[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Notices]
[Pages 4804-4835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01626]



[[Page 4803]]

Vol. 81

Wednesday,

No. 17

January 27, 2016

Part III





National Credit Union Administration





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Request for Comment Regarding Overhead Transfer Rate Methodology; 
Notices

Federal Register / Vol. 81 , No. 17 / Wednesday, January 27, 2016 / 
Notices

[[Page 4804]]


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NATIONAL CREDIT UNION ADMINISTRATION


Request for Comment Regarding Overhead Transfer Rate Methodology

AGENCY: National Credit Union Administration (NCUA).

ACTION: Request for comment.

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SUMMARY: The NCUA Operating Budget has two primary funding mechanisms: 
(1) An Overhead Transfer, which is funded by federal credit unions 
(FCUs) and federally insured state-chartered credit unions (FISCUs); 
and (2) annual Operating Fees, which are charged only to FCUs. In a 
voluntary effort to invite input from stakeholders representing federal 
and state-chartered credit unions, the NCUA Board (Board) is 
simultaneously requesting comments on the methodologies for both 
funding mechanisms in separate notices in the Federal Register.
    This request for comments focuses on the methodology NCUA uses to 
determine the Overhead Transfer Rate (OTR). To facilitate comments, the 
Board is also assembling and describing its existing OTR methodologies 
and processes, which are also available on NCUA's Web site. The Board 
applies the OTR to NCUA's Operating Budget to determine the portion of 
the budget that will be funded from the National Credit Union Share 
Insurance Fund (NCUSIF). The Board invites comments on all aspects of 
the OTR methodology and any alternatives commenters may offer. Areas 
the Board specifically seeks comments on include:
    <bullet> Whether the OTR should continue to be determined using a 
formula-driven approach, or instead be set largely at the discretion of 
the Board;
    <bullet> The definition NCUA uses for insurance-related activities;
    <bullet> Adjustments or changes to the current calculation; and
    <bullet> Alternate methodologies to arrive at an accurate and fair 
allocation of costs.
    To be most instructive to the Board, commenters are encouraged to 
provide the specific basis for their comments and recommendations, as 
well as documentation to support their proposed adjustments or 
alternatives.

DATES: Comments must be received on or before April 26, 2016 to be 
assured of consideration.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
    <bullet> NCUA Web Site: https://www.ncua.gov/about/pages/board-comments.aspx. Follow the instructions for submitting comments.
    <bullet> Email: Address to <a href="/cdn-cgi/l/email-protection#83e1ece2f1e7e0eceeeee6edf7f0c3ede0f6e2ade4ecf5"><span class="__cf_email__" data-cfemail="a7c5c8c6d5c3c4c8cacac2c9d3d4e7c9c4d2c689c0c8d1">[email protected]</span></a>. Include ``[Your 
name]--Comments on OTR Methodology'' in the email subject line.
    <bullet> Fax: (703) 518-6319. Include your name and the following 
subject line: ``Comments on OTR Methodology.''
    <bullet> Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
    <bullet> Hand Delivery/Courier: Same as mail address.
    Public Inspection: You can view all public comments on NCUA's Web 
site at https://www.ncua.gov/about/pages/board-comments.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments at 
NCUA's headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6360 or send an e-mail to <a href="/cdn-cgi/l/email-protection#2e6b67634f47426e404d5b4f00494158"><span class="__cf_email__" data-cfemail="6a2f23270b03062a04091f0b440d051c">[email protected]</span></a>.

FOR FURTHER INFORMATION CONTACT: Russell Moore, Loss/Risk Analysis 
Officer, Office of Examination and Insurance, National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428 or 
telephone: (703) 518-6383.

    Authority:  12 U.S.C. 1783(a); 1766(j)(3).

SUPPLEMENTARY INFORMATION: NCUA charters, regulates and insures 
deposits in federal credit unions (FCUs) and insures deposits in state-
chartered credit unions that have their shares insured through the 
NCUSIF. To cover expenses related to its statutory mission, the Board 
adopts an Operating Budget in the fall of each year. The Federal Credit 
Union Act (FCU Act) authorizes two primary sources to fund the 
Operating Budget: (1) Requisitions from the NCUSIF ``for such 
administrative and other expenses incurred in carrying out the purposes 
of [Title II of the FCU Act] as [the Board] may determine to be 
proper''; \1\ and (2) ``fees and assessments (including income earned 
on insurance deposits) levied on insured credit unions under [the FCU 
Act].'' \2\ Among the fees levied under the FCU Act are annual 
Operating Fees, which are required for FCUs under 12 U.S.C. 1755 ``and 
may be expended by the Board to defray the expenses incurred in 
carrying out the provisions of [the FCU Act,] including the examination 
and supervision of [FCUs].'' Taken together, these dual funding 
authorities effectively require the Board to determine which expenses 
are appropriately paid from each source, though these two provisions 
give the Board broad discretion in this.
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    \1\ 12 U.S.C. 1783(a).
    \2\ 12 U.S.C. 1766(j)(3). Other sources of income for the 
Operating Budget include interest income, funds from publication 
sales, parking fee income, and rental income.
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    To determine an appropriate division of expenses between these two 
funding sources, the Board uses the OTR methodology described in this 
publication. This version of the OTR methodology was first adopted by 
the Board in 2003 and refined in 2013. The OTR represents the 
allocation formula the Board uses to determine which expenses are 
properly characterized as insurance related and charged to the NCUSIF 
under Title II, rather than collected through annual Operating Fees.\3\ 
Only two statutory provisions limit the Board's discretion with respect 
to NCUSIF requisitions for NCUA's Operating Budget and, hence, the OTR. 
First, expenses funded from the NCUSIF must carry out the purposes of 
Title II of the FCU Act, which relate to share insurance.\4\ Second, 
NCUA must fund at least some part of its Operating Budget through fees 
charged pursuant to 12 U.S.C. 1766(j)(3).\5\ NCUA has not imposed any 
additional policy or regulatory limitations on its discretion for 
determining the OTR.
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    \3\ Annual Operating Fees must ``be determined according to a 
schedule, or schedules, or other method determined by the NCUA Board 
to be appropriate, which gives due consideration to the expenses of 
the [NCUA] in carrying out its responsibilities under the [FCU Act] 
and to the ability of [FCUs] to pay the fee.'' 1755(b). The NCUA 
Board's methodology for determining the aggregate amount of 
Operating Fees is discussed in a separate Federal Register 
publication.
    \4\ 12 U.S.C. 1783(a).
    \5\ Accord 12 U.S.C. 1755(a) (``In accordance with rules 
prescribed by the Board, each [FCU] shall pay to the [NCUA] an 
annual operating fee which may be composed of one or more charges 
identified as to the function or functions for which assessed.'').
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    Third, while not a legal requirement, the current Board policy is 
to use a cost-accounting methodology that by design is both neutral and 
equitable with respect to credit union charter types.
    The methodology satisfies the two legal requirements identified 
above. First, the funds transferred from the NCUSIF must relate to 
NCUA's insurance functions. The Board notes the breadth of that 
category, and each expense funded from the OTR in accordance with the 
formula explained herein, reasonably relates to insurance for purposes 
of 12 U.S.C. 1783(a). NCUA's definition of ``insurance related 
examination procedures'' that fall under Title II includes 
``examination or supervision contact procedures [that]

[[Page 4805]]

address safety and soundness issues.'' Safety and soundness terminology 
is sprinkled throughout Title II of the FCU Act with respect to NCUA's 
insurance-related responsibilities.\6\ As such, this definition is 
contained within the broad swath of 12 U.S.C. 1783(a), which simply 
requires that an expense be ``incurred in carrying out the purposes of 
[Title II]'' on share insurance to be eligible for OTR coverage. 
Similarly, ``insurance regulatory related examination procedures'' are 
defined in the OTR methodology as those that assess compliance with 
regulations that ``address safety and soundness issues.'' This 
secondary definition expressly excludes procedures that assess 
compliance with regulations ``designed to protect consumers directly.'' 
Therefore, this supplemental definition narrows, rather than expands, 
the procedures that the OTR methodology includes under Title II, since 
some consumer protection regulations may also be directed at safety and 
soundness. Further, neither the activities the OTR methodology 
identifies as examples of examination or supervision procedures that 
address safety and soundness, nor any of the NCUA-specific regulations 
classified as ``insurance regulatory'' related in the regulation 
mapping in Appendix A, fall outside of this definition.
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    \6\ See, e.g., 12 U.S.C. 1781(c)(2) (referencing ``unsafe and 
unsound'' financial condition and policies in connection with 
applications for insurance); 1782(a)(6)(b) (referencing the phrase 
``unsafe and unsound'' in connection with a failure to obtain an 
outside, independent audit); 1786 (addressing ``unsafe or unsound 
practices'' or ``safety and soundness'' in connection with 
termination of insurance, orders to cease and desist, prohibition 
and removal orders, civil money penalties, and delay in publication 
of final orders); 1787(b)(2)(D) (authorizing the Board to take 
actions as conservator to put an insured credit union ``in a sound 
and solvent condition''); 1790d(h)(1) (referencing ``safety and 
soundness'' in relation to prompt corrective action and 
reclassification of a credit union's net worth category).
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    Second, at least some part of the Operating Budget comes from fees 
charged to insured credit unions under 12 U.S.C. 1755. The imposition 
of the annual Operating Fees on FCUs and their use to pay expenses in 
the Operating Budget is sufficient evidence of the proper exercise of 
the Board's discretion under these two limitations. Within these broad 
statutory bounds, the Board is seeking additional public input on its 
OTR methodology through Federal Register processes.
    Since its inception, NCUA has taken the position that the OTR is 
not a legislative rule under the Administrative Procedure Act (APA) and 
is, therefore, exempt from notice and comment rulemaking processes.\7\ 
As such, NCUA has never used notice and comment rulemaking to establish 
either an individual determination of the OTR or the general 
methodology used to calculate the OTR. However, the OTR has been 
explained, discussed, and reviewed in various public records, including 
in annual Board Action Memorandums related to budget matters, 
independent evaluations, and other documents available in public 
records and on NCUA's Web site.\8\ Beyond its APA obligations, the 
Board has chosen to solicit public comments on the OTR processes and 
methodologies through this Federal Register publication.
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    \7\ NCUA's legal analysis with respect to the OTR and APA 
process is available at the following Web page: https://www.ncua.gov/Legal/Documents/Opinion/OL2015-0818.pdf. Note that even 
where not subject to notice and comment procedures, the APA provides 
that ``[a]gency action made reviewable by statute and final agency 
action for which there is no other adequate remedy in a court are 
subject to judicial review.'' 5 U.S.C. 704. The scope of such a 
review is set forth in 5 U.S.C. 706.
    \8\ Materials related to the OTR can be found at the following 
NCUA Web page: https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
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Table of Contents

I. Overview
II. Context For OTR
III. History
IV. Detailed Discussion of OTR Methodology
    a. Examination Time Survey
    b. Workload Budget
    c. Financial Budget
    d. Calculation of Insurance and Non-Insurance Costs
    e. Allocation of Insurance and Non-Insurance Costs
    f. Calculating the OTR
    g. State Supervisory Authority (SSA) Imputed Value
V. Request for Comment
VI. Appendix A--Mapping of Regulations
VII. Appendix B--Examination Time Survey Instructions

I. Overview

    NCUA is the independent federal agency created by the U.S. Congress 
to regulate, charter and supervise FCUs. With the backing of the full 
faith and credit of the United States, NCUA also operates and manages 
the NCUSIF. Congress enacted Title II of the FCU Act on October 19, 
1970.\9\ Title II established the NCUSIF, requiring all federal credit 
unions to immediately apply for insurance and permitting the Board to 
insure accounts in state-chartered credit unions. After enactment of 
Title II, the Board established an allocation formula, the Overhead 
Transfer Rate, to determine the amount of the Operating Budget that it 
would requisition from the NCUSIF for insurance-related expenses. Over 
time, the Board has refined the OTR process to ensure the equitable 
allocation of costs between NCUA's dual roles of insurer (insurance 
related activities) and regulator that charters federal credit unions 
(non-insurance related activities).
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    \9\ Section 1783(a) of the FCU Act created the NCUSIF and 
authorized the NCUA Board to use the fund to pay for ``such 
administrative and other expenses incurred in carrying out the 
purposes of [Title II] as it may determine to be proper''.
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    NCUA's current methodology, in place since 2003 and refined in 
2013, determines the OTR using the results of an examiner time survey 
(ETS). The ETS captures the time NCUA spends examining and supervising 
FCUs, carrying out its dual mission as insurer of federally insured 
credit unions (FICUs), and the chartering authority for federal credit 
unions. The OTR methodology also factors in the following:
    <bullet> The value to the NCUSIF of the insurance-related work 
performed by state supervisory authorities (SSAs).
    <bullet> The cost of NCUA resources and programs with different 
allocation factors from the examination and supervision program.
    <bullet> The distribution of insured shares between FCUs and 
federally insured state-chartered credit unions (FISCUs).
    <bullet> Operational costs charged directly to the NCUSIF.
    The goal of the methodology is to create a comprehensive and 
equitable calculation and allocation of costs to set the OTR annually 
within a framework that can be administered at minimal cost.

