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\19\ 12 U.S.C. 1789(a)(5).
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``prescribe the manner in which its general business may
be conducted and the privileges granted to it by law may be exercised
and enjoyed;'' \20\
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\20\ 12 U.S.C. 1789(a)(6).
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``exercise all powers specifically granted by the
provisions of this subchapter and such incidental powers as shall be
necessary to carry out the power so granted;'' \21\ and
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\21\ 12 U.S.C. 1789(a)(7).
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``make examinations of and require information and reports
from insured credit unions, as provided in this subchapter.'' \22\
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\22\ 12 U.S.C. 1789(a)(8).
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The Board concludes that these authorities, taken together, provide
the NCUA as insurer with broad discretion to impose regulations on and
examine all insured credit unions. In addition, the cost of the agency
activities associated with exercising these and other accompanying
authorities can properly be considered costs of carrying out Title II
of the Act.\23\
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\23\ For example, Title II specifically addresses a broad range
of standards for all insured credit unions, including standards for
insurance against burglary and defalcation, loss reserve
requirements, investment limitations, ongoing reporting requirements
(such as the Call Report), independent audits, accounting
principles, national flood insurance program requirements, liquidity
capacity, unsafe and unsound conditions or practices, security
standards, recordkeeping, monetary transaction and recordkeeping and
reporting, benefits to institution affiliated parties, capital
standards, and approval of officials.
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d. APA Requirements

The legal analysis of the NCUA's Office of General Counsel on the
applicability of the notice and comment provisions of the
Administrative Procedure Act (APA) to the OTR methodology is summarized
in the January 2016 OTR notice \24\ and articulated more fully in a
legal opinion posted on the NCUA's Web site.\25\ In soliciting comment
on the OTR through the Federal Register, the NCUA has gone, and
continues to go, beyond its APA obligations.
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\24\ 81 FR 4804 (Jan. 27, 2016) (``Since its inception, NCUA has
taken the position that the OTR is not a legislative rule under the
Administrative Procedure Act (APA) and is, therefore, exempt from
notice and comment rulemaking processes. As such, NCUA has never
used notice and comment rulemaking to establish either an individual
determination of the OTR or the general methodology used to
calculate the OTR. However, the OTR has been explained, discussed,
and reviewed in various public records, including in annual Board
Action Memorandums related to budget matters, independent
evaluations, and other documents available in public records and on
NCUA's Web site.'' (footnotes omitted).
\25\ The NCUA's legal analysis with respect to the OTR and APA
process is available at the following Web page: https://www.ncua.gov/Legal/Documents/Opinion/OL2015-0818.pdf.
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In response to the June 2017 notice, one commenter specifically
cited the Board's characterization of the OTR

[[Page 55647]]

methodology as a rule at the June 2017 Board meeting as support for
notice and comment procedures being required. However, as articulated
in the Office of General Counsel's analysis \26\ cited above, the APA
does not require notice-and-comment procedures for all rules. Instead,
a broad variety of agency actions fall under the APA's definition of
``rule,'' only some of which require notice and comment. As the Office
of General Counsel's analysis states ``The APA's definition of a rule
is very broad and applies to `nearly every statement an agency' may
make. However, determining whether the APA notice and comment
requirements apply to a particular agency action or rule is a separate
inquiry.'' By referring to the OTR as a rule, the Board was not
suggesting notice-and-comment procedures are required but was instead
calling the OTR what it is under the APA: A rule that does not require
notice-and-comment procedures.
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\26\ Id.
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III. Proposed OTR Methodology Comments and Responses

a. Allocate Examination and Supervision of Federal Credit Unions as 50
Percent Insurance Related

