ALEXANDRIA, Va.–The NCUA board has approved an asset threshold increase for credit unions to be supervised by its Office of National Examinations and Supervision, known as ONES.
The threshold has been Increased to $15 billion from $10 billion.
Agency staff and members of the board said the move was being made in response to the rapid asset size growth among the largest credit unions and the resources NCUA would have required had the change not been made.
Technically, the change involves Final Rule, Parts 700, 701, 708a, 708b, 750 and 790.
Effective Jan. 1, 2023, credit unions with assets between $10 billion and $15 billion will be supervised by their appropriate Regional Office. All credit unions above $10 billion in assets currently supervised by ONES will continue to be supervised by that office under the final rule. Credit unions that cross the $15 billion threshold will by supervised by ONES. The proposed rule does not alter any other regulatory requirements for credit unions covered under these regulations, NCUA stated.
Following the presentation from agency staff, NCUA Chairman Todd Harper called the rule a “natural evolution” in the agency’s examination program, as the number of large, complex consumer credit unions continues to grow. “Additionally, this final rule continues to provide appropriate oversight of those systemically critical credit unions, which pose a greater risk to the Share Insurance Fund, given their size and complexity,” Harper said. “By adjusting the asset threshold for determining which covered credit unions fall under ONES supervision, the NCUA can leverage the strengths of its regional structure to ensure the agency can effectively and efficiently monitor potential risks associated with these institutions within existing resource allocations and current organizational structures.”
Harper described the asset size threshold increase as always having been a matter of “when, not if,” noting federally insured credit unions with just under $10 billion in total assets experienced balance sheet growth of about 14% on average during the first year of the COVID-19 pandemic, and more than 34% in one case.
Additional Benefits
According to Harper, had the change not been made the number of covered credit unions supervised by ONES would nearly double in 2023, requiring a substantial reallocation of assets.
Moreover, said Harper, the change has other benefits, such as creating new developmental opportunities for examiners, providing a smoother transition for consumer credit unions that will eventually transition to ONES’ supervision, and enhancing knowledge sharing and expertise between ONES and regional
“Mindful of these long-term trends, we should also consider the development of a regional large credit union program for larger credit unions to further stabilize ONES’ workload demands and better address the unique needs of this important industry segment, as suggested by staff last year,” Harper said.
Hauptman: The ‘Good News’ in the Budget
NCUA Vice Chairman Kyle Hauptman called the ONES decision the “good news” in the NCUA budget, saying that without the threshold change, the ONES team was projecting it would need up to 14 new staff because of the number of credit unions crossing the $10 billion threshold and moving to ONES supervision.
Hauptman reminded, “However, credit unions that move into the $10 billion category must still comply with capital planning requirements that come with it. The only thing we are changing is who is responsible for supervision. This was not intended as regulatory relief -- although I understand the desire to ask for relief from regulatory burden at every opportunity.”
Hauptman said he understands why there was some confusion within credit unions among credit unions between $10 billion and $15 billion in assets believing they would have their regulatory load lightened, but he said that was never the intention.
“This change is just a stop gap, however,” said Hauptman. “As credit unions grow in assets, more supervision will eventually move to ONES. Today, we are at an appropriate point to thoughtfully evaluate our supervision strategy.”
An Additional Request
Hauptman called on the board to commit resources for a review of asset thresholds in the next year, and further urged other tools, as well.
“For example, one elegant way that agencies give regulatory relief is via the regulated entities earning a less-frequent exam cycle or other positives through stellar exam results and high capital levels,” Hauptman said. “This sort of regulatory relief aligns incentives for all parties: NCUA can focus on the credit unions that need help, and the credit unions that earned regulatory relief really want to keep that status via continued excellent performance.”
A 'Single Point Of Failure'
Board Member Rodney Hood said the advantage of raising the threshold for credit unions transferring into ONES “is the ability of the regions to provide insight and supervision to credit unions and use the incredible depth of talent in the regions to supervise these larger credit unions. It also gives the regions a voice and view into the data program ONES has created. The regions have talent to bring to the table and raising the threshold helps accomplish this.”
Hood pointed out that a regional structure does not have a single point of failure in the supervisory process.
“We have seen the risk of having a single point of failure at the NCUA during the corporate credit union crisis, and we have hopefully learned from it,” he said. “I will add that the ONES supervisory program is overseen by E&I for quality control purposes, but I am not sure this goes far enough to remove the single point of failure concern from the ONES program.”
Hood then asked the board to “walk down memory lane.”
“The ONES office was created in 2012 following the creation of the Federal Stability Oversight Council in Dodd Frank. Let me ask a question for the record. Has FSOC ever designated a credit union as too big to fail? So, while we do not have any systemically important financial institutions at the NCUA that would result in posing a risk to U.S financial stability, the NCUA board in 2012 decided that we needed to follow suit and create a ONES office as they believed the nation’s largest credit unions were systemically important to the share insurance fund,” Hood said.
Restructure Exam Process?
Hood added it is worth pointing out the agency now has a risk-based-capital regime in effect.
“Chairman Harper and others have said that the RBC is supposed to identify complex credit unions–that is large credit unions with over $500 million in assets–with an unacceptable level of risk as determined by this ratio,” Hood said. “Since we now have a monitoring tool in place with RBC, despite its many flaws, you could easily make the case we should be using these lower ratios to focus our exam teams and thus should restructure our examinations. We have a monitoring tool in place. We can use lower RBC ratios to focus on risk, and not size. While RBC and net worth are lagging indicators, how does RBC impact the need to have a ONES office?”