II. Context for the OTR

    There is a distinct overlap between the historical role of a 
regulator, concerned with enforcing laws and implementing public 
policy, and that of an insurer. Though not motivated by the associated 
financial liability that comes with the role of insurer, regulators 
address threats to the viability of their financial institutions to 
protect consumers and their jurisdiction's economy. This focus on 
viability benefits the insurer. The primary roles of an insurer are to 
protect depositors and the taxpayer, and contribute to the stability of 
the financial system.
    Before the advent of federal deposit insurance, federal financial 
institution regulators were concerned with protecting the stability of 
the financial system by ``regulating'' it. Thus, financial institution 
examinations focused on ensuring (1) statutes and regulations were 
followed to protect consumers, and (2) institutions were viable to 
protect consumer deposits,

[[Page 4806]]

preserve access to financial services, and safeguard the stability of 
the economy.\10\
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    \10\ The Office of the Comptroller of the Currency (OCC) 
charters, regulates, and supervises all national banks and federal 
savings associations as well as federal branches and agencies of 
foreign banks. On its Web site, the OCC lists its mission as 
ensuring that national banks and federal savings associations 
operate in a safe and sound manner, provide fair access to financial 
services, treat customers fairly, and comply with applicable laws 
and regulations. Similarly, the Board of Governors of the Federal 
Reserve System has supervisory and regulatory authority over a wide 
range of financial institutions, including state-chartered banks 
that are members of the Federal Reserve System, bank holding 
companies, thrift holding companies and foreign banking 
organizations that have a branch, agency, a commercial lending 
company subsidiary or a bank subsidiary in the United States. On its 
Web site, The Federal Reserve states its mission is to provide the 
nation with a safer, more flexible, and more stable monetary and 
financial system. One of its four stated general duties is 
supervising and regulating banking institutions to ensure the safety 
and soundness of the nation's banking and financial system and to 
protect the credit rights of consumers. On its Web site, the Federal 
Deposit Insurance Corporation states its mission is to maintain 
stability and public confidence in the nation's financial system by 
insuring deposits, examining and supervising financial institutions 
for safety and soundness and consumer protection, making large and 
complex financial institutions resolvable, and managing 
receiverships.
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    NCUA has a unique dual role in that it serves as both the regulator 
of FCUs and the insurer of FCUs and FISCUs. Given this dual role, it is 
appropriate to allocate examination and supervision costs between the 
NCUSIF and Operating Fees charged to FCUs. The policy rationale for 
this allocation is supported by various provisions of the FCU Act.
    In Title II of the FCU Act, Congress established the NCUSIF and 
housed it within NCUA for administration by the NCUA Board.\11\ 
Congress envisioned efficiencies from this arrangement, as well as 
NCUA's partnership with state regulators. Evidence of this intent to 
streamline can be found in 12 U.S.C. 1782(a)(5), which requires reports 
FCUs must file under Title I of the FCU Act to be prepared so ``that 
they can be used for share insurance purposes.'' Similarly, this 
provision requires NCUA to use the reports filed by FISCUs with their 
state regulators ``for share insurance purposes . . . [t]o the maximum 
extent feasible. . . .'' \12\
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    \11\ 12 U.S.C. 1783.
    \12\ 12 U.S.C. 1782(a)(5).
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    Congress also recognized that, in addition to losses related to 
credit union failures, the NCUSIF would incur expenses related to its 
administration, including examination staff and other employees. Title 
II empowers the NCUA Board to determine the proper allocation of 
``administrative and other expenses incurred'' under Title II that may 
be funded by direct requisitions from the NCUSIF.\13\ Title II further 
subjects the resources expended for ``insurance purposes'' to the 
Board's discretion by empowering the Board to ``appoint examiners who 
shall have power, on its behalf, to examine any insured credit union, 
any credit union making application for insurance of its member 
accounts, or any closed insured credit union whenever in the judgment 
of the Board an examination is necessary to determine the condition of 
any such credit union. . . .'' \14\ Title I confirms this design by 
requiring that salaries and expenses of the Board and NCUA employees 
``be paid from fees and assessments (including income earned on 
insurance deposits) levied on insured credit unions under [the FCU 
Act].'' \15\ In addition to assessments charged to all insured credit 
unions simply by nature of their NCUSIF insurance, Title I requires an 
annual Operating Fee charged to FCUs in recognition of the additional 
duties required of NCUA under Title I with respect to FCUs.\16\
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    \13\ 12 U.S.C. 1783(a).
    \14\ 12 U.S.C. 1784(a) (emphasis added).); see also 1789(a)(7).
    \15\ Sec.  1766(j)(3) (emphasis added).
    \16\ Sec.  1755.
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    NCUA also has the authority to promulgate rules and regulations to 
carry out the provisions of Title II.\17\ Accordingly, the NCUA Board 
has approved rules and regulations that specifically address safety and 
soundness and protect the NCUSIF.\18\
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    \17\ Sec.  1789(a)
    \18\ NCUA staff have mapped all examination related rules and 
regulations to one of two categories: insurance regulatory related, 
or non-insurance and consumer regulatory related. This regulatory 
mapping provides the key basis for determining how examination time 
is measured for purposes of the budgetary Overhead Transfer Rate.
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    Under the discretion vested in it under the FCU Act, the NCUA 
Board's primary motivation for the agency's regulations and examination 
program has been managing risk to the NCUSIF posed by all insured 
credit unions, whether state chartered or federal. The Board notes that 
NCUA's role as insurer is best fulfilled by a proactive approach to 
preventing losses, in addition to paying the post-failure obligations 
that NCUSIF insurance coverage requires. Since the implementation of 
federal share insurance in 1970, the NCUA Board has instituted a much 
more proactive examination and supervision program geared toward safety 
and soundness, which focuses on insurance related issues. In 2002, the 
NCUA Board strengthened its commitment to fulfilling NCUA's role as 
insurer by implementing the Risk-Focused Examination Program. This 
program bases examination scope and timing to a large extent on the 
risks an institution poses to the NCUSIF. The OTR's portion of NCUA's 
Operating Budget, including its changes over time, reflects the Board's 
fulfillment of its insurance responsibilities under the FCU Act under 
evolving economic and legislative circumstances.

III. History

    The NCUSIF was established in 1970 through an amendment to the FCU 
Act. Section 203(a) of the FCU Act, 12 U.S.C. 1783(a), created the 
NCUSIF and authorized the Board to use it to pay for ``such 
administrative and other expenses incurred in carrying out the purposes 
of [the FCU Act] as it may determine to be proper.''
    In 1972, a Government Accountability Office (GAO) audit \19\ 
recommended NCUA adopt a method of allocating costs between NCUA and 
the newly formed NCUSIF. Between 1973 and 1980, various cost allocation 
methods were employed, including direct charges to the NCUSIF for 
insurance expenses, including costs to close institutions, liquidation 
and merger costs, and, examiner time spent supervising--as opposed to 
examining--institutions. Starting in 1981, the OTR ranged between 30 
and 34 percent, and stayed in that range through 1984.
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    \19\ http://www.gao.gov/assets/210/203181.pdf.
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    From 1985 through 1994, NCUA's Office of Examination and Insurance 
(E&I) coordinated an annual ETS to determine an appropriate factor for 
apportioning the agency's total operating expenses. Examiners completed 
1,000 to 1,200 survey forms each year. The survey results supported a 
transfer rate between 50.1 percent and 60.4 percent for insurance 
related activities; however, the NCUA Board maintained the OTR at 50 
percent.
    In 1994, and again in 1997, the NCUA Board approved conducting 
examiner time surveys once every three years. Three-year surveys 
covered fiscal years 1995 through 1997 and fiscal years 1998 through 
2000. During that period, the OTR remained at 50 percent through 2000.
    The NCUA Board then voted to resume annual examiner time surveys in 
2000 and expanded the survey to include more examiners, as well as 
central and regional office staff. The fiscal year 2000 survey results 
supported a transfer rate of 66.72 percent. After 15 years of holding 
the transfer rate at 50 percent, the NCUA

[[Page 4807]]

Board increased the transfer rate to 66.72 percent for fiscal year 
2001.
    The Board also decided to hire an independent party to assess the 
OTR process. Deloitte & Touche's review of the OTR process was issued 
on September 5, 2001 and included several recommendations to improve 
the OTR process.\20\ These recommendations were implemented in 2002.
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    \20\ The full independent report from Deloitte is available on 
NCUA's Web site: https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2001DeloitteReportonOTRProcess.pdf.
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    In 2002, as a result of the Deloitte & Touche review, NCUA 
automated the examiner time survey \21\ and enhanced examiner training 
and guidance. The agency also initiated a task force to conduct a 
comprehensive review of the OTR, in part to better define insurance-
related activities. In October 2003, GAO issued report GAO-04-91 \22\ 
recommending continuous improvement of the process for and 
documentation of the OTR, updating the rate annually, and completing 
the examiner time surveys with full representation. Noting the task 
force review, NCUA agreed to set the rate annually, improve the 
methodology and documentation, and ensure examiner time survey sampling 
was statistically valid.
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    \21\ The examiner time survey process is discussed in detail 
later in this document.
    \22\ http://www.gao.gov/new.items/d0491.pdf.
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    The agency task force completed its review of the OTR in 2003 and 
recommended a revised, comprehensive methodology for calculating the 
OTR annually.\23\ The NCUA Board received comments from credit union 
trade groups \24\ on the proposed revised methodology and ultimately 
approved adoption of the revised methodology and an OTR of 59.8 percent 
for fiscal year 2004 at the November 20, 2003, open Board meeting.\25\
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    \23\ The pre-decisional staff proposal is available on NCUA's 
Web site: https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/Additional%20Documents/2003%20Task%20Force%20Proposal.pdf.
    \24\ A summary of the comments received is available on NCUA's 
Web site: https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/Additional%20Documents/2003%20Summary%20of%20Pre-Adoption%20OTR%20Stakeholder%20Meeting%20Comments.pdf.
    \25\ https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2003OTRBAM.pdf.
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    Using the revised methodology approved in 2003, the OTR approved 
annually by the NCUA Board ranged between 52.0 percent and 57.2 percent 
for fiscal years 2005 through 2010. The NCUA Board approved funding for 
an independent review of the OTR at the November 2009 open Board 
meeting. PricewaterhouseCoopers issued its first of two reports to NCUA 
in January 2011.\26\ Based on the 2011 PricewaterhouseCoopers report, 
the definitions used in the examiner time survey were clarified over 
the next two ETS cycles.
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    \26\ https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2011PwCOTRReview.pdf.
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    The 2010-2011 ETS cycle defined insurance-related and non-insurance 
related activities as follows: \27\
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    \27\ As described in the ETS section, the ETS cycle runs from 
June 1, Year 1 to May 31, Year 2. The PricewaterhouseCoopers report 
was issued mid-cycle, January 2011.