Approximately half of the comments received addressed the first
principle that examination and supervision of federal credit unions
should be treated as 50 percent insurance-related. Those that did
address it were split. Commenters supporting the proposed principle
argued that it appeared to be a rough approximation of the time the
NCUA should spend between its prudential and insurance-related
responsibilities with respect to federal credit unions. One commenter
specifically opined that the NCUA's analysis appeared reasonable and
that the principle would be simple to apply. Another commenter
supported the proposed principle, but suggested that it may be ``too
modest'' of an assessment of the time the NCUA devotes to prudential
supervision of federal credit unions.
Commenters that opposed the proposed principle argued that the
Board's policy rationale is not clearly set out in the notice and,
therefore, the change in policy appears to be without ``a reasoned
basis.'' Some of these commenters also argued that the proposed
principle is arbitrary, capricious, and not supported by substantial
evidence. One commenter stated that it was not based on observable and
measurable data inputs. The same commenter argued that the principle
reflects the NCUA's position of ``how things should be'' but not how
things are in reality. Another commenter argued that the principle
ignores the Federal Deposit Insurance Corporation's (FDIC) actual
practices, citing the following: (1) Pronouncements from the FDIC
asserting its primary focus and intention is to protect the insurance
fund by ensuring the safety and soundness of its member institutions;
(2) conducting annual joint examinations with state regulators in many
cases rather than alternating examinations, suggesting the FDIC
considers protection of the insurance fund through its own examinations
as a critical responsibility; and (3) the FDIC conducts a substantial
and increasing amount of offsite monitoring, examination and
supervision on all its institutions for safety and soundness purposes
on an ongoing basis. Several other commenters recommended that the
Board take additional time to study this assumption to develop a more
empirically supportable principle and that the Board continue to refine
this principle in the future to be more accurate.
The Board believes the rationale for the first principle is
supportable and easy to understand. It attributes equal weight to each
of NCUA's dual roles as regulator and insurer of federal credit unions.
It creates a cost sharing similar to what would result if NCUA
conducted alternating examinations of federal credit unions, acting as
the regulator during one exam cycle and the insurer the next.
Additionally, joint examinations between the regulator and insurer are
generally staffed equally, resulting in a 50-50 time split. Whether
alternating examinations or participating in joint examinations, the
examination and supervision time of the insurer still ends up
approximately 50 percent. As noted in the request for comment, it is
consistent with the alternating examinations the FDIC and state
regulators conduct for insured state-chartered banks, as mandated by
Congress.
As one commenter noted, the FDIC prominently asserts its primary
focus is to protect its insurance fund by ensuring the safety and
soundness of its member institutions, in many cases through annual
joint examinations. Like the FDIC, the NCUA's primary focus in its role
as insurer is to protect the Share Insurance Fund. However, unlike the
FDIC, the NCUA also has chartering authority. Since the NCUA
examination staff perform all examinations of federal credit
unions,\27\ the NCUA as insurer can fully rely on all federal credit
union examination reports for insurance purposes where the FDIC deals
with many different state regulators. The FDIC conducts annual/joint
examinations where it perceives elevated risks. The NCUA also increases
examination activity where it perceives elevated risk and may choose to
increase supervision for federal credit unions or conduct joint
examinations for federally insured state-chartered credit unions.
Further, the NCUA conducts a substantial amount of offsite monitoring
and supervision of both federal credit unions and federally insured
state-chartered credit unions, increasing this oversight when risk
warrants. All examination and supervision time, both onsite and
offsite, for all credit unions, whether they are healthy or troubled,
is covered by the methodology in the workload hours portion of the
calculation. This is consistent with Principle 1 and the FDIC model.
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\27\ The Consumer Financial Protection Bureau also performs
compliance examinations on credit unions with assets greater the $10
billion.
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Using a principle-based approach simplifies the OTR calculation and
reduces the resources needed to administer it. Further, it reflects
that the NCUA as insurer 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.
Importantly, the simplified assumption of equal sharing reflects
the offsetting benefits for each role under a framework emulating an
alternating examination program like the one used by FDIC. In other
words, the insurer may evaluate compliance matters as part of a
reciprocal arrangement with the prudential regulator in evaluating
matters specific to insurance as part of the overall shared supervision
of a credit union. 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.

b. Allocate Examination and Supervision of All Others as 100 Percent
Insurance Related

Few commenters addressed the second principle that all time and
costs the NCUA spends supervising or evaluating the risks posed by
federally insured state-chartered credit unions or other entities the
NCUA does not charter or regulate (for example, third-

