NCUA Regional Large Credit Union Program - Coming Soon?



During its February Board Meeting, NCUA proposed a regulation to raise the asset threshold of credit unions that report to the Office of National Examinations and Supervision (ONES) from $10 billion to $15 billion. Buried in the details of the regulation is a statement by Chairman Harper that "… In the longer term we should, in my view, consider the development of a regional large credit union program for larger credit unions." What this means for all credit unions (and more) is discussed in this quick take episode.

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NCUA Regional Large Credit Union Program - Coming Soon?

This is a quick take episode on an NCUA board action that came out in February 2022 that I wanted to highlight. Is NCUA considering a large credit union program for the regional offices? Yes, indeed, they are. Specifically, Todd Harper in February stated that, “In the longer-term, we should, in my view, consider the development of a regional large credit union program for larger credit unions.”


How did this come about? The NCUA board voted on changing the threshold of credit unions that are assigned to the Office of National Examination and Supervision or the ONES office. They proposed changing the threshold from $10 billion to $15 billion. As a reminder, in 2012, the NCUA established a new office, the Office of National Examination and Supervision or ONES, and reorganized its central office and field structure.


As part of its internal restructuring, the NCUA transferred the responsibility for supervising covered credit unions to the Office of National Examination and Supervision from the regional offices. Initially, the covered credit unions were transferred to ONES on January 1, 2014. They did it annually thereafter once a credit union hit $10 billion in assets as of March 31.


If you hit it $10 billion on March 31, the following year, you would get transferred to the Office of National Examination and Supervision. With the extensive growth that came with the pandemic, they paused that. Credit unions, during the pandemic, that would have normally gone to the Office of National Exams and Supervision were still supervised by the regional offices. At the last budget meeting in November or December 2021, when NCUA approved their budget for the year 2022, they kept those $10 billion to $15 billion credit unions in the regional offices.

The bigger credit unions with the concentration of assets, the bigger the concentration of risk to the insurance fund.

In February 2022, they proposed a rule that would change the threshold from $10 billion to $15 billion. The reality was, back in 2014 when I was at NCUA, we considered credit unions that were going into the Office of National Exams and Supervision as "too big to fail." Not too big to fail as it relates to the economy of the United States of America, but too big to fail as it relates to the insurance fund, the NCUSIF, National Credit Union Share Insurance Fund.

That insurance fund has grown over time. Credit unions have grown over time, and there has been no recalibration changing that $10 billion threshold to a higher number. The NCUA has proposed that there would be a new threshold of $15 billion. My anticipation is that this rule will be finalized at some point in time in 2022 and most likely as it is linked to the budget, which will be proposed in probably December of 2022.


That is a good choice. Credit unions and the insurance fund have grown. The materiality of a $10 billion credit union is not the same as it was in 2014. That is a good thing, but buried in all this is that Harper said, “In the longer-term, we should, in my view, consider the development of a regional large credit union program for larger credit union.”

Todd also made some statements about the fact that there can be resource sharing between the Office of National Exams and Supervision of the regions. That is a great theory. It is harder to put in place than one might imagine. One is the Office of National Exams and Supervision has very limited resources. One of the reasons they did not want to keep the threshold at $10 billion is they would have to double the number of staff members in the Office of National Exams and Supervision if they were going to keep the threshold at $10 billion.


If NCUA is going to do that, you either need to add money to the budget or take staff away from the regions. When you take staff away from the regions, you take the best and the brightest because those are the ones that theoretically should be promoted to roll into the Office of National Exams and Supervision. They avoided all of that by proposing changing the threshold. They are definitely signaling where it is going to go because this will be the 2nd or 3rd year in a row where those credit unions have remained under the supervision of the regional offices.


What happens with the large credit union program? Where Chairman Harper seems to want to take this is you would have the super large credit unions or those over $15 billion. He is saying that NCUA should have some large credit union program to get them ready to go to the Office of National Exams and Supervision. In theory, that makes a lot of sense. The devil is in the details. The good news is Chairman Harper said in the longer-term. When I was at NCUA, there must have been 5 or 6 studies during my 33 years at NCUA where we considered doing large credit union programs. When the regional offices and directors had a little bit more autonomy, they would do their own regional large credit union programs.


WFC 19 | NCUA Regulation
NCUA Regulation: Changing the threshold to $15 billion is a good idea. The concept of talking about a large credit union program makes sense, but NCUA needs to be mindful of the fact that this increased regulatory burden for smaller credit unions might not be necessary for many instances.

All-star teams of exams, for example, where they would have what they consider their best and the brightest across the region go into their biggest credit unions. The bigger credit unions with the concentration of assets, the bigger concentration of risk to the insurance fund. The devil is in the details. This is a long-term arc. I believe Chairman Harper will bring this back up again at the budget briefing at the end of 2022, but how they structure this and how they manage it will be very interesting to watch. I believe whenever there is action on a large credit union program within the regions, they will first focus on the $10 billion to $15 billion asset threshold for it being applicable to credit unions within the regions.


However, the trickle-down is what credit unions in totality need to worry about because what happens is you get these ideas of best practices that get in place in large credit unions. You see that seep into the mindsets of the examiners, and then examiners require it as safety and sound as you see guidance come out. In the long-term, this is something to watch very closely because it could lead to the regulatory burden creeping first to the $10 billion, to 15 billion, to $9 billion, then to $8 billion, and so on and so forth, so this is something to watch for in the budget in 2022.


I am sure I will be talking about that more down the road, but in totality, changing the threshold to $15 billion is a good idea. The concept of talking about a large credit union program makes sense, but NCUA needs to be mindful of the fact that this increased regulatory burden for smaller credit unions might not be necessary for many instances. They should be very careful about wherever this new threshold is for the presumed large credit union program within the regions. Thank you for reading this quick take. I am flying solo on this episode. I appreciate your time and I hope to have you here again soon. Thanks for your time.


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