    Insurance Related Examination Procedures--Insurance Related 
examination or supervision contact procedures address safety and 
soundness issues. On the time survey forms, respondents should 
classify the time used to evaluate safety and soundness as 
``insurance related.'' ``Insurance Related'' time is
    <bullet> Evaluating financial trends and Call Report data
    <bullet> Determining the credit union's solvency position
    <bullet> Evaluating risks, and potential costs, the credit union 
presents to the NCUSIF (when appropriate)
    <bullet> Assessing management's efforts to protect earnings and 
net worth by identifying, evaluating, controlling, and monitoring 
internal and external risks
    <bullet> Assessing management's abilities to develop strong 
policies and a reliable internal control structure
    Non-Insurance Related Examination Procedures--Non-Insurance 
Related examination or supervision contact procedures address 
compliance with the laws and regulations that NCUA enforces. On the 
survey forms, respondents should classify the time used to evaluate 
issues not related to safety and soundness
    <bullet> Compliance with consumer protection laws, NCUA Rules 
and Regulations, the FCU Act, and Bylaws
    <bullet> Review of previously cited regulatory violations, areas 
of concern, and corrective actions taken
    <bullet> Call report accuracy and timeliness

    After the issuance of the PricewaterhouseCoopers report in January 
2011, NCUA improved the ETS Instruction definitions for insurance and 
non-insurance related activities for the 2011-2012 ETS cycle. 
Specifically, new categories were established to help examiners 
distinguish between regulations established to protect the NCUSIF, 
labeled ``insurance regulatory'', from regulations established to 
provide consumer protection or otherwise govern how federal credit 
unions operate, labeled ``consumer regulatory.'' This resulted in a 
more accurate assessment of insurance related activities (including 
insurance-regulatory) and consumer regulatory or non-insurance related 
activities. NCUA solicited comments from representatives of key 
stakeholders on the proposed changes to the definitions of the agency's 
activities as they related to the OTR methodology.\28\ The 2011-2012 
ETS Instructions contained the following definitions:
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    \28\ This included the Credit Union National Association, the 
National Association of Federal Credit Unions, the National 
Association of State Credit Union Supervisors, and the National 
Federation of Community Development Credit Unions.

    Insurance Related Examination Procedures--No change from 2010-
2011 ETS Instruction definition stated above.
    Insurance Regulatory Related Examination Procedures--Insurance 
Regulatory related examination or supervision contact procedures 
address regulations that are not designed to protect consumers 
directly. This includes assessing compliance with all regulations 
outside of consumer oriented regulations--see listing of consumer 
regulations in the following section--Consumer Regulatory 
examination procedures. Insurance Regulatory related regulations 
include those regulations that address safety and soundness issues. 
Examples include (this is not all inclusive):
    <bullet> 701.21--Loans to Members and Lines of Credit to Members
    [cir] Includes total loan limit to one individual, limitation on 
maturity, rate of interest, and security.
    <bullet> 702--Prompt Corrective Action
    [cir] Establishes net worth categories and mandatory and 
discretionary supervisory actions
    <bullet> 703--Investments and Deposit Activities
    [cir] Establishes permissible investments and requires credit 
analysis prior to purchase and requires ongoing monitoring of 
securities
    <bullet> 712--Credit Union Service Organizations
    [cir] Establishes investment and loan limits as well as outlines 
permissible activities
    <bullet> 713--Fidelity Bond and Insurance Coverage
    [cir] Requires minimum bond coverage
    <bullet> 715--Supervisory Committee Audits and Verifications
    <bullet> 722--Appraisals
    [cir] Establishes minimum appraisal standards based on loan size
    <bullet> 723--Member Business Loans
    [cir] Establishes prohibited activities, requires specific 
policies and sets overall loan limits as well as limits to one 
member or group of associated members
    Consumer Regulatory Related Examination Procedures--Consumer 
Regulatory Related examination or supervision contact procedures 
address compliance with consumer regulations. The regulations 
include:
    <bullet> Reg. B--Equal Credit Opportunity Act
    <bullet> BSA--Bank Secrecy Act
    <bullet> Reg. C--Home Mortgage Disclosure Act
    <bullet> Reg. CC--Expedited Funds Availability
    <bullet> COPPA--Children's Online Privacy Protection Act
    <bullet> Reg. D--Reserve Requirements
    <bullet> Reg. E--Electronic Funds Transfer Act

[[Page 4808]]

    <bullet> FACTA--Fair and Accurate Credit Transactions Act
    <bullet> FCPR--Fair Credit Practice Rule
    <bullet> FCRA--Fair Credit Reporting Act
    <bullet> FDCPA--Fair Debt Collections Practices Act
    <bullet> FDPA--Flood Disaster Protection Act
    <bullet> FHA--Fair Housing Act
    <bullet> GLBA--Gramm-Leach Bliley Act
    <bullet> HOEPA--Home Ownership and Equity Protection Act
    <bullet> HOPA--Home Owner's Protection Act
    <bullet> Reg. M--Consumer Leasing
    <bullet> OFAC--Office of Foreign Asset Control
    <bullet> PCFI--Privacy of Consumer Financial Information
    <bullet> RFPA--Right to Financial Privacy Act
    <bullet> SCRA--Service Members Civil Relief Act
    <bullet> Reg.--X Real Estate Settlement Procedures Act
    <bullet> Credit Card Act
    <bullet> Unlawful Internet Gaming Enforcement Act
    <bullet> SAFE Act--Secure and Fair Enforcement for Mortgage 
Licensing Act
    <bullet> Reg.--Z Truth in Lending
    <bullet> Rules and Regulations Part 706--Credit Practices
    <bullet> Rules and Regulations Part 707--Truth in Savings
    <bullet> Rules and Regulations Part 717--Fair Credit Reporting

    In 2012, the Office of Examination and Insurance (E&I) further 
clarified the application of the insurance-related and non-insurance 
related definitions in the ETS. Specifically, all relevant NCUA 
regulations were explicitly mapped to the survey classifications to 
provide more uniformity and consistency of reporting. This breakdown 
and mapping of regulations was consistent with the existing overall 
definitions of insurance-related and non-insurance related activities. 
The primary definitions did not change; the regulations were merely 
explicitly mapped based on the overarching definitions. This 
clarification resulted in more consistency by respondents on the ETS. 
Appendix A contains the mapping provided to ETS participants. In 2013, 
NCUA also obtained an independent review of the mapping of the 
regulations from PricewaterhouseCoopers.\29\ The mapping of NCUA's 
regulations outlined in the PricewaterhouseCoopers October 2, 2013 
report, is available on NCUA's Web site.
---------------------------------------------------------------------------

    \29\ https://www.ncua.gov/About/Documents/Budget/2013/2013ETSAnalysis.pdf.
---------------------------------------------------------------------------

    Based on the validated mapping of NCUA regulations to guide 
examiners in completing the annual time survey, the average survey 
results for insurance related activities increased from 67 percent to 
88 percent of examiner time. This resulted in an OTR for 2014 of 69.2 
percent, which was approved at the November 2013 open NCUA Board 
meeting. The OTR rose to 71.8 percent for 2015 and to 73.1 percent for 
2016. Figure 1 shows the trends in the OTR since 2004.\30\
---------------------------------------------------------------------------

    \30\ The dollar amount of the OTR in this graph is based on the 
NCUA Board approved budget, not actual expenditures. The OTR is 
applied to actual expenses incurred each month.
[GRAPHIC] [TIFF OMITTED] TN27JA16.000

    Since the creation of the NCUSIF in 1970, NCUA's allocation of 
funds between its dual roles has evolved to address changes in the 
credit union system and changes to NCUA operations. As credit unions 
have become larger and more complex, the potential risk to the NCUSIF 
has increased. As a result, NCUA's operations have adapted. This has 
resulted in an increased focus on insurance-related activities, and 
this focus remains in place today.
    The FCU Act and NCUA Rules and Regulations have also evolved in 
recent history, and as a result, the agency has placed more of a focus 
on safeguarding the NCUSIF. In particular:
    1. The Credit Union Membership Access Act (CUMAA) was enacted into 
law in 1998.\31\ This law resulted in new obligations on credit unions 
and NCUA designed to protect the NCUSIF, such as:
---------------------------------------------------------------------------

    \31\ https://www.ncua.gov/Resources/Documents/LCU1998-16.pdf.
---------------------------------------------------------------------------

    a. Imposing new requirements on federally insured credit unions 
with respect to financial statements and audits, and member business 
loans.\32\
---------------------------------------------------------------------------

    \32\ CUMAA imposed a new aggregate limit on a credit union's 
outstanding member business loans of the lesser of 1.75 times the 
credit union's net worth or 12.25% of the credit union's total 
assets.

---------------------------------------------------------------------------

[[Page 4809]]

    b. Establishing a new system of tiered capital requirements for all 
federally insured credit unions.\33\
---------------------------------------------------------------------------

    \33\ A net worth standard of 7 percent of assets was established 
for insured credit unions, as well as risk-based capital standards 
for ``complex'' credit unions as defined by NCUA. For credit unions 
not meeting these standards, progressively more stringent ``prompt 
corrective action'' requirements apply.
---------------------------------------------------------------------------

    2. During the aftermath of the financial crisis, from 2010 to 2015, 
the NCUA Board strengthened critical safety and soundness rules, such 
as:
    a. Codifying interest rate risk guidance into a rule ensuring that 
federally insured credit unions holding the vast majority of the credit 
union system's assets have appropriate policies to manage interest rate 
risk in adverse scenarios.
    b. Designing a targeted emergency liquidity rule ensuring that 
federally insured credit unions at various asset levels have scalable 
contingency plans to tap reliable sources of liquidity during a crisis.
    c. Establishing concentration limits and required due diligence on 
loan participations.
    3. From 2011 through 2015, NCUA also modernized various regulations 
to provide credit unions with more flexibility and authority.\34\ While 
these modernized rules reduced compliance burdens, they resulted in 
examiners devoting more time to ensuring safety and soundness through 
the examination process rather than relying on regulatory limits. For 
example, NCUA:
---------------------------------------------------------------------------

    \34\ https://www.ncua.gov/newsroom/Pages/RegulatoryModernizationInitiativeResults.pdf.
---------------------------------------------------------------------------

    a. Expanded regulatory relief eligibility for small and non-complex 
credit unions.
    b. Eliminated the fixed assets cap for FCUs.
    c. Eased troubled debt restructuring rules.
    d. Authorized ``plain-vanilla'' derivatives for FCUs.
    Since 2001, various independent third-party assessments have also 
resulted in recommendations to improve and refine the OTR methodology, 
most of which NCUA has adopted.\35\ NCUA is now seeking public comment 
on the current OTR methodology, as described throughout the remainder 
of this document, for possible additional improvement.
---------------------------------------------------------------------------

    \35\ For a discussion of recommendations not adopted and the 
associated rationale, see the Overhead Transfer Rate (OTR)--Timeline 
on NCUA's website at https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/overhead-transfer-rate-chronology.pdf.
---------------------------------------------------------------------------

IV. Detailed Discussion of OTR Methodology

a. Examination Time Survey

    NCUA's mission is to foster the safety and soundness of federally 
insured credit unions, which is primarily achieved through its 
examination program. Consequently, the majority of NCUA's resources are 
dedicated to the examination and supervision of federally insured 
credit unions. Examiners expend time on both regulatory and insurance 
activities during examinations and supervision contacts at FCUs. 
Therefore, one of the key components needed to calculate the cost for 
NCUA's regulatory role and insurance roles is the annual ETS. The ETS 
applies only to FCU examination and supervision contacts, as 
examinations (insurance reviews) of FISCUs have by definition the sole 
purpose of managing risk to the NCUSIF. The Board invites comment on 
the existing ETS process.
    Since its inception in 1985, the ETS evolved from a manually 
completed form to the automated system used now. From 1985 to 1994, 
NCUA collected 1,000 to 1,200 manually completed survey forms annually. 
Survey forms were completed by participants for each FCU examination 
(work classification code [WCC] 10) and each FCU supervision contact 
(WCC 22). Since survey results were consistent, NCUA reduced the sample 
size considerably and instead of annual collection, moved to a 3-year 
cycle. In 1994, 1997, and 2000, the sample size ranged from 60 to 100 
survey forms. There were no surveys completed in 2001.
    In 2001 Deloitte & Touche completed a study of the ETS process and 
concluded it was reasonable and appropriate for use in allocating 
NCUA's costs between insurance-related and regulatory-related 
activities.\36\ The study included some recommendations to enhance the 
survey process, such as automating the survey form, improving 
communications, and varying the period of collection, but did not 
recommend any changes to the survey's content. NCUA implemented those 
recommendations.
---------------------------------------------------------------------------