[[Page 55648]]

party vendors and CUSOs) should be treated as 100 percent insurance
related. The majority of responsive comments supported the proposed
principle. One commenter recommended that the Board allocate the
supervision of CUSOs as 50 percent prudential regulatory and 50 percent
insurance related. Another commenter recommended that the Board
allocate CUSOs and third-party supervision as 25 percent prudential
regulatory and 75 percent as insured-related. The commenter reasoned
that, since the safety and soundness of federal credit unions is
partially allocated to Title I, it would follow that some hours for
CUSOs and third-party reviews should reflect the NCUA's safety and
soundness responsibility as charterer and prudential regulator.
Additionally, at least one commenter opposed the proposed second
principle, arguing the Board has not explained its policy rationale
clearly in the notice and, therefore, the change in policy is without a
``reasoned basis.''
The Board disagrees that it has not explained its policy rationale.
The NCUA has specifically defined its role with federally insured
state-chartered credit unions and other entities the NCUA does not
charter or regulate, including CUSOs. The NCUA does not charter, nor is
it the prudential regulator of, federally insured state-chartered
credit unions; therefore, the NCUA's role is solely as the insurer.
Further, the Board does not believe singling out CUSO activities is
necessary or appropriate under the first or second proposed principle.
Doing so would revert back to the prior approach of more particular
designation of examination activities as insurance or regulatory based,
which the proposed principles are designed to lessen for the reasons
discussed above.
A CUSO itself is at times subject to a limited review during the
examination of a federally insured credit union. This review generally
covers the documentation required by NCUA or state regulation that
credit unions must execute prior to investing in or lending to a CUSO.
Examiners may also assess the risk a CUSO's activities pose to the
credit union as part of the credit union examination. The CUSO related
time within the scope of the examination and supervision of federally
insured credit unions is captured under Principle 1 for federal credit
unions and Principle 2 for federally insured state-chartered credit
unions. The time designated for separate, stand-alone 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 Board has no
direct regulatory authority with respect to CUSOs and there is no
support to allocate time specifically designated for CUSO and third-
party vender reviews as anything other than the NCUA's role as insurer.

c. Allocate Time and Costs Related to the NCUA's Role as Charterer and
Enforcer of Consumer Protection and Other Non-Insurance Based Laws
Governing the Operations of Credit Unions as Zero Percent Insurance
Related

Only a few commenters addressed the third proposed principle that
all time and costs related to the NCUA's role as charterer and enforcer
of consumer protection and other non-insurance based laws governing the
operations of credit unions should be treated as not insurance related.
Each commenter to address the proposed principle favored the Board's
approach but did not offer substantive commentary.

d. Allocate Administration of the Share Insurance Fund as 100 Percent
Insurance Related

Only a few commenters addressed the fourth principle that time and
costs related to the NCUA's role in administering federal share
insurance and the Share Insurance Fund should be treated as 100 percent
insurance related. Each commenter to address the proposed principle
favored the Board's approach but did not offer substantive commentary.

e. Soliciting Public Comment on the OTR Methodology

Less than half of the commenters addressed whether the Board should
solicit public comment on the OTR methodology every three years and
whenever the Board seeks to change the OTR methodology. All of those
commenting favored soliciting public comment. One commenter recommended
that the Board adopt a standardized five-year review period for the
calculation. Another commenter recommended that the Board also solicit
public comment on the OTR methodology for any year the OTR changes more
than two percent. A third commenter recommended that the Board codify
the OTR methodology as part of the NCUA's regulations, believing this
would subject the OTR methodology to the notice-and-comment
requirements of the APA. A fourth commenter recommended that the Board
include the OTR methodology in the NCUA's rolling regulatory review
under the Economic Growth and Regulatory Paperwork Reduction Act of
1996. Finally, another commenter argued that the Board should subject
the OTR methodology to periodic verification from an independent third
party.
The Board is committed to seeking public comment on the OTR
methodology every three years or when there are changes to the
methodology. The Board reiterates that changes to the methodology means
changes to the four principles or abandonment of the principles in
favor of another methodology, not changes to the NCUA's organizational
structure. The results of the calculation are not static and will
change from year to year based on the contemporaneous information from
the workload and financial budgets. The results are updated and
reviewed annually and are applied to actual expenses. The Board does
not agree that the OTR application should be submitted for public
comment, regardless of whether it results in a material year-over-year
change to the rate. Changes to the OTR output would be a result of the
methodology's application to organizational changes or internal
resource allocations, not a result of changes to the methodology. Even
if the Board wanted to subject output changes to notice-and-comment,
the time required for such processes would almost certainly impede the
Board's budget processes.
The Board acknowledges that application of the current methodology
has resulted in material changes in the OTR from year to year. This was
a factor the Board considered in simplifying the calculations and the
Board expects that the proposed methodology should result in less
volatility in OTR outputs going forward. As noted in the legal analysis
contained in the Request for Comment, the NCUA's position remains that
the OTR methodology is not subject to the APA's notice-and-comment
requirements. The Board maintains that the same is true with respect to
its application. Further, this conclusion does not depend on whether
the OTR methodology is included in the NCUA regulations. Whether a
Board action is codified does not determine whether it is subject to
notice-and-comment processes.\28\
---------------------------------------------------------------------------

