ALEXANDRIA, Va.–A senior NCUA official has clarified some additional details around the unique situation involving Navy Federal Credit Union’s operation of the Community Bank on military bases overseas, including the question of who actually regulates Community Bank.
The answer in part: It’s not NCUA or the FDIC, because technically, it’s not actually a bank. And that’s just one aspect of the operation that’s unlike any other.
As CUToday.info reported here, Navy FCU won the contract to operate the Community Bank branches on military bases in Europe and in the Pacific in September of 2023 after Bank of America, which had held the contract, chose not to bid on it. Navy Federal has not disclosed the size of the contract—it was reportedly the only bidder--which will begin with a one-year transition period, followed by a base year and then eight additional one-year options.
60 Facilities
The $170.8-billion Navy Federal Credit Union is now operating 60 MBFs and 272 ATMs already in existence on designated DoD military installations in Europe and the Pacific. MBFs provide access to foreign currency, local ATMs, bill pay, savings, checking and other financial services to installation personnel and commands, the credit union said.
The “bank” remains a separate entity from Navy Federal.
After being unable to obtain deposit coverage from the National Credit Union Share Insurance Fund (NCUSIF), Navy FCU is insuring the deposits through coverage from Excess Share Insurance (ESI), the Dublin, Ohio-based company known for providing deposit insurance for deposits above the $250,000 NCUSIF cap.
Who is the Regulator?
Since the deal was announced in late 2023, one question many have asked is “who is the regulator of the bank?” To answer that, it’s important to understand the name is a misnomer, a senior NCUA official said. The official spoke to CUToday.info on background.
“Community Bank is not a recognized bank per se, it's a community bank program, so not to parse words too much, but there's not really a regulator because, again, it's not a bank credit union,” the official explained.
Instead, the program is overseen by the Defense Finance Accounting Service (DFAS). In a statement to CUToday.info, Navy FCU confirmed the program is overseen by the unit of the Department of Defense (DoD).
Another senior NCUA official told CUToday.info the program was created to help servicemen and women overseas, especially those living off-base, to conduct banking services the various countries where they may be based.
A Familiar Array
The first senior official said the service array available to customers of the Community Bank is quite similar to those of any retail credit union or bank, including teller services and some small lending.
“All of that is consistent with many CU operations and is not specific to Navy’s size or scope,” the official said. “We are comfortable they are able to administer this program. And it wouldn’t just be Navy. Other credit unions could qualify. There is nothing so unique about Navy as far as the service array.”
‘It Gets a Bit Complicated’
As the Community Bank is a program of the Department of Defense, who then holds the deposits?
“It gets a bit complicated, but at the end of the day they are never deposits or shares of Navy Federal Credit Union,” the official explained. “They are liabilities. So, Navy does have to administer, it does have to do some accounting to facilitate the transactions, because DFAS and DoD do not operate banking operations. They do not have the skillset. It’s why they outsource. Those funds are never Navy funds.
“So, if they receive $100 currency, they account for the cash on the books not as Navy cash, but as cash for the DoD program, with a corresponding liability to the DoD bank,” the official continued. “There is a host of corresponding entries, but they are separate and distinct. If there was a loss (incurred) by Community Bank, that is DoD’s responsibility…Any loss is ultimately borne by DoD, not Navy Federal.”
About the Deposit Insurance
Deposits in the Community Bank program were previously insured by the FDIC when Bank of America held the contract. Effective Jan. 1, however, when Navy FCU took over, the bank customers became ineligible for coverage from the National Credit Union Share Insurance Fund, as they are not credit union members.
Navy FCU has sought NCUSIF coverage for the Community Bank accounts, but that would require amending the Federal Credit Union Act. As CUToday.info reported here, however, a group of 40 credit union CEOs has signed a letter to America’s Credit Unions asking it not to support potential legislation that would amend the Federal Credit Union Act in a way designed to benefit Navy Federal Credit Union.
The NCUA official said the agency believes that while Navy Federal contracted with ESI for the deposit coverage, the credit union is being reimbursed for those costs by the Department of Defense.
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