    \36\ The Deloitte & Touche Study is available on NCUA's public 
website. https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2001DeloitteReportonOTRProcess.pdf.
---------------------------------------------------------------------------

    In 2002, E&I randomly selected one Supervisory Examiner (SE) group 
(via lottery draw) from each region to participate in the survey 
process. The regions selected three experienced Principal Examiners 
(PEs) from these SE groups to complete surveys for all FCU examination 
and supervision contacts initiated and completed during the ETS period. 
Since 2002, the participating SE groups in each region have rotated 
annually. The annual rotation ensures representative coverage of the 
population of FCUs across each region while minimizing the burden on 
field staff.
    From 1985 through 2000, examiners completed time surveys during a 
set period, often occurring near the end of the exam program year. 
Starting in 2002, examiners completed surveys for all examination and 
supervision contacts they conducted during a 12-month period that 
starts on June 1, and ends on May 31, of the following year. Utilizing 
groups from all of NCUA's regions and collecting the data throughout a 
12-month period provides a variety of FCUs, completion dates, and 
geographic locations resulting in a sample that better represents the 
entire population.
    Prior to introducing the automated form, NCUA did not provide 
formal training to survey participants. Beginning in 2002, E&I held a 
training session and a subsequent teleconference for the selected 
participants, their supervisors, and a regional office analyst from 
each region. E&I also dedicated an email address for examiners to use 
to request help with the survey. In addition, E&I created a shared 
electronic database to store information such as answers to Frequently 
Asked Questions (FAQs), summary reports, and training information.
    Since 2002, communications regarding the survey process have 
improved, which helps to ensure consistent application and reliable 
results. E&I provides training prior to the start of every ETS cycle; 
including:
    <bullet> A discussion of the objectives of the ETS and its 
importance in determining the OTR,
    <bullet> how to access and complete the ETS form,
    <bullet> how to classify examination and supervision activities,
    <bullet> how to correct data if necessary,
    <bullet> a review of tools for reporting hours,
    <bullet> expectations of the ETS participants, and
    <bullet> resources available to the participants.
    The instructions provided to the ETS participants are included in 
Appendix B.
    As previously discussed, the NCUA Board approved funding for an 
independent review of the OTR at the November 2009 open Board meeting. 
PricewaterhouseCoopers' January 2011 report resulted in several changes 
to the

[[Page 4810]]

ETS.\37\ The definitions used in the ETS were modified to more clearly 
define the work of NCUA's examination staff. Specifically, all relevant 
NCUA regulations were explicitly mapped to the survey classifications 
to provide more uniformity and consistency of reporting. The report 
also recommended that NCUA use sample sizes that are consistent with 
the calculated sample sizes for the two main types of activities (i.e. 
programs) under survey, and specifically, that NCUA consider increasing 
the sample sizes for the federal supervision program. To improve the 
confidence interval, E&I chose one additional SE group per region to 
increase the number of supervision surveys. As the report concluded the 
examination survey size met the desired confidence level, the 
additional SE group was instructed to upload only the supervision 
contacts the PEs completed during the ETS period. This reduced the 
overall burden of completing the surveys for additional examinations.
---------------------------------------------------------------------------

    \37\ https://www.ncua.gov/About/Documents/Budget/Misc%20Documents/2011PwCOTRReview.pdf.
---------------------------------------------------------------------------

    At the end of each ETS period, NCUA monitors the results of the 
time study to ensure the sample size is statistically valid. Using the 
ETS examination upload report, NCUA calculates the mean and standard 
deviation for percentage of consumer regulatory hours of the WCC 10 
examination uploads. For the most recent ETS period, there were 142 WCC 
10 examination uploads with a total of 2,621.6 consumer regulatory 
hours. The mean was calculated to be 13.37 percent and the standard 
deviation was 9.09 percent. A statistically valid sample size is 
calculated for 99 percent, 95 percent, and 90 percent confidence 
intervals using these statistics, the corresponding Z factor from a 
standard normal distribution table, and a 3 percent margin of error. 
Table 1 illustrates the calculations for the most recent ETS period. 
NCUA's sample size of 142 exceeds the 60.92 necessary to achieve a 99 
percent confidence interval.

                                                                  Table 1--Sample Size
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           C                             P = (100%-C)/2          X               S               Z               E          N = ((Z*S)/
-----------------------------------------------------------------------------------------------------------------------------------------      e)\2\
                                                           Confidence                        Standard      From standard     Margin of   ---------------
                  Confidence interval                        factor            Mean          deviation     normal tables       error        Sample size
--------------------------------------------------------------------------------------------------------------------------------------------------------
99%...................................................             0.005           13.37            9.09           2.576            3.00           60.92
95%...................................................             0.025           13.37            9.09           1.960            3.00           35.27
90%...................................................             0.050           13.37            9.09           1.645            3.00           24.84
--------------------------------------------------------------------------------------------------------------------------------------------------------

    NCUA also performs these calculations for the sample size for WCC 
22 supervision contact uploads. Using the ETS WCC 22 upload report, 
NCUA calculates the mean and standard deviation for percentage of 
consumer regulatory hours of the WCC 22 supervision contact uploads. 
For the most recent ETS period, there were 100 WCC 22 uploads with a 
total of 350.4 consumer regulatory hours. The mean was calculated to be 
16.9 percent and the standard deviation was 30.9 percent. Based on 
these statistics, NCUA's sample size produces a confidence interval of 
approximately 69 percent. To achieve a 95 percent confidence interval 
with 3 percent margin of error, would require approximately 408 
uploads. NCUA accepts a lower confidence interval for the WCC 22 
uploads because the WCC 10 examination program is the primary focus of 
the time study and to reduce the burden on field staff. Also, the 
combined WCC 10 and WCC 22 contacts result in a sample size of 242 
uploads with total of 2,972 hours. The mean of the combined sample 
calculated to be 14.84 percent and the standard deviation was 21.07 
percent. Using these statistics, a sample size of 151 provides a 
greater than 99 percent confidence level. The sample size is sufficient 
to provide reliable results.
    In 2013, NCUA also obtained an independent review of the mapping of 
the regulations.\38\ The mapping of NCUA's regulations is outlined in 
PricewaterhouseCoopers' October 2, 2013 report, which is available on 
NCUA's website and in Appendix A of this document. E&I reviews the 
regulatory mapping prior to the beginning of each ETS cycle for any 
necessary updates.\39\ Going forward, NCUA intends to clearly state in 
the preamble to proposed rules whether a rule is promulgated under its 
Title II authority (insurance) or its Title I authority (regulatory).
---------------------------------------------------------------------------

    \38\ https://www.ncua.gov/About/Documents/Budget/2013/2013ETSAnalysis.pdf.
    \39\ The current mapping has not been updated for NCUA's most 
recent final rules. Similar to other activities not explicitly 
classified in the ETS instructions, ETS participants defer to the 
overarching definitions of insurance and non-insurance related 
activities provided in the ETS instructions (see Appendix B) to 
appropriately allocate time as insurance or non-insurance.
---------------------------------------------------------------------------

    As stated earlier, two SE groups from each region participate in 
the ETS process. One group uploads both FCU examination contacts and 
FCU on-site supervision contacts while the second SE group uploads only 
FCU on-site supervision contacts. All PEs in the selected groups 
participate in the survey. PEs are selected because they possess the 
necessary level of experience to ensure accurate results where examiner 
judgment is necessary. If an SE group has less than four PEs, a second 
group is added to ensure an adequate number of examinations and 
supervision contacts are uploaded for a statistically relevant sample. 
The participating SE groups rotate each year in alphabetical order 
(Group A one year, Group B the next year, etc.) to ensure a fair 
distribution of work and to ensure a wider number of FCUs are captured 
in the survey over time. PEs who transfer to a different SE group 
during the ETS period continue uploading surveys until the survey cycle 
ends. However, PEs from a non-participating group that transfer into a 
group participating in the ETS do not upload any time surveys.
    NCUA utilizes its Automated Integrated Regulatory Examination 
System (AIRES) examination system to capture the ETS information. There 
are twelve categories of activities on the survey form, modeled on the 
risk-based examination program. The scope categories are:

1. Planning/Scope Development
2. Call Report Review
3. Supervisory Committee Review
4. Financial Analysis
5. Loan Analysis
6. Investment Analysis
7. Liquidity Analysis
8. Asset Liability Management
9. Compliance
10. Information Systems Technology
11. Management Analysis

[[Page 4811]]

12. Contact Report/Joint Conference/Follow-Up Procedures

    For each examination or supervision contact, the examiner inputs 
the hours spent on insurance, insurance regulatory related and non-
insurance and consumer regulatory related activities in each of the 
categories. A full year's worth of survey results are used to calculate 
the percentage of hours devoted to regulatory and insurance-related 
(insurance and regulatory) activities for the Federal Examination and 
Federal Supervision Programs. As previously mentioned, the ETS period 
runs from June 1 to May 31. Only examinations started after June 1 and 
completed and uploaded by the following May 31 are included in the 
survey to maintain consistency.
Results of the ETS
    The ETS is used to determine the percentage of Workload Budget 
Hours related to regulatory and insurance-related tasks for the 
following two programs:
    <bullet> Federal Examination (WCC 10); and
    <bullet> Federal Supervision (WCC 22).
    NCUA uses a full year's worth of survey results when determining 
the regulatory cost driver applied to the budgeted workload hours for 
its Core Programs and Special Programs. The Workload Budget is 
discussed later in this document. The results of the ETS concluded on 
May 31, 2015 are illustrated in Table 2.

                                             Table 2--Results of ETS
----------------------------------------------------------------------------------------------------------------
                                                                                                   Non-insurance
                       Contact type (WCC)                          Total surveys     Insurance       related %
                                                                     collected       related %     (regulatory)
----------------------------------------------------------------------------------------------------------------
Examination (WCC 10)............................................             142           86.83           13.17
Supervision (WCC 22)............................................             100           87.21           12.79
                                                                 -----------------------------------------------
    Total.......................................................             242           86.87           13.13
----------------------------------------------------------------------------------------------------------------

    Table 3 shows the ETS results by the scope categories.

                 Table 3--ETS Results by Scope Category
------------------------------------------------------------------------
                                                           Non-insurance
          Time category results              Insurance       related %
                                             related %     (regulatory)
------------------------------------------------------------------------
Planning/Scope Development..............           85.95           14.05
Call Report Review......................           95.61            4.39
Supervisory Committee...................           94.61             5.9
Financial Analysis......................           96.98            3.02
Loan Analysis...........................           93.65            6.35
Investment Analysis.....................           93.05            6.95
Liquidity Analysis......................           93.84            6.16
Asset Liability Management..............           96.15            3.85
Compliance..............................           41.28           58.72
Information Systems Technology..........           81.28           18.72
Management..............................           90.73            9.27
Examination Report/JC/Follow-Up.........           89.85           10.15
                                         -------------------------------
    Total...............................           86.87           13.13
------------------------------------------------------------------------

    NCUA also reviews the ETS results by CAMEL code. For the most 
recent ETS period, NCUA calculated the number of contacts by CAMEL Code 
as a percentage of the sample size. The results are documented in Table 
4. The percentage of WCC 10 examinations by CAMEL code correlate 
strongly with the total FICU population at May 31, 2015. As expected 
the percentage of WCC 22 supervision contacts is weighted more heavily 
toward CAMEL 3 and CAMEL 4 FICUs since supervision is focused on credit 
unions with financial and operational weaknesses.