\28\ Interested parties can review the NCUA's position on this
in the opinion found on the NCUA's Web site at the following
address: https://www.ncua.gov/Legal/Documents/Opinion/OL2015-0818.pdf.
---------------------------------------------------------------------------

Regarding subjecting the proposed methodology to periodic
verification from an independent third-party, the Board will consider
the cost versus the benefits of such a review. Given the greatly
simplified methodology, such reviews may provide limited benefits.

[[Page 55649]]

f. Maintaining Current Staff Delegations

Only a few commenters addressed whether the Board should maintain
the current staff delegation to administer the OTR methodology but
require public board briefings every year. Each commenter to address
the proposal to maintain current staff delegations favored the Board's
approach but did not offer substantive commentary.

g. Additional Comments

50/50 Split Between OTR and Operating Fees
One commenter opposed the OTR methodology and recommended the
NCUA's operating budget be funded 50 percent by requisition from the
Share Insurance Fund via the OTR and 50 percent from federal credit
union operating fees. This commenter suggested that this was the
Board's long-standing approach to funding the NCUA's operating budget
prior to the current OTR methodology. Another commenter, however,
indicated that a majority of its member credit unions would not favor
such an approach.
As stated in the Request for Comment, the Board does not believe it
is transparent or appropriate to set the OTR at any level, such as 50
percent, without a reasoned basis to demonstrate that level of agency
operating costs are properly allocated to Title II activities. Even if
it was, the Board thinks such a rough justice approach is unnecessarily
simple while providing negligible, if any, additional administrative
ease. The Board believes the principles-based methodology adopted in
this Final Notice provides a reasoned basis for the OTR and is fair and
equitable. The proposed new OTR methodology also provides a good
balance between understandability, ease of administration, and
precision.
Revise or Replace
At least one commenter strongly opposed the proposed OTR
methodology in its entirety, arguing that the Board should revise and
refine, not replace, the current methodology. Some refinements this
commenter suggested included a clearer distinction between insurance
and safety and soundness activities.
The Board does not agree that further distinction between insurance
and safety and soundness is warranted. The proposed new OTR methodology
revises the former OTR methodology and addresses concerns raised in the
first request for comment as well as this one related to the
distinction between insurance related and safety and soundness. The
NCUA recognizes that safety and soundness is not the sole domain of the
insurer. Rather, both the prudential regulator and insurer have
responsibilities for safety and soundness. In the June 2017 Request for
Comment, the NCUA acknowledged that safety and soundness is not the
sole domain of the insurer; prudential regulators have various
responsibilities with respect to the safety and soundness of
institutions they oversee. To better reflect that the prudential
regulator and insurer both have responsibilities for safety and
soundness, the Board is adjusting the OTR methodology accordingly. This
is reflected in the first principle of the proposed new methodology.
Further, the old methodology also recognized this to some extent
through the Imputed SSA Value component.
Another commenter also recommended retaining the old methodology,
stating it is an objective, formula-based model that uses measurable
data inputs, which prioritizes fairness, accuracy, and equity. Instead
of replacing the old methodology, the commenter suggested the Board
refine the examiner time survey and reevaluate the Imputed SSA Value.
The Board disagrees with this recommendation and favors the proposed
new methodology.
The proposed new methodology, though simpler, is still objective
and formula driven. The examiner time study and the assignment of time
as insurance, insurance regulatory, and consumer regulatory has been an
area of great debate and the Board does not believe any amount of
refining of these categories will alleviate the criticism and confusion
around the process. The same criticism and confusion pertains to the
``Imputed SSA Value.'' Without 100 percent cooperation from the state
supervisory authorities in providing detailed time studies and budget
information, the NCUA cannot calculate a more accurate estimate. There
is also stakeholder confusion regarding the hypothetical ``as if''
scenario that assumes the NCUA would have to do all the examination and
supervision work. The proposed new methodology eliminates the examiner
time study and the ``Imputed SSA Value'' to eliminate the confusion
caused by each. Therefore, further refinements or changes to either are
unnecessary at this time.
One commenter recommended establishing a Credit Union Advisory
Council that would discuss, among other topics, the OTR. This request
goes beyond the scope of the Request for Comment on the OTR.
Consistency With OCC, Segregating Functions
At least one commenter recommended that the Board adopt a
methodology that more closely resembles the national banking model. The
commenter suggested that the budget of the Office of the Comptroller of
the Currency (OCC) for supervising national banks is entirely separate
from the FDIC's budget for insuring bank deposits and recommended that
the Board adopt a similar approach for the supervision of federal
credit unions. Similarly, another commenter indicated that a majority
of its member credit unions favor the Board separating the NCUA's
charting and supervision of federal credit unions from its insurance-
related supervisory functions.
The Board thinks using this approach would undermine the
efficiencies Congress intended to create. The NCUA is both a regulator
and insurer under the organization of a single federal agency with one
budget. As noted in the January 2016 Request for Comment, in Title II
of the Act, Congress established the Share Insurance Fund and housed it
within the NCUA for administration by the Board. Congress envisioned
efficiencies from this arrangement, as well as the NCUA's partnership
with state regulators. While the NCUA does not have two distinctly
separate budgets, it strives to allocate the appropriate amount to each
activity through the OTR. In contrast, the OCC has no authority
regarding the Deposit Insurance Fund, which is managed by the FDIC. The
FDIC manages the Deposit Insurance Fund and has no primary regulatory
responsibility for federally chartered banks. They have completely
separate budgets because they are distinct federal agencies.
The NCUA also notes that the funding of the banking regulatory
system has also been the subject of criticism. For example, in its July
2001 Report, Reforming the Funding of Bank Supervision, the Comptroller
of the Currency concluded the funding system was not fair. The report
states:

