NCUA Chairman Todd M. Harper’s Statement on the Proposed Notice and Comment on the NCUA’s Operating Fee Methodology
June 2023
NCUA Chairman Todd M. Harper’s Statement on the Proposed Notice and Comment on the NCUA’s Operating Fee Methodology
NCUA Chairman Todd M. Harper during a meeting of the NCUA Board.
As Prepared for Delivery on June 22, 2023
Thank you, Melissa and Trey, for your presentation and the work of your teams in bringing this proposed notice and comment on the NCUA’s operating fee methodology before the Board. And, Trey, your initial appearance at the NCUA Board table was spot on. Well done!
When the Board last considered the operating fee methodology in late 2020, we approved changes to account for pandemic response and relief programs — like the Small Business Administration’s Paycheck Protection Program and other federal fiscal stimulus programs — that resulted in large inflows of deposits into credit unions. With today’s notice and request for comment, the NCUA Board is once again considering ways to change the methodology used to calculate the assessments charged to federal credit unions to fund the agency’s operations.
Specifically, in the document before us, the Board proposes to increase the threshold below which federal credit unions are exempt from paying an operating fee. Raising the threshold from the existing $1 million to the proposed $2 million would increase the number of federal credit unions eligible for the exemption from 128 to 225. Additionally, the proposal would allow the NCUA to annually adjust the exemption threshold for inflation.
Under this proposal, the NCUA Board is also trying to balance the resources the agency needs to operate and carry out its mission while ensuring equity across federal and state-chartered credit unions and the industry’s various asset classes. In reaching these decisions, we must further recognize that the credit union system is vastly different today than when the three-tiered system was first created more than a decade ago.
As of the first quarter of 2023, most credit unions have more than $10 million in assets.1 That was not the case in the past. In fact, at the time we implemented the current operating fee methodology in 2013, there were 2,181 credit unions with less than $10 million in assets. Now, there are only 950 credit unions with less than $10 million in assets.2
Like a decade ago, small credit unions are still often the only federally insured depository institutions in under-resourced communities. And they are frequently challenged by economies of scale, increasing technological demands, changing consumer behaviors, and growing competition. Raising the operating fee exemption threshold to $2 million and indexing that threshold for inflation will provide a measure of relief to these institutions, bring the threshold back into alignment with where it once was, and keep it there going forward.
That’s a good and welcome change.
And, because we should consider other changes to the operating fee methodology, the request for comment seeks views about whether and how the Board should modify the current three-tier schedule. In these deliberations, I am most interested in softening the regressive nature of the current operating fee methodology.
Today, we have 178 federal credit unions with more than $1 billion in assets. Because these larger credit unions pose greater risks for the Share Insurance Fund, we spend more time examining and supervising these institutions. And we know that these large institutions generally have higher returns on average assets than credit unions below that threshold. Yet, the current operating fee methodology is regressive in that credit unions with greater assets generally pay a lower marginal rate than credit unions with fewer assets.
Why should credit unions with greater assets, greater earnings, and greater supervision needs pay a lower marginal rate than credit unions below $1 billion in assets, which are more likely to struggle with earnings? The NCUA is authorized to set the operating fee “at a rate consistent with a credit union’s ability to pay.”3 So, we do have some flexibility to revise the operating fee methodology to make it less regressive or even, perhaps, progressive.
As such, I strongly encourage federal credit unions to share their views about whether to modify the rate structure of the operating fee methodology to make it less regressive. Given the industry’s changing dynamics, I’d also like to know what other changes stakeholders would like the Board to consider in future modifications of the operating fee methodology.
Thank you again, Melissa and Trey, for your work on this notice and request for comment. I have no questions and now recognize Vice Chairman Hauptman.
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NCUA Chairman Todd M. Harper’s Statement on the Proposed Notice and Comment on the NCUA’s Operating Fee Methodology
NCUA Chairman Todd M. Harper during a meeting of the NCUA Board.
As Prepared for Delivery on June 22, 2023
Thank you, Melissa and Trey, for your presentation and the work of your teams in bringing this proposed notice and comment on the NCUA’s operating fee methodology before the Board. And, Trey, your initial appearance at the NCUA Board table was spot on. Well done!
When the Board last considered the operating fee methodology in late 2020, we approved changes to account for pandemic response and relief programs — like the Small Business Administration’s Paycheck Protection Program and other federal fiscal stimulus programs — that resulted in large inflows of deposits into credit unions. With today’s notice and request for comment, the NCUA Board is once again considering ways to change the methodology used to calculate the assessments charged to federal credit unions to fund the agency’s operations.
Specifically, in the document before us, the Board proposes to increase the threshold below which federal credit unions are exempt from paying an operating fee. Raising the threshold from the existing $1 million to the proposed $2 million would increase the number of federal credit unions eligible for the exemption from 128 to 225. Additionally, the proposal would allow the NCUA to annually adjust the exemption threshold for inflation.
Under this proposal, the NCUA Board is also trying to balance the resources the agency needs to operate and carry out its mission while ensuring equity across federal and state-chartered credit unions and the industry’s various asset classes. In reaching these decisions, we must further recognize that the credit union system is vastly different today than when the three-tiered system was first created more than a decade ago.
As of the first quarter of 2023, most credit unions have more than $10 million in assets.1 That was not the case in the past. In fact, at the time we implemented the current operating fee methodology in 2013, there were 2,181 credit unions with less than $10 million in assets. Now, there are only 950 credit unions with less than $10 million in assets.2
Like a decade ago, small credit unions are still often the only federally insured depository institutions in under-resourced communities. And they are frequently challenged by economies of scale, increasing technological demands, changing consumer behaviors, and growing competition. Raising the operating fee exemption threshold to $2 million and indexing that threshold for inflation will provide a measure of relief to these institutions, bring the threshold back into alignment with where it once was, and keep it there going forward.
That’s a good and welcome change.
And, because we should consider other changes to the operating fee methodology, the request for comment seeks views about whether and how the Board should modify the current three-tier schedule. In these deliberations, I am most interested in softening the regressive nature of the current operating fee methodology.
Today, we have 178 federal credit unions with more than $1 billion in assets. Because these larger credit unions pose greater risks for the Share Insurance Fund, we spend more time examining and supervising these institutions. And we know that these large institutions generally have higher returns on average assets than credit unions below that threshold. Yet, the current operating fee methodology is regressive in that credit unions with greater assets generally pay a lower marginal rate than credit unions with fewer assets.
Why should credit unions with greater assets, greater earnings, and greater supervision needs pay a lower marginal rate than credit unions below $1 billion in assets, which are more likely to struggle with earnings? The NCUA is authorized to set the operating fee “at a rate consistent with a credit union’s ability to pay.”3 So, we do have some flexibility to revise the operating fee methodology to make it less regressive or even, perhaps, progressive.
As such, I strongly encourage federal credit unions to share their views about whether to modify the rate structure of the operating fee methodology to make it less regressive. Given the industry’s changing dynamics, I’d also like to know what other changes stakeholders would like the Board to consider in future modifications of the operating fee methodology.
Thank you again, Melissa and Trey, for your work on this notice and request for comment. I have no questions and now recognize Vice Chairman Hauptman.
1 Quarterly Data Summary as of March 31, 2023, page 20, available at https://ncua.gov/files/publications/analysis/quarterly-data-summary-2023-Q1.pdf
2 Quarterly Data Summary as of March 31, 2023, page iv, available at https://ncua.gov/files/publications/analysis/quarterly-data-summary-2023-Q1.pdf
3 See 44 FR 11786 (Mar. 2, 1979).