                                        Table 4--CAMEL Code Distribution
----------------------------------------------------------------------------------------------------------------
                                                                                 Percent of sample
                                                                 -----------------------------------------------
                           CAMEL code                                 WCC 10          WCC 22        Total FICU
                                                                    examination     supervision     population
                                                                        (%)             (%)             (%)
----------------------------------------------------------------------------------------------------------------
1 & 2...........................................................           71.83           22.00           73.56
3...............................................................           24.65           51.00           22.41
4...............................................................            3.52           27.00            3.90
5...............................................................            0.00            0.00            0.13
----------------------------------------------------------------------------------------------------------------


[[Page 4812]]

    As Table 2 and Table 3 show, the ETS determined NCUA examiners 
spend 86.87 percent of their time on insurance related activities and 
13.13 percent of their time on non-insurance related activities during 
examinations and supervision contacts between June 1, 2014 and May 31, 
2015. As the next section will describe, the results of the ETS are 
applied to NCUA's budgeted workload program hours to determine the 
agency's budgeted hours for insurance and non-insurance related 
activities.

b. Workload Program Hours

    This step in NCUA's OTR calculation determines the percentage of 
work the agency expects to perform in insurance and non-insurance 
related activities. Specifically, the results of the ETS,\40\ and the 
assessment of work performed for other programs administered by other 
offices \41\ are applied to the workload program hours derived from 
NCUA's annual resource budget. This results in a weighted average of 
program hours devoted to NCUA's regulatory and insurance roles.
---------------------------------------------------------------------------

    \40\ Discussed in Section IV.a.
    \41\ Including programs administered by the Office of Small 
Credit Union Initiatives (OSCUI) and the Office of Consumer 
Protection (OCP) as discussed in Section IV.c.
---------------------------------------------------------------------------

    NCUA's annual resource budget is a comprehensive workload analysis 
that captures the amount of time budgeted to conduct examinations and 
supervision of federally insured credit unions, and other programs 
necessary to carry out NCUA's dual mission as insurer and regulator. 
The annual resource budget estimates hours in three major categories: 
\42\
---------------------------------------------------------------------------

    \42\ Time budgeted for core and special programs is considered 
productive time, while administrative hours are considered non-
productive time. These classifications are used during the SSA 
Imputed Value step of the OTR calculation.
---------------------------------------------------------------------------

    1. Core Programs includes NCUA's FCU and FISCU examinations and on- 
and off-site supervision.
    2. Special Programs includes NCUA's specialized examination 
programs in the areas of capital markets, information systems, and 
lending, credit union service organization (CUSO) reviews, chartering 
and field of membership, and small credit union development.
    3. Administrative includes NCUA field staff time related to 
training and staff development, leave, and travel.
    The annual resource budget process starts with a planning session 
with management representatives from each field office,\43\ OCP and 
E&I. During the planning session, resource requirements for programs 
such as focused areas of review,\44\ central office details, and 
working groups are vetted. Examination and supervision requirements are 
also reviewed and guidance is issued to all field staff. NCUA field 
staff review each FICU in their district \45\ to determine the 
anticipated number of workload hours \46\ needed for the next calendar 
year. The workload estimates are refined by field management to ensure 
consistency. Field offices submit their final resource budget proposals 
to E&I for review and analysis. E&I reviews the program recommendations 
from the field offices and submits any recommendations for adjustments 
to the Executive Director. The final resource budget for each field 
office establishes the foundation for their budget requests and is used 
to allocate the results of the ETS.
---------------------------------------------------------------------------

    \43\ Field office refers to each of NCUA's five Regional Offices 
and the Office of National Examinations and Supervision (ONES).
    \44\ Each year NCUA issues a Letter to Credit Unions outlining 
the Supervisory Priorities for the year. https://www.ncua.gov/regulation-supervision/Pages/policy-compliance/communications/letters-to-credit-unions/2016/01.aspx.
    \45\ NCUA examiners are assigned a district of specific FCUs and 
FISCUs and are responsible for managing examination and supervision 
of the credit unions assigned to their district.
    \46\ Workload hours include hours for examinations, on- and off-
site supervision, and reviews by regional and national specialized 
examiners.
---------------------------------------------------------------------------

    Table 5 shows the 2016 budgeted hours for NCUA's core and special 
programs and how those hours are allocated to non-insurance related 
activities based on the results of the ETS. Administrative time is not 
allocated in this step of the OTR calculation.

                                  Table 5--Allocation of Budgeted Program Hours
----------------------------------------------------------------------------------------------------------------
                                     2016 budgeted      Non-insurance      Non-insurance
                                     workload hours        percent           hours \47\       Allocation basis
----------------------------------------------------------------------------------------------------------------
Core Programs....................            728,556                 na             70,691  Sum of Core Programs
Federal Examination..............            454,115             13.17%             59,807  Examiner time survey
Federal Supervision..............             53,687             12.79%              6,867  Examiner time survey
State Exam & Supervision.........            175,722                 0%                  0  FISCU work is
                                                                                             insurance-related
State Exam Review................              5,321                 0%                  0  FISCU work is
                                                                                             insurance-related
5300 Program--FCU................             30,503             13.17%              4,017  Uses FCU examination
                                                                                             results from
                                                                                             examiner time
                                                                                             survey
5300 Program--FISCU..............              9,208                 0%                  0  FISCU work is
                                                                                             insurance-related
Special Programs.................             35,637                 na              2,607  Sum of Special
                                                                                             Programs
Regional Lending Specialists.....              4,190             13.17%                552  Allocation based on
                                                                                             % from time surveys
Regional Capital Market                        4,130                 0%                  0  NCUSIF risk
 Specialists.                                                                                management program
Regional Information Systems                   3,320             13.17%                437  Allocation based on
 Officers.                                                                                   % from time surveys
Field of Membership & Chartering.                500            100.00%                500  Regulatory program
Small Credit Unions..............             18,633              6.00%              1,118  Allocation based on
                                                                                             OSCUI's time
                                                                                             reporting results
CUSO Examinations................              4,864                 0%                  0  NCUSIF risk
                                                                                             management program
                                  ------------------------------------------------------------------------------
    Total Core & Special Programs            764,193                 na        \48\ 73,298  ....................
----------------------------------------------------------------------------------------------------------------
Percent of 2016 core and special programs devoted to NCUA's Non-                      9.6%  = 73,298 / 764,193
 Insurance Role.
----------------------------------------------------------------------------------------------------------------

Detailed Explanation of Allocation Basis
    Table 5 shows how NCUA's core and special program hours are 
allocated to non-insurance and thereby insurance related activities. A 
detailed explanation of the allocation basis for each core program and 
special program is outlined below.
---------------------------------------------------------------------------

    \47\ Numbers may not reconcile exactly due to rounding.
    \48\ These are the budgeted hours allocated to insurance-
related, regulatory work in 2016.
---------------------------------------------------------------------------

Core Programs
    NCUA's federal examination and federal supervision programs' non-
insurance related activities are allocated at 13.17 percent and 12.79 
percent, respectively, based on the results of the

[[Page 4813]]

ETS.\49\ The results of the ETS from June 2014 to May 2015 determined 
that examiners spent 13.17 percent of their time on non-insurance 
related activities during the examination of FCUs and 12.79 percent of 
their time on non-insurance related activities during the supervision 
of FCUs. These percentages (13.17 percent and 12.79 percent) are 
respectively applied to the 2016 budgeted hours for federal 
examinations and federal supervision to determine the number of hours 
for non-insurance related activities.
---------------------------------------------------------------------------

    \49\ The results of the time study are documented in Tables 2 
and 3.
---------------------------------------------------------------------------

    NCUA examiners conduct examinations and supervision of FISCUs, and 
generally do so in conjunction with the governing state supervisory 
authority (SSA). It is also NCUA's policy to conduct reviews of 
examinations completed by the SSA. NCUA's FISCU related work 
(examinations, supervision and state exam reviews) is solely associated 
with the agency's role as an insurer. For purposes of calculating the 
OTR, 100 percent of the budgeted hours for FISCU examinations, 
supervision and state examination reviews are allocated to insurance-
related activities.
    All federally insured credit unions file quarterly 5300 Call 
Reports with NCUA. NCUA examiners are responsible for performing 
quarterly reviews of the 5300 Call Report information for all federally 
insured credit unions in their district. For FCUs, NCUA examiners are 
also responsible for validating the information submitted by the FCUs. 
For this reason, more time is budgeted for the federal 5300 program 
than for the state 5300 program. An extension of the examination 
program, the budgeted hours for the federal 5300 program are allocated 
as insurance and non-insurance hours based on the results of the ETS 
for federal examinations. Thus, 13.17 percent of federal 5300 program 
hours are allocated to non-insurance activities. Consistently, the 
budgeted hours for the state 5300 program are allocated the same as the 
FISCU examination program, 100 percent to insurance related activities.
Special Programs
    Regional lending, information technology and capital market 
specialists participate in the examination and supervision of federally 
insured credit unions to perform focused reviews of more complex areas 
of credit union operations. Regional specialists do not participate in 
the ETS. The work performed by regional lending and information 
technology specialists is a combination of insurance and non-insurance 
related activities. Therefore, the budgeted hours for regional lending 
specialists and regional information systems officers is allocated 
conservatively at 13.17 percent for non-insurance related activities, 
based on the ETS results. The work performed by regional capital market 
specialists is focused on credit unions' asset liability management and 
serves as a risk management program for the NCUSIF. Thus, budgeted 
hours for regional capital market specialists is allocated 100 percent 
to insurance-related activities.
    NCUA budgets hours for examiners to support OCP with chartering and 
field of membership applications and expansion requests. One-hundred 
percent of the hours budgeted for examiners to assist with this 
activity are allocated to NCUA's non-insurance function.
    NCUA also budgets hours for examiners to support OSCUI with 
providing assistance to small credit unions. The budgeted hours for 
examiner participation in the small credit union program are allocated 
to insurance and non-insurance related activities on the same basis as 
the OSCUI programs. As described in the financial budget section, OSCUI 
conducts its own time survey each year and has determined that 6 
percent of its work should be allocated to non-insurance related 
activities. Thus, NCUA allocates 6 percent of these budgeted workload 
hours to non-insurance related activities.
    The agency's CUSO examination program is a risk-management program 
focused on protecting the NCUSIF (NCUA does not charter and has no 
regulatory authority over CUSOs). Thus, 100 percent of the hours 
budgeted for CUSO examinations is allocated to insurance related 
activities.
    As Table 5 shows, the combination of non-insurance workload hours 
for core and special programs is compared to the overall workload 
budget for those programs, to develop the overall weighted average of 
non-insurance related work across all programs. The percentage of non-
insurance activities derived from the ETS and the annual resource 
budget are applied to NCUA's Operating Budget as outlined in the 
Financial Budget section.

c. Financial Budget

    NCUA's budget process uses the agency's strategic goals and 
objectives set forth in the NCUA Strategic Plan as a framework to 
ensure agency priorities and initiatives drive resulting resource needs 
and allocations. The annual budget provides the resources to execute 
the strategic plan and undertake tasks in NCUA's major programs.
    Each NCUA office develops a budget request identifying resources 
required to support NCUA's mission and strategic goals and objectives. 
These budgets are developed using zero-based budgeting techniques to 
ensure each office's requirements are individually justified and 
consistent with the agency's overall strategic plan. One of the primary 
inputs in the development of the financial budget is the workload 
analysis described in the workload budget section. The final workload 
analysis establishes the foundation for the field office budget 
requests in addition to establishing the amount of work related to 
insurance and non-insurance related activities for the OTR. The 
workload analysis is also used to develop personnel and travel costs, 
and all offices develop cost estimates for fixed and recurring items 
such as rent or leased property, operations and maintenance, repair on 
owned facilities, supplies, telecommunications, and other 
administrative and contracted services costs. Information related to 
NCUA's budget process, including detailed information on the NCUA 
Board-approved 2016 Operating Budget are available on the agency's Web 
site.\50\
---------------------------------------------------------------------------

    \50\ https://www.ncua.gov/About/Pages/budget-strategic-planning/supplementary-materials.aspx.
---------------------------------------------------------------------------

    Table 6 shows how NCUA's 2016 Operating Budget is allocated to non-
insurance related activities, using the weighted average derived from 
the core and special programs (9.6 percent) and the results of the 
assessment of insurance and non-insurance related activities for 
programs administered by other offices. The allocation basis for all 
offices is outlined in detail below Table 6. The Board invites comment 
on the current process for allocating NCUA's Operating Budget used in 
the OTR calculation.