Under the present system, national banks pay the full costs of
their supervision, through assessments levied on them by the Office
of the Comptroller of the Currency (OCC), the federal agency that
charters and supervises national banks. State-chartered banks, by
contrast, pay only for that small fraction of their supervision that
is provided by state supervisory agencies. The predominant part of
state bank supervision actually comes from two federal agencies, the
Federal Reserve System (FRS) and the Federal Deposit Insurance
Corporation (FDIC). These federal agencies perform exactly the same
supervisory functions for

[[Page 55650]]

state banks as the OCC performs for national banks. The main
difference is that the FRS and the FDIC do not assess state banks
for the costs of their supervisory services.\29\
---------------------------------------------------------------------------

\29\ Comptroller of the Currency, Reforming the Funding of Bank
Supervision (2001), available at ttps://www.occ.gov/static/news-issuances/news-releases/2001/nr-occ-2001-67-paper.pdf.

The NCUA Board seeks to be as fair as possible in the funding of
its Operating Budget and does not believe the banking industry model is
appropriate for credit unions.
Cost Savings Measures
One commenter recommended that the Board adopt cost saving measures
to further reduce the OTR. Those measures included accepting the
results of validated Asset Liability Management models of credit unions
subject to supervision by the Office of National Examinations and
Supervision (ONES) for supervisory stress testing purposes.
Suggestions regarding cost saving measures are aimed at the NCUA's
overall budget, not at the OTR methodology. The budgeted amount is
beyond the scope of the Request for Comment. While a lower budget may
reduce the amount charged to the Share Insurance Fund through the OTR,
this effect would not be a function of changes to the OTR methodology,
which was the focus of the request for comment.
This commenter also recommended that the Board investigate options
to improve the financial performance of the Share Insurance Fund in
order to use investment gains to generate additional earnings. This
comment also goes beyond the scope of the OTR methodology. Further,
Title II of the Act explicitly limits the permissible investment
vehicles for the Share Insurance Fund.\30\ Consistent with its role as
a steward of public insurance funds, the NCUA adheres to the strict
investment objectives of ``safety, liquidity, and yield (i.e.,
income)'' and in that order of priority. Only after ensuring safety of
principal and establishing that maturities coincide with the timing of
planned and contingent funding needs are the income objectives of the
portfolio considered. In accordance with the U.S. Treasury's policy for
Government Investment Accounts, the schedule of portfolio maturities
coincides with the Agency's anticipated disbursement estimates (that
is, our projected funding needs) and all purchases are intended to be
held to maturity. The NCUA is bound by U.S. Treasury Operating Circular
requirements, which states in section 4060:
---------------------------------------------------------------------------

\30\ 12 U.S.C. 1783(c).

