Lessons we can learn from an old song
Remember the old spiritual song “Dem Bones”? The first verse went like this:
Toe bone connected to the foot bone
Foot bone connected to the heel bone
Heel bone connected to the ankle bone
Ankle bone connected to the shin bone
Etc. etc. etc………… until
Neck bone connected to the head bone
Now hear the word of the Lord!
During the last NCUA board meeting on Friday, June 23, I couldn’t get that song out of my mind. In what looked like a rather thinly attended meeting (no telling how many tuned in via the web with me), the board entertained a report from staff on their response to the 2016 request for comment on the Overhead Transfer Rate, which has resulted in an underwhelming proposed rate methodology for board approval after a 60-day comment period.
This is what happens when an organization has a poorly constructed strategic plan; the staff thinks too small. (See my 2014 and 2016 comments on the NCUA’s strategic plan.) They think that they were charged with finding a solution to a single limited problem. To design a more easily understood and transparent formula for the OTR and that’s exactly what we got. But the comment letters didn’t just address the OTR formula, they also addressed the unrestrained growth and burden of NCUA operating expenses, and that, my friends, is what made me think of “Dem Bones”!
The NCUA operating budget is connected to the OTR,
The OTR is connected to a lower NCUSIF equity ratio,
The lower equity ratio is connected to another premium hit for all insured CUs,
The premium hit is connected to the ever growing earning capacity of the fund,
The significant earning capacity of the fund leads us back to the black hole of NCUA operating budgets.
Any exercise in problem solving starts with an analysis of the root cause. The problem that faces us collectively is not the OTR formula, it’s the extraordinary operating costs of an agency that has grown to see the fund and its role as insurer as the credit union funded El Dorado. Regardless of Board Member Metsgers’ comments, this isn’t a problem that pits federal-chartered against state-chartered, it’s a problem we must all face together, both regulator and regulated.
I belong to two state-chartered credit unions, and while a reduction of the OTR to 60% is better than a stick in the eye, I have a much bigger problem with the $300 million operating budget. Sure, I understand the impact of lower rates in the bond market and how CU losses contribute to pressure on the equity ratio, but when was the last time anyone at the agency said they should reduce expenses as part of a plan to manage the equity ratio? I’m talking about a real world reduction not just a D.C. Beltway reduction of the rate of growth. How can we significantly (10%, 15% or 20%) reduce the costs of oversight while simultaneously increasing the quality of that same oversight? That should drive every thought and every action at an agency responsible to the nation and the owners of this country’s credit unions.
I’ll be addressing the details, good and bad, of the new OTR methodology in at least a couple of new blog entries in the next few weeks. While the official 60-day comment countdown has not yet started please take the time to look at the staff presentation slides found in the Board Action Bulletin at this location: www.ncua.gov/newsroom/Pages/news-2017-june-board-seeks-comments-proposed-changes-otr-methodology.aspx
If you get the chance, watch the video of the meeting on the NCUA web site. It should be available in the next few days. Let’s make a real effort to get as many comment letters as possible sent to the board. The last comment period produced 40 letters… It’s imperative that we at least make a case for being interested in the most important issues of our collaborative network.
Tell me why I’m wrong!