[[Page 4814]]



                                  Table 6--Allocation of NCUA Operating Budget
----------------------------------------------------------------------------------------------------------------
                                                                   Dollar budget   Non-insurance   Non-insurance
                 Cost area 2016 Financial Budget                       ($M)           percent        cost ($M)
----------------------------------------------------------------------------------------------------------------
All Regional Costs: Based on non-insurance related portion of            $155.49            9.6%          $14.91
 core and special programs......................................
Asset Management Assistance Center and Assistance Program:                 $6.92              0%              $0
 Manages liquidation payouts, assets acquired from liquidations
 and assistance programs, and recoveries for the NCUSIF.........
Office of Consumer Protection: Primarily non-insurance                     $9.54           82.3%           $7.86
 (regulatory) function i.e. chartering/FOM--net of work related
 to share insurance coverage for members and FISCUs.............
Office of Small Credit Union Initiatives: Ensures small credit             $6.37            6.0%           $0.38
 unions operate in safe and sound manner through its consulting
 program. However, it also addresses consumer regulatory issues.
Office of National Examinations and Supervision: NCUSIF risk              $10.48              0%              $0
 management function to supervise corporate credit unions and
 large natural person credit unions. CFPB examines the natural
 person credit unions assigned to this office for consumer
 compliance.....................................................
Office of Minority and Women Inclusion..........................           $2.94           86.0%           $2.53
All Other Offices \51\: Based on non-insurance percent of core            $99.18            9.6%           $9.51
 and special programs...........................................
                                                                 -----------------------------------------------
    Total 2016 NCUA Budget......................................         $290.92  ..............          $35.19
----------------------------------------------------------------------------------------------------------------

Explanation of Allocation Basis For Financial Budget
Regional Offices
    The financial budget for the agency's five regional offices is 
allocated based on the weighted average of non-insurance and insurance 
related activities calculated in the workload budget section. Resources 
in the regions execute NCUA's core and special programs, thus, the 
budgeted costs related to these programs should receive the same 
allocation basis as the programs themselves--as determined by the ETS. 
The budget for the regional offices is allocated at 9.6 percent for 
non-insurance related activities.
AMAC
    NCUA conducts credit union liquidations and performs management and 
recovery of assets through the Asset Management and Assistance Center 
(AMAC). AMAC assists NCUA regional offices with the review of large, 
complex loan portfolios and actual or potential bond claims. It also 
participates extensively in the operational phases of conservatorships 
and records reconstruction. The purpose of AMAC is to manage and reduce 
costs to the NCUSIF and credit union members of credit union failures. 
Thus, 100 percent of AMAC's activities are allocated as insurance-
related.
---------------------------------------------------------------------------

    \51\ The weighted average, previously determined, is applied to 
all other cost centers (CFO, human resources, etc.) as these are 
overhead functions that support the agency's mission.
---------------------------------------------------------------------------

OCP
    OCP is responsible for NCUA's consumer financial literacy efforts, 
consumer inquiries and complaints, consumer protection compliance and 
rulemaking, fair lending examinations, interagency coordination and 
outreach, chartering and field-of-membership matters, low-income 
designations, charter conversions and bylaw amendments. OCP monitors 
time performing insurance related activities, insurance-regulatory 
related activities, and consumer-regulatory related activities by 
division. OCP has four divisions:
    <bullet> Consumer Affairs,
    <bullet> Consumer Compliance Policy and Outreach,
    <bullet> Consumer Access, and
    <bullet> Consumer Access South
    The Division of Consumer Access and Division of Consumer Access 
South do not specifically track the amount of time devoted to insurance 
related, insurance regulatory related, and consumer regulatory related 
issues. Instead, these divisions have developed estimates by using 
standard factors based on the type of work inherent in each project 
category. The divisions assume the following, based on a blend of time 
among Consumer Access Analysts, Technicians, and Specialists:
    <bullet> 25 percent of time is devoted to determining if any safety 
and soundness issues exist when processing various chartering and field 
of membership expansion applications;
    <bullet> 10 percent of time is devoted to addressing insurance 
related questions, membership concerns, and bylaw disputes directly 
relevant to consumer related regulatory concerns; and
    <bullet> The remaining 65 percent of time is devoted to regulatory 
issues primarily pertaining to reviewing applications for new charters 
and charter expansions to ensure the proposals are consistent with 
regulatory requirements. To a lesser extent, the Divisions of Consumer 
Access associate this time with the enforcement of NCUA's chartering 
policies.
    The Division of Consumer Compliance Policy and Outreach focuses on 
consumer regulatory related issues and does not regularly work on 
matters categorized as insurance related or insurance-regulatory 
related in the ETS instructions. This division spends 100 percent of 
productive time addressing regulations the ETS instructions classify as 
consumer-regulatory related regulations. These regulations include 
regulations implementing the Equal Credit Opportunity Act, the Home 
Mortgage Disclosure Act, the Truth in Lending Act, and the Real Estate 
Settlement Procedures Act. Therefore, OCP estimates this division 
spends 100 percent of its time on consumer regulatory related issues.
    The Division of Consumer Affairs develops estimates based on the 
number of inquiries, complaints and telephone calls processed by staff, 
and the average amount of time needed to address those contacts. OCP 
estimates the Division of Consumer Affairs spends:
    <bullet> 5 percent of the division's time addressing share 
insurance questions received from consumers;
    <bullet> 90 percent on consumer-regulatory related activities; and
    <bullet> 5 percent of time administering the Financial Literacy 
Program.
    Based on the allocation method described above, 82.3 percent of 
OCP's work is non-insurance related. This 82.3 percent is applied to 
the OCP Operating Budget to determine the allocation of costs between 
insurance and non-insurance related activities.
OSCUI
    OSCUI supports the success of small credit unions through its four 
main functional areas--training, grants and

[[Page 4815]]

loans, partnership and outreach, and consulting. The office only 
monitors ETS activities for its consulting function. The other program 
areas do not regularly work on matters categorized as insurance 
related, insurance-regulatory related or consumer-regulatory related 
functions but provide support for the consulting function.
    OSCUI monitors time related to the ETS categories through data 
collected during credit union consulting contacts. Since the consulting 
work covers a wide range of topics (many of which don't cleanly fit 
into an ETS activity category), OSCUI developed a weighting system to 
measure ETS related activity. The weighting system identifies the 
percentage of time allocated to each of the three ETS categories for 
each consulting topic. OSCUI consultants (Economic Development 
Specialists) record consulting time by topic. Time is allocated to the 
ETS categories by multiplying the number of consulting hours per topic, 
by the percentage of time allocated for the topic. The assumptions for 
monitoring and allocation of time to ETS categories, and used to 
develop the weighting system, are as follows:
    <bullet> Consulting assistance that helps credit unions address 
safety and soundness issues is catalogued as an insurance related 
activity.
    <bullet> Consulting assistance that addresses regulations that are 
not designed to protect the consumer directly are catalogued as 
insurance-regulatory related activity.
    <bullet> Consulting assistance that addresses regulations that are 
designed to protect the consumer directly are catalogued as consumer-
regulatory related activity.
    Table 7 documents each consulting topic and OSCUI's assumptions for 
the ETS activity related to the topic. For example, OSCUI assigns 
consulting work on asset liability management to an insurance-related 
activity so it is weighted at 100 percent in that area; consulting work 
related to investments is weighted 50 percent insurance related and 50 
percent insurance-regulatory related.
    OSCUI's Economic Development Specialists completed 11,003 hours of 
assistance to credit unions enrolled in the OSCUI Consulting Program 
during the ETS cycle ending on May 31, 2015. The hours were allocated 
as follows:
    <bullet> 7,952 (72 percent) insurance related activities addressing 
safety and soundness issues.
    <bullet> 2,434 (22 percent) insurance-regulatory related 
activities.
    <bullet> 617 (6 percent) consumer-regulatory related activities.
    Based on the allocation method described above, 6 percent of 
OSCUI's work is non-insurance (consumer regulatory) related. This 6 
percent is applied to OSCUI's Operating Budget to determine the 
allocation of costs between insurance and non-insurance related 
activities.

                                         Table 7--OSCUI Time Allocation
----------------------------------------------------------------------------------------------------------------
                                                                 Percent           Percent
                                                                insurance        insurance-     Percent consumer-
                  Consulting type of work                        related         regulatory        regulatory
                                                                activity      related activity  related activity
----------------------------------------------------------------------------------------------------------------
Asset Liability Management................................               100                 0                 0
BSA/OFAC..................................................                 0                 0               100
Budgeting.................................................               100                 0                 0
Collections...............................................                75                25                 0
Consumer Compliance.......................................                 0                 0               100
Credit Committee..........................................                60                20                20
Disaster Recovery.........................................                70                20                10
FOM Expansion.............................................                50                50                 0
Grant Writing.............................................               100                 0                 0
Internal Controls.........................................               100                 0                 0
Investments...............................................                50                50                 0
Lending...................................................                70                20                10
Low-Income Designation....................................                 0               100                 0
Marketing.................................................                50                40                10
Merger Guidance...........................................                50                50                 0
New Product Development...................................                70                20                10
Net Worth Restoration Plan (NWRP)/Prompt Corrective Action                 0               100                 0
 (PCA)....................................................
Operational Assistance Other..............................                70                20                10
Other Policies............................................                70                20                10
Recordkeeping.............................................               100                 0                 0
Relocation of Home Base CUs...............................               100                 0                 0
Secondary Capital.........................................                50                50                 0
Strategic Issues Other....................................               100                 0                 0
Strategic Planning........................................               100                 0                 0
Succession Planning.......................................                70                20                10
Technology................................................                70                20                10
Training..................................................                70                20                10
Training Board............................................                70                20                10
Training Staff............................................                70                20                10
Training Supervisory Committee............................                70                20                10
----------------------------------------------------------------------------------------------------------------

ONES
    ONES oversees the unique examination and supervision issues related 
to consumer credit unions with assets greater than $10 billion and all 
corporate credit unions. ONES was established on January 1, 2013, but 
was not assigned responsibility for consumer credit unions with $10 
billion or more in assets until January 1, 2014. ONES did not complete 
time surveys for its large natural person credit unions in 2014 or 
2015, but will complete time surveys for all its large natural person 
credit unions in 2016.
    ONES does not have the ability to automatically complete and submit 
the ETS for corporate credit unions since the corporate examination 
program is not integrated into AIRES. ONES staff

[[Page 4816]]

manually completed the time survey two consecutive years (2011 and 
2012) for all corporate credit unions following the E&I instructions. 
ONES found the percentages of time allocated for the activities using 
the E&I guidance did not substantially change year to year and used the 
information from these two measurement periods as a baseline for 
estimating and reporting the time allocated to Insurance Related, 
Insurance Regulatory Related, and Consumer Regulatory Related 
activities for the calendar years 2013, 2014, and 2015. ONES will 
complete time surveys in 2016 for both corporate credit unions and 
assigned natural person FCUs.
    Because corporate credit unions do not perform and are not 
responsible for Consumer Regulatory issues, this category is reported 
as zero. The remaining time is allocated between Insurance Related and 
Insurance Regulatory Related activities. ONES provides a report of 
corporate credit unions with a table that breaks out the following 
information:
    <bullet> Total Examination and Supervision hours
    <bullet> Total Insurance Related hours
    <bullet> Total Insurance Regulatory Related hours, and
    <bullet> Total Consumer Regulatory Related hours.
    ONES reports the information for each corporate credit union. Total 
examination and supervision hours are reviewed. The time allocations 
derived from the 2011 and 2012 time surveys are applied to determine 
the specific amounts of time reported for each category. ONES also 
reviews each corporate credit union individually to ensure there were 
no special circumstances that would have warranted a deviation from the 
original surveyed estimates. ONES' estimates for the most recent ETS 
period are shown in Table 8.