A Program Agency for a Government Investment Account shall not
engage in investment practices that result in windfall gains and
losses, including but not limited to security day-trading and large
restructuring of investment portfolios to take advantage of short-
---------------------------------------------------------------------------
term Interest Rate fluctuations.

One commenter recommended that the Board explore ways to work more
closely with state supervisory authorities to increase efficiencies and
reduce costs. The Board agrees that working with state supervisory
authorities reduces costs and increases efficiencies for both the NCUA
and state supervisory authorities. Therefore, as stated in the Request
for Comment, the Board is careful to build efficiencies related to the
NCUA's dual role as charterer and prudential regulator of federal
credit unions and insurer of federal credit unions and federally
insured state-chartered credit unions wherever possible. As part of the
Examination Flexibility Initiative, the Board established a joint NCUA-
State Regulator working group that has been active in 2017 in exploring
ways to further improve coordination and cooperation.
Budget Allocations
Two commenters requested clarification on how the NCUA's proposed
reorganization will impact budget allocations. One commenter
specifically noted that 13 percent of the Office of Consumer Financial
Protection and Access' budget is allocated from the Share Insurance
Fund and that the proposed reorganization could have a substantial
impact on that assumption.
The NCUA's reorganization affects the OTR's application, not the
OTR methodology. The Board is approving the allocation principles for
the OTR methodology. These principles are then dynamically applied to
the activities and related costs of the agency--they are not
necessarily specific to individual offices or the agency's
organization. For example, costs associated with federal credit union
examinations and supervision are aggregated. Therefore, a reduction
from five regions to three regions will not affect the budget
allocation.
Similarly, the Office of Small Credit Union Initiatives' transition
to the new Office of Credit Union Resources and Expansion and the
assumption of the NCUA's chartering function, formerly in the Office of
Consumer Financial Protection and Access, does not materially impact
budget allocation. The majority of the Economic Development Specialists
from the old Office of Small Credit Union Initiatives are being
converted to Consumer Access Analysts in the new Office of Credit Union
Resources and Expansion. The Consumer Access Analysts from the Office
of Consumer Financial Protection and Access will also be transferred to
the new Office of Credit Union Resources and Expansion. The change in
the composition of the work of the reorganized offices will affect
their allocation calculation but not how the underlying costs are
allocated based on the Board approved principles. The net result is a
reallocation of the agency resources from the Office of Consumer
Financial Protection and Financial Access to the new Office of Credit
Union Resources and Expansion. The same principles will apply to the
resources transferring to the new office based on their roles.
One commenter also recommended a number of changes to the Board's
proposed budget allocations. The commenter recommended that the Board
use a 50 percent allocation from the Share Insurance Fund for human
resources and Board functions. For all other program offices, the
commenter suggested using the 60 percent allocation from the Share
Insurance Fund generated by the hypothetical application of the
proposed OTR methodology in the June 2017 notice.
The Board does not agree that a 50 percent allocation should be
applied to its budget and the human resources budget. As noted in the
Request for Comment, the NCUA's remaining offices do not have a
specific allocation calculation because they design and oversee the
agency's mission and its related offices or provide necessary support
to mission offices or the entire agency. As such, the proportion of
insurance-related activities for these offices corresponds to that of
the mission offices. Further, it would be administratively burdensome
to attempt to account for any variation in activity levels from the
mission functions and would not result in a material difference in
outcomes. Therefore, these offices' costs are allocated based on the
weighted average of insurance-related activities calculated in the
subtotal of agency costs for the offices above that have a distinct
allocation calculation. The Board also notes the 60 percent allocation,
referred to by the commenter, was illustrative based on 2017 budget
information and is therefore a methodology output, not a principle in
itself. It is not a fixed allocation and will change from year to year
based on contemporary data and the applicable calculation in the
proposed new OTR methodology.

