NCUA considering outside help to boost diversity survey participation

The National Credit Union Administration may consider hiring an outside firm to administer its annual diversity self-assessment.

According to Monica Davy, director of NCUA’s Office of Minority and Women Inclusion, many credit unions fear the agency might use the self-assessment against them in an exam, despite strenuous, repeated denials by officials.

“I use every opportunity I can when I go out and speak to make it clear [the voluntary self-assessment] is separate and apart from the examination process,” Davy said Thursday during a virtual meeting of NCUA’s governing board. “Examiners do not have access to this data at all.”

Board member Todd Harper said one of his key responsibilities is ensuring credit unions are comfortable with the voluntary self-assessment. “We have firewalls built in so that information stays where it’s needed and doesn’t get out into our exam program.”

Nevertheless, the industry’s response continues to be limited.

“I’ve heard credit unions just don’t trust us as their regulator with this information,” Davy said.

The results of the 2019 survey, which were released Thursday, show just 118 credit unions participated, up from the 81 that completed the diversity self-assessment in 2018, but still a small fraction of the industry. As of June 30, NCUA counted 5,164 federally insured credit unions.

“While [the 2019 results] represent a slight year-over-year improvement, it’s not as good as I would like to see,” NCUA Chairman Rodney Hood admitted.

To boost participation, Davy suggested rebating part of the operating fees credit unions pay NCUA if they complete the self-assessment, a proposal the board discussed earlier this year. “Another idea we’ve been talking about in my office is exploring the concept of a third-party neutral to collect the data on behalf of NCUA.”

Bringing in an outside firm “may remove that barrier of a lack of trust the industry has,” Davy added. “This is an idea that we would need to flesh out, but I think we should explore it.”

The board took no action on the assessment Thursday, although members indicated a willingness to consider third-party collection.

“That makes sense to me,” board member Mark McWatters said. “I think it’s important to at least follow up and determine we can do it, and whether or not we should do it if we’re permitted.”

The voluntary diversity self-assessment was mandated by the Dodd-Frank Act in 2010. Banks have responded at a higher rate, though still far below 50%. In 2018, about 17% of the institutions the Federal Deposit Insurance Corp. invited to complete the survey responded.

The board also unanimously approved a plan to spend $4.3 million from surplus 2020 travel funds on COVID-related expenses and upgrades to its headquarters building in Alexandria, Va. The budget discussion, however, disclosed deep divisions about the agency’s spending plan for 2021, with both Harper and McWatters calling for significant changes to the $342.5 million budget draft officials proposed Nov. 13.

NCUA will hold a public hearing on the budget Dec. 2.

Even after the budget reprogramming approved Thursday, NCUA will finish 2020 with a surplus in excess of $10 million. Harper called on the agency to use those funds to hire more examiners and introduce a consumer compliance program. Harper pushed for similar changes at the agency late last year but those were voted down.

“We must engage in a comprehensive discussion about supervisory priorities and field program expectations for 2021,” Harper said. “In doing so, we will find that we likely need to budget for more examiners and specialists than provided in the staff draft.”

“We also know NCUA falls short when it comes to the agency’s oversight of consumer financial protection laws,” Harper added. “We need to provide resources to create an effective, dedicated program for supervising compliance…I will need to see changes in the 2021 budget before I can support that spending plan.”

For his part, McWatters said the 2021 budget was too rich.

“I simply cannot and will not support the staff budget as presently drafted,” McWatters said.

“After reviewing the proposed budget, I noted a number of expenditures that are simply not necessary or appropriate,” McWatters added, though he did not go into specifics.

In other actions, the board approved a proposed rule on capitalization of interest that would make loan workouts and modifications easier. The action triggers a 60-day comment period that begins once the proposed rule is published in the Federal Register.

Eugene Schied, the agency’s chief financial officer, briefed board members on the status of the National Credit Union Share Insurance Fund. According to Schied, the fund held $19.2 billion on Sept. 30, up from $17.7 billion three months earlier.

The bulk of that increase came from $1.5 billion of capital deposit adjustments from individual credit unions, reflecting the surge in deposits they’ve experienced throughout 2020. Most credit unions are required to maintain a capital deposit in the share insurance fund equal to 1% of their total deposits.

The inflow of cash into the fund is likely to relieve pressure on the fund’s equity ratio, which is scheduled to be updated in January. The equity ratio fell to 1.22% at June 30, well below the target ratio of 1.39%. NCUA is required to assess a premium or draft a capital restoration plan when the equity ratio falls below 1.2%, but officials are expecting a rebound to about 1.32% next year.

Harper, however, said the improvement would likely be short-lived. He warned credit unions to brace for an assessment, pointing to continuing economic dislocation from the pandemic.

“We must all prepare for increased member delinquencies, loan defaults, consumer and business bankruptcies and even credit union failures,” Harper said. “It is really not a question of whether we will charge an insurance premium, but a question of when…Credit unions need to brace themselves for that eventual reality.”


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