                                          Table 8--Ones Time Allocation
----------------------------------------------------------------------------------------------------------------
                                                       Total
                                                    examination                      Insurance       Consumer
             Corporate credit union                     and          Insurance      regulatory      regulatory
                                                    supervision    related hours   related hours   related hours
                                                       hours
----------------------------------------------------------------------------------------------------------------
A...............................................            1654            1316             338               0
B...............................................            1124             942             182               0
C...............................................            1192            1007             186               0
D...............................................            1053             913             140               0
E...............................................            1353             945             409               0
F...............................................             769             514             256               0
G...............................................             567             332             235               0
H...............................................             981             788             194               0
I...............................................             575             387             188               0
J...............................................             621             415             205               0
K...............................................              95               6              89               0
L...............................................             694             607              87               0
M...............................................             481             357             124               0
N...............................................             919             712             207               0
Totals..........................................          12,077           9,239           2,838               0
                                                 ---------------------------------------------------------------
    % of Total..................................  ..............           76.5%           23.5%            0.0%
----------------------------------------------------------------------------------------------------------------

    Based on the allocation method described above, 100 percent of 
ONES' work is insurance related. This percentage is applied to ONES' 
Operating Budget to determine the allocation of costs between insurance 
and non-insurance related activities.
Office of Women and Minority Inclusion (OMWI)
    OMWI oversees the agency's equal employment opportunity program and 
all matters relating to measuring, monitoring and establishing policies 
for diversity in the agency's management, employment and business 
activities as well as responsibility for assessing the diversity 
policies and practices of entities regulated by the agency and 
preserving credit unions designated as minority depository 
institutions.
    OMWI does not monitor time related to the ETS categories but does 
estimate staff time spent on insurance related and non-insurance 
related activities. The insurance related time is primarily time spent 
administering and reporting to Congress on various programs, including 
the agency's Minority Depository Institution Preservation Program and 
responding to requests related to insurance-regulatory issues. Staff 
working on tasks related to these activities includes the OMWI 
Director, one Diversity Outreach Program Analyst, and one Management 
Analyst.
    OMWI estimates the percentage of time spent on these programs as 
compared to the total time spent performing all tasks and 
responsibilities for the Diversity Outreach Program Analyst, Management 
Analyst, and OMWI Director. OMWI applies the estimated percentage of 
time allotted to insurance activities to its total estimated working 
hours. Then, those hours are compared to the estimated number of total 
hours worked by all OMWI staff. OMWI's time estimates for the most 
recent ETS period resulted in the following allocation:
    <bullet> 14 percent of staff time spent on insurance related 
activities; and
    <bullet> 86 percent of time is spent on non-insurance activities.
    Based on the allocation method described above, 86 percent of 
OMWI's work is non-insurance related. This percentage is applied to 
OMWI's Operating Budget to determine the allocation of costs between 
insurance and non-insurance related activities.
All Other Offices
    NCUA's remaining offices do not provide estimates on their 
insurance and non-insurance related activities. Rather, because these 
offices are support functions for NCUA's main program--the examination 
and supervision of credit unions--the same allocation basis used for 
the regional offices is used to determine the costs of insurance and 
non-insurance related activities for these support functions. The 
budgeted costs for the offices of the NCUA Board, Executive Director, 
General Counsel, Chief Financial Officer, Chief Information Officer and 
Chief Economist as well as Human Resources,

[[Page 4817]]

Examination and Insurance, Public and Congressional Affairs, and 
Continuity and Security Management are allocated at 9.6 percent non-
insurance related activities for purposes of calculating the OTR.
    Combining the calculation steps in the workload program hours and 
financial budget section, the OTR methodology thus far has established 
the amount of NCUA's Operating Budget related to insurance and non-
insurance related activities. NCUA's 2016 Operating Budget of $290.92 
million includes $35.19 million allocated to non-insurance (regulatory) 
activities. The remaining $255.73 million of NCUA's Operating Budget is 
allocated to insurance-related activities. Identifying the portion of 
NCUA's Operating Budget allocated to insurance-related activities is 
the first step in determining NCUA's total insurance related costs. 
Consideration must also be given to the direct costs to the NCUSIF and 
the SSA Imputed Value, discussed in the next section.

d. Calculating NCUSIF Insurance and Non-Insurance Costs

    Based on the ETS results for NCUA's core programs, the 
determination of insurance and non-insurance activities for special and 
other programs (Section IV.b) and applying the percentage of insurance 
and non-insurance activities to NCUA's Operating Budget (Section IV.c), 
the agency arrives at the dollar amount of insurance related costs 
included in the NCUA Operating Budget. As noted above, for 2016, this 
amount is $255.73 million (NCUA's 2016 Operating Budget of $290.92 
million less non-insurance related costs of $35.19 million).
    In addition to NCUA budgeted costs, there are operational costs 
charged directly to the NCUSIF which must be added to the insurance 
related portion of NCUA's Operating Budget when calculating the total 
cost of providing insurance. For 2016, these direct operational costs 
are budgeted at $1.56 million. The NCUSIF directly pays for the costs 
associated with SSA staff attendance at NCUA-sponsored training and the 
related travel expenses ($1.4 million), as well as SSA computer and 
related equipment leases ($0.16 million). These direct operational 
costs must be factored into the total operational costs of providing 
NCUSIF insurance, which needs to be absorbed by all FICUs. NCUA does 
not include credit union failure related costs \52\ in the calculation, 
as these losses (charges to the NCUSIF) are already allocated based on 
the mutual nature of NCUSIF deposit insurance and are not costs of 
operating the NCUSIF.
---------------------------------------------------------------------------

    \52\ Payouts on insured shares of failed institutions.
---------------------------------------------------------------------------

    This step of the calculation results in total insurance related 
costs to be absorbed by all FICUs of $257.29 million.\53\ See Table 9.
---------------------------------------------------------------------------

    \53\ Budgeted amounts are used to calculate the OTR; however, 
the OTR is applied to actual expenses incurred each month.

                          Table 9--NCUSIF Costs
                               [millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
2016 NCUA Operating Budget.....         $290.92
Non-Insurance Related Costs....          -35.19  Table 6.
Direct Operational Charges to             +1.56  Budgeted costs for SSA
 NCUSIF.                                          training, travel, and
                                                  equipment.
                                ----------------
    Total 2016 Budgeted                  257.29
     Insurance Related Costs.
------------------------------------------------------------------------

e. Allocation of Insurance Costs

    This step of the OTR methodology is designed to calculate the total 
cost of providing share insurance, including work currently performed 
by SSAs, and then allocate these costs on an insured shares basis 
between FCUs and FISCUs. The steps in the OTR methodology thus far have 
determined the total budgeted operating costs and direct charges 
applicable to NCUA's role as insurer to be absorbed by all FICUs, 
$257.29 million. During the revision to the OTR methodology in 2003, 
the agency concluded it is appropriate to recognize NCUA relies on 
SSAs, to the fullest extent possible, to perform insurance related 
supervision of FISCUs. The cost NCUA, and thus the NCUSIF, avoids \54\ 
should be taken into account when determining and allocating the total 
cost of providing NCUSIF insurance. The calculation of this imputed SSA 
value is a multi-step process outlined in Section IV.g, SSA Imputed 
Value. In 2016, the SSA imputed value is $40.6 million.
---------------------------------------------------------------------------

    \54\ NCUA relies on SSA examination work. Different SSAs are 
funded by various means, such as fees paid by state-chartered credit 
unions or through general state tax revenues.
---------------------------------------------------------------------------

    The OTR methodology also considers that the most fair and 
appropriate basis to allocate the cost of providing NCUSIF insurance 
between FCUs and FISCUs is the distribution of insured shares. This is 
consistent with the mutual nature of the insurance provided by the 
NCUSIF, and the statutory allocation method for any NCUSIF premiums and 
dividends.
    Section IV.d, Calculation of Insurance and Non-Insurance NCUSIF 
Costs, determined NCUA's cost to fulfill its role as insurer is $257.29 
million. However, the value provided by NCUA's reliance on SSA work 
should be factored in to determine the total cost to the federally 
insured credit union system of providing NCUSIF insurance. To do this, 
the imputed value of the insurance related work performed by the SSAs 
($40.60 million) \55\ is added to the total budgeted insurance related 
costs ($257.29 million):
---------------------------------------------------------------------------

    \55\ The calculation of the SSA imputed value is discuss in 
detail in Section IV.g.

           Table 10--Total Cost of Providing NCUSIF Insurance
                               [millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total 2016 Budgeted Insurance           $257.29  Table 9.
 Related Costs.
SSA Imputed Value..............        + $40.60  Value NCUA places on
                                                  worked performed by
                                                  SSAs. Table 32.
                                ----------------
    Total Cost of Providing             $297.89
     NCUSIF Insurance.
------------------------------------------------------------------------


[[Page 4818]]

    The total cost of providing NCUSIF insurance must be allocated 
between FCUs and FISCUs. As mentioned, the allocation is based on their 
respective proportions of insured shares. FCUs and FISCUs represent 
52.3 percent and 47.7 percent,\56\ respectively, of the $935 billion in 
NCUSIF insured shares as of June 30, 2015. Thus, the distribution of 
costs is as follows:
---------------------------------------------------------------------------

    \56\ Based on insured shares reported on NCUA's 5300 Call Report 
as of June 30, 2015.

                        Table 11--Allocation of Total Costs of Providing NCUSIF Insurance
----------------------------------------------------------------------------------------------------------------
                                                    FCUs           FISCUs
----------------------------------------------------------------------------------------------------------------
Total Cost of Providing NCUSIF Insurance                   $297.89             Table 10.
 (millions).
                                              --------------------------------
Proportion of insured shares.................         x 52.3%         x 47.7%
Allocated total insurance costs (millions)...         $155.80         $142.09
----------------------------------------------------------------------------------------------------------------

    FISCUs are responsible for $142.09 million of the total costs of 
providing NCUSIF insurance. However, SSAs are providing $40.6 million 
worth of imputed value toward the cost of providing NCUSIF share 
insurance. Therefore, FISCUs are responsible for absorbing only $101.49 
million of the total insurance costs:

            Table 12--Net Cost of NCUSIF Insurance for FISCUs
                               [millions]
------------------------------------------------------------------------
 
------------------------------------------------------------------------
FISCU portion of total                    $142.09  Table 11.
 insurance costs.
SSA Imputed Value.............           - $40.60  Table 32.
                               -------------------
    Net Cost of NCUSIF                    $101.49
     Insurance for FISCUs.
------------------------------------------------------------------------

f. Calculating the OTR

    This final step of the OTR methodology computes the OTR as a 
percentage of the NCUA Operating Budget. Section IV.e, Allocation of 
Insurance and Non-Insurance Costs, determined the net cost of providing 
NCUSIF insurance to be absorbed by FISCUs through the OTR is $101.49 
million. This amount divided by the percentage of total insured shares 
held by FISCUs (47.7 percent) results in the total dollar cost to be 
absorbed by the NCUSIF for providing insurance to all federally insured 
credit unions. To state it another way, if FISCUs are responsible for 
47.7 percent of the cost of providing NCUSIF insurance, and this 
represents $101.49 million, then the dollar amount of NCUA costs to be 
absorbed by the NCUSIF, through the OTR, must equal $212.78.\57\ See 
Table 13.
---------------------------------------------------------------------------

    \57\ Mathematically, this computation must be used to arrive at 
the total costs (based on budget) to be absorbed by the NCUSIF, 
through the OTR, since this amount is the unknown to be solved for 
based on the addition of imputed, but not actual, costs to the 
budget.

      Table 13--Costs To Be Absorbed by the NCUSIF, Through the OTR
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Net Cost of NCUSIF Insurance              $101.49  Table 12.
 for FISCUs (millions).
FISCU Proportion..............            / 47.7%  Table 11.
                               -------------------
    Costs to be Absorbed by               $212.78
     the NCUSIF, through the
     OTR (millions).
------------------------------------------------------------------------

    Now that the dollar amount of the NCUA budget to be absorbed by the 
NCUSIF via the OTR has been calculated, the Overhead Transfer Rate 
itself, as a percentage of the budget can be calculated. The dollar 
amount of the NCUA budget to be absorbed by the NCUSIF ($212.78 
million) divided by the total NCUA Budget ($290.92 million) equals the 
rate at which actual expenses will be funded by the NCUSIF as they are 
incurred each month (73.1 percent). This rate is what is called the 
OTR.