[[Page 55651]]

Another commenter recommended that the Board explore how other
insurance industries allocate expenses and adopt a 5-year rolling
average of actual costs when assessing future fees. However, share/
deposit insurance is unique from other insurance industries as it only
insures member/customer deposits in financial institutions. In the
United States, there are three deposit insurers, the NCUA, the FDIC,
and American Share Insurance. Both the NCUA and FDIC are backed by the
full faith and credit of the United States while American Share
Insurance is a private insurer. Additionally, neither the FDIC nor
American Share Insurance have NCUA's chartering authority.
The NCUA is responsible for both regulating and insuring credit
unions and has different accounting/cost allocation needs. NCUA share
insurance is not risk-based. There are numerous other risk-based types
of insurance companies operating in the United States, covering such
things as real estate, automobiles, and health care. Some insurance
companies offer some or all these business lines. Costs are generally
allocated by business line or operating company. The NCUA's cost
allocation approach incorporates sound cost accounting principles and
commercial practices. However, additional analysis of insurance
companies will not provide meaningful information given the unique role
of the NCUA as regulator and insurer and other differences between
private sector insurance models and the NCUA as a government agency.
Further, using a 5-year rolling average of actual costs to set
expenses would add a layer of complexity to the OTR calculation. Adding
complexity is not consistent with the Board's goal of simplifying the
calculation to improve transparency. Additionally, a 5-year rolling
average would not support contemporary needs based on contemporary data
because it would be affected by past events, either increasing or
decreasing costs, over a period of five years. The Board believes using
the proposed new methodology is more fair and stable.
Negative Impact on Federal Credit Unions
Several commenter's stated the proposed new methodology would have
a negative impact on federal credit unions. One commenter was
particularly concerned with the impact on small federal credit unions.
While another commenter suggested a three-year phase-in period if
adopted to mitigate the impact this change will have on federal credit
unions.
The NCUA staff analyzed the impact the change in methodology would
have on federal credit union Operating Fees using data from the 2017
budget as discussed in the 2017 Request for Comment. The results of the
analysis indicate the Operating Fee for federal credit unions with
asset size $1 million and above, the increase would be less than one
basis point of average assets. Additionally, credit unions under $1
million in assets do not pay an Operating Fee. While the Operating Fee
will increase when the OTR decreases, this has been true during the
OTR's entire existence.
Simplicity Over Accuracy and Equity
Several commenters stated the proposed new methodology favors
simplicity over accuracy and equity. However, the Board believes the
proposed method strikes the correct balance. The results of the
proposed new methodology, using 2017 budget data, fall well within the
historical range of the OTR under the old method. The average OTR since
the Board adopted the old methodology is 60.7 percent, very similar to
the results of the proposed new methodology applied to 2017 budget
numbers. Table 1 illustrates the historical OTR trend.

Table 1
------------------------------------------------------------------------
OTR year OTR (%)
------------------------------------------------------------------------
2004.................................................... 59.8
2005.................................................... 57.0
2006.................................................... 57.0
2007.................................................... 53.3
2008.................................................... 52.0
2009.................................................... 53.8
2010.................................................... 57.2
2011.................................................... 58.9
2012.................................................... 59.3
2013.................................................... 59.1
2014.................................................... 69.2
2015.................................................... 71.8
2016.................................................... 73.1
2017.................................................... 67.7
------------------------------------------------------------------------

One of the main criticisms of the old OTR methodology is that it is
not transparent. This stems from the complexity of the calculation and
was discussed in the Request for Comment. Although all information
related to the old OTR calculation is publicly available, the Board
acknowledged that an obstacle to transparency was the complexity of the
methodology. In an effort to address the transparency concern, the
Board is adopting the simplified OTR methodology. While still formula
driven, the proposed new methodology provides for a simpler approach
that remains comprehensive, fair, and equitable. The Board believes the
proposed new methodology, though simplified, continues to provide an
accurate allocation of agency costs.

IV. Final Action

Based on the comments and the NCUA's internal assessment, the Board
is adopting the new OTR methodology as proposed in the June 2017
notice. These changes will reduce both the complexity of the OTR
methodology and the resources needed to administer it, while remaining
fair and equitable to both federal credit unions and federally insured
state-chartered credit unions. The final OTR methodology is fully
described below.

V. Details of the OTR Methodology

a. Methodology

The OTR methodology incorporates the following underlying
principles for allocating agency operating costs:
1. Time spent examining and supervising federal credit unions is
allocated as 50 percent insurance related.\31\
---------------------------------------------------------------------------

\31\ 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.
---------------------------------------------------------------------------

2. All time and costs the NCUA spends supervising or evaluating the
risks posed by federally insured state-chartered credit unions or other
entities the NCUA does not charter or regulate (for example, third-
party vendors and CUSOs) is allocated as 100 percent insurance
related.\32\
---------------------------------------------------------------------------

\32\ 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 are
allocated as 100 percent insurance related.
---------------------------------------------------------------------------

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 zero percent insurance related.\33\
---------------------------------------------------------------------------

\33\ 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 and prudential regulator. This includes any
reviews of credit unions focused solely on compliance, such as a
fair lending exam. It does not include the more broadly based
examinations and supervision contacts of federal credit unions
covered by principle 1. It also does not include enforcing laws,
like Prompt Corrective Action, that are part of share insurance
under Title II as covered by principle 4.

---------------------------------------------------------------------------

[[Page 55652]]

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.\34\
---------------------------------------------------------------------------

\34\ 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 represent the principles the Board has
committed to subject to public comment every three years and in the
event it proposes a change to one or more of the principles. The
principles are applied to the activities and costs of the agency to
arrive at the portion of the agency's Operating Budget to be charged to
the Share Insurance Fund as detailed below. The NCUA will not submit
the methodology's applications or outputs for public comment.

b. Application

The Steps below describe how the four principles above are applied.
Unlike the principles themselves, the Board will not subject the
application of the principles or the OTR outputs to notice-and-comment
processes.
Step 1--Workload Program
Annually, the NCUA develops a workload budget based on the NCUA's
examination and supervision program to carry out the agency's core
mission. The workload budget reflects the time necessary to examine and
supervise federally insured credit unions, along with other related
activities, and therefore the level of field staff needed to implement
the exam program. Applying principles 1, 2, and 3 (those relevant to
the workload budget) to the applicable elements of the workload budget
results in a composite rate that reflects the portion of the agency's
overall insurance related mission program activities.
Step 2--Operating Budget
The Operating Budget represents the costs of the activities
associated with achieving the strategic goals and objectives set forth
in the NCUA's Strategic Plan. The Operating Budget is based on agency
priorities and initiatives that drive resulting resource needs and
allocations. Information related to the NCUA's budget process,
including details on the Board-approved Operating Budgets, is available
on the agency's Web site.\35\
---------------------------------------------------------------------------

\35\ https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
---------------------------------------------------------------------------

The agency achieves its primary mission through the examination and
supervision program. The percentage of insurance-related workload hours
derived from Step 1 represents the main allocation factor used in Step
2 and is applied to the total operating budget for the examination and
supervision programs to calculate the insurance-related costs of the
offices conducting field work (currently the Regions and ONES). A few
agency offices have roles distinct enough to warrant their own
allocation factors, which are developed by applying the four factors
described above to their respective activities. Each of these offices
tracks their activities annually to determine their factors. These
factors are then applied to the respective offices' operating budgets
to determine their insurance-related costs.
A weighted average allocation factor, calculated by dividing the
aggregate insurance-related costs for the field offices conducting the
examination and supervision program and the agency offices with their
own unique allocation factors by their aggregate total operating
budgets, is applied to the central offices that design or oversee the
examination and supervision program or support the agency's overall
operations. This factor is then applied to the aggregate operating
budgets for the remaining offices. As such, the proportion of
insurance-related activities for these offices corresponds to that of
the mission offices. The NCUA's total insurance related costs are
calculated by summing the insurance cost calculated for the field
offices, the offices with unique allocations factors, and the insurance
cost for all other remaining NCUA offices.
Step 3--Calculate the OTR
The OTR represents the percentage of the NCUA Operating Budget
funded by a transfer from the Share Insurance Fund.\36\ The OTR is
calculated by dividing the total insurance-related costs determined in
Step 2 by the NCUA's total operating budget.
---------------------------------------------------------------------------

\36\ The percentage of actual expenses funded by the Share
Insurance Fund as they are incurred each month.

By the National Credit Union Administration Board on November
16, 2017.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2017-25222 Filed 11-21-17; 8:45 am]
BILLING CODE 7535-01-P

Document Created: 2017-11-22 00:48:59
Document Modified: 2017-11-22 00:48:59

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
Action		Final notice.
Contact		Russell Moore or Julie Decker, Loss/ Risk Analysis Officers, Office of Examination and Insurance, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia
FR Citation		82 FR 55644