                    Table 14--Overhead Transfer Rate
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Costs to be Absorbed by the               $212.78  Table 13.
 NCUSIF, through the OTR
 (millions).
NCUA Operating Budget.........          / $290.92  Table 9.
Overhead Transfer Rate........              73.1%
------------------------------------------------------------------------

    Table 14 illustrates that 73.1 percent of NCUA's operating 
expenses, $212.78 million based on the 2016 budget, are funded by the 
NCUSIF via the OTR. The remaining 26.9 percent of NCUA's operating 
expenses, $78.14 million based on the 2016 budget, must be funded by 
other sources, primarily the FCU Operating Fee.\58\ Thus, the explicit 
and implicit distribution of total Operating Budget costs for FCUs and 
FISCUs is 65.1 percent and 34.9 percent, respectively.
---------------------------------------------------------------------------

    \58\ Other funding sources, in addition to the FCU Operating Fee 
(including federal corporate credit union Operating Fees) and fees 
collected for various services and publications.

[[Page 4819]]



                 Table 15--Operating Budget Distribution
------------------------------------------------------------------------
   Portion of 2016 operating
      budget covered by:               FCUs                FISCUs
------------------------------------------------------------------------
FCU Operating Fee.............              26.9%  0.0%
OTR x Percent of Insured                    38.2%  34.9%
 Shares.                          (73.1% x 52.3%)  (73.1% x 47.7%)
                               -----------------------------------------
    Total.....................              65.1%  34.9%
------------------------------------------------------------------------

g. SSA Imputed Value

    To develop an OTR that properly reflects the total cost to insured 
credit unions of providing NCUSIF insurance, it is necessary to factor 
in the value of the insurance related supervision provided by state 
examination programs and relied upon by NCUA in managing the NCUSIF. 
NCUA developed a four step process to calculate (impute) the value of 
the insurance work performed by SSAs that NCUA relies upon. The imputed 
value derived from these calculations is factored into the calculation 
of the OTR as discussed in Section IV.e.
    NCUA determined the best measure available for the value of state 
examination programs to the NCUSIF is what it would cost NCUA to 
perform this work.\59\ An alternative measure of the value of this work 
is the actual cost of SSA supervision programs. However, these do not 
necessarily reflect the value to NCUA in managing the NCUSIF \60\ and 
are not readily available to NCUA. The Board invites comment on the 
methodology for determining the SSA imputed value including proposals 
for alternative methods for valuing the insurance work performed by 
SSAs in the OTR calculation.
---------------------------------------------------------------------------

    \59\ NCUA realizes that the imputed value may be higher or lower 
than what SSAs actually spend to conduct insurance related 
supervision programs NCUA relies upon. Nonetheless, the relevant 
factor for purposes of computing the OTR is the value to the NCUSIF 
derived from this work.
    \60\ Another consideration is the fact each SSA program may not 
represent the same percentage of insurance related supervision of 
institutions based on each state's unique program and cost 
structure, necessitating separate regulatory and insurance cost 
factors be calculated for each state. Such an endeavor would be 
costly and would require each SSA to divulge detailed financial and 
operating information, which they may not be inclined to provide.
---------------------------------------------------------------------------

    Throughout this discussion, we will present the calculations used 
to determine the values for the 2016 OTR. In these calculations we use 
the following information:
    <bullet> Average exam time based on 2014 actual results,
    <bullet> percentage of exam time used for insurance work based on 
the 2015 ETS results, and
    <bullet> budget projections for 2016.
Step 1--NCUA FISCU Workload Projection
    The first step in this process is to determine the workload 
required for NCUA to examine all FISCUs. To calculate this figure, NCUA 
determines the examination hours that field staff expended on FCUs by 
asset size and CAMEL rating. The results for 2014 are documented in 
Table 16.

                             Table 16--FCU Average Examination Time (Hours) for 2014
----------------------------------------------------------------------------------------------------------------
                                                              Asset range  (millions)
                                 -------------------------------------------------------------------------------
                                       <$10          $10-$100        $100-$250       $250-$500         >$500
----------------------------------------------------------------------------------------------------------------
CAMEL 1.........................              39              80             162             192             408
CAMEL 2.........................              41              88             186             234             445
CAMEL 3.........................              45             100             223             279             407
CAMEL 4.........................              65             142             312             225             438
CAMEL 5.........................             109             219               0               0               0
----------------------------------------------------------------------------------------------------------------

    NCUA then determines the distribution of FISCUs using the same 
asset and CAMEL rating categories. The distribution for 2014 is 
documented in Table 17.

                                   Table 17--Number of FISCUs in Each Category
                                              [as of December 2014]
----------------------------------------------------------------------------------------------------------------
                                                              Asset range  (millions)
                                 -------------------------------------------------------------------------------
                                       <$10          $10-$100        $100-$250       $250-$500         >$500
----------------------------------------------------------------------------------------------------------------
CAMEL 1.........................              54              99              45              30              83
CAMEL 2.........................             342             664             205             102             147
CAMEL 3.........................             188             230              46              16              12
CAMEL 4.........................              40              32               5               2               4
CAMEL 5.........................               0               0               0               0               0
----------------------------------------------------------------------------------------------------------------


[[Page 4820]]

    The average examination time estimates from Table 16 are then 
applied to the distribution of FISCUs in Table 17 using the same asset 
and CAMEL rating categories. This provides an estimate of the 
examination time needed if NCUA were to conduct all of the state 
examination work on the same basis employed for FCUs. Based on the 
average examination hours for FCUs and the number of FISCUs in each 
asset and CAMEL category, NCUA would have needed 318,573 hours to 
complete examinations of all FISCUS in the same manner as it examined 
FCUs in 2014. The estimated hours are documented in Table 18.
---------------------------------------------------------------------------

    \61\ Numbers may not add up exactly due to rounding.

                                                          Table 18--Projected FISCU Exam Hours
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Asset range  (millions)
                                                         -----------------------------------------------------------------------------------------------
                                                               <$10M         $10-$100        $100-$250       $250-$500         >$500        Totals \61\
--------------------------------------------------------------------------------------------------------------------------------------------------------
CAMEL 1.................................................           2,116           7,911           7,295           5,766          33,898          56,986
CAMEL 2.................................................          13,982          58,225          38,232          23,845          65,408         199,692
CAMEL 3.................................................           8,499          22,889          10,256           4,465           4,882          50,992
CAMEL 4.................................................           2,616           4,530           1,558             449           1,750          10,902
CAMEL 5.................................................  ..............  ..............  ..............  ..............  ..............  ..............
                                                         -----------------------------------------------------------------------------------------------
    Totals..............................................          27,213          93,555          57,340          34,526         105,938         318,573
--------------------------------------------------------------------------------------------------------------------------------------------------------

Step 2--Allocation of Projected Fiscu Exam Hours
    Step 1 calculated that it would take 318,573 hours for NCUA to 
conduct examinations in all FISCUs. However, not all examination time 
is used to meet NCUA's role as insurer. The ETS results for cycle 
ending on May 31, 2015, indicate that 86.83 percent of examination time 
was used to meet NCUA's needs in managing risks to the NCUSIF. For 
consistency and fairness, this same distribution is applied to FISCUs 
when determining the total time it would take NCUA to supervise FISCUs 
to meet its role as insurer, resulting in 276,617 hours for insurance 
related time. Table 19 illustrates this calculation.

             Table 19--Projected FISCU Exam Hours Using ETS
------------------------------------------------------------------------
                                                               Hours
------------------------------------------------------------------------
Gross FISCU Exam Hours..................................         318,573
Times Insurance Factor Based on Exam Survey.............        x 86.83%
                                                         ---------------
    Equals Total Insurance Hours........................       = 276,617
------------------------------------------------------------------------

    NCUA also estimates total FISCU examination time by multiplying 
current NCUA budgeted FISCU examination time \62\ by two. This reflects 
that FISCU examinations are conducted jointly with the SSA, and that 
all NCUA examination time is for insurance purposes. Table 20 documents 
this calculation.
---------------------------------------------------------------------------

    \62\ From the 2016 NCUA Workload Budget.

          Table 20--Projected FISCU Exam Hours Using Multiplier
------------------------------------------------------------------------
                                                               Hours
------------------------------------------------------------------------
Current Budgeted FISCU Insurance Hours..................         149,914
Times 2 (Assuming Joint Examinations and 50/50 time                  x 2
 split with SSA)........................................
                                                         ---------------
    Equals Projected Examination Insurance Hours for           = 299,828
     State Program......................................
------------------------------------------------------------------------

    The result of the calculation in Table 20 is compared to the result 
from Table 19 and the greater of the two numbers is selected, in this 
case 299,828 hours, from Table 20. Using the greater of the two results 
benefits the SSA imputed value as it requires more resources and, 
therefore, increases the imputed value.
    Next, NCUA takes the results from the previous step and subtracts 
the current budgeted state examination program hours since they are 
already included in the resource budget. NCUA also makes an adjustment 
for additional FISCU supervision hours. NCUA's 2016 workload program 
budgets 25,808 hours for FISCU supervision. Since supervision is 
typically performed jointly with SSAs, NCUA would need an additional 
25,808 hours. The result is the number of additional insurance hours 
necessary for NCUA to examine and supervise all FISCUs without any SSA 
assistance. The calculation for the 2016 OTR indicates NCUA would need 
an additional 175,722 hours to complete all the FISCU work. The 
calculation is illustrated in Table 21.

[[Page 4821]]



           Table 21--Additional Hours for FISCU Insurance Work
------------------------------------------------------------------------
                                                               Hours
------------------------------------------------------------------------
Projected FISCU Insurance Hours.........................         299,828
Less Current Budgeted FISCU Examination Hours...........       - 149,914
Plus Additional FISCU Supervision Hours.................        + 25,808
                                                         ---------------
    Equals Total Additional FISCU Insurance Hours.......       = 175,722
------------------------------------------------------------------------

    Finally, NCUA deducts the time budgeted for FISCU examination 
report reviews to arrive at the net additional insurance hours needed 
to complete all FISCU examinations and supervision.\63\ The FISCU 
examination report review time would no longer be needed if NCUA 
performed the FISCU examinations. NCUA's 2016 workload budget contained 
5,231 hours for FISCU examination report review. Deducting those hours 
from the results from Table 21 results in net additional insurance 
hours of 170,401. This calculation is illustrated in Table 22.
---------------------------------------------------------------------------

    \63\ As part of its fiduciary responsibility, NCUA examiners 
review all state examination reports. This time is assigned to work 
classification code 26.

         Table 22--Net Additional Hours for FISCU Insurance Work
------------------------------------------------------------------------
                                                               Hours
------------------------------------------------------------------------
Total Additional FISCU Insurance Hours..................         175,722
Less Current Budgeted FISCU Examination Review Hours....         - 5,321
                                                         ---------------
    Equals Net Additional FISCU Insurance Hours.........       = 170,401
------------------------------------------------------------------------

Step 3--Projected Additional Staff Required
    The next step in the calculation is to determine how many 
additional full-time equivalent (FTE) examiners are needed to complete 
the net additional FISCU insurance hours calculated in Step 2. To 
accomplish this, NCUA first calculates the total annual productive work 
hours for an FTE examiner. Total Core and Special Workload hours from 
the Workload Budget must be divided by Total Estimated Workload Hours 
to determine the productivity ratio.\64\ The productivity ratio for 
2016 is 52.7 percent. The productivity ratio calculation is illustrated 
in Table 23.
---------------------------------------------------------------------------

    \64\ Total workload hours include various leave benefits, 
training, and administrative time.

                  Table 23--Examiner Productivity Ratio
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Budgeted Core and Special Workload Program Hours........         764,193
Divided by Total Budgeted Workload Program Hours........     / 1,448,716
                                                         ---------------
    Equals the Productivity Ratio.......................           52.7%
------------------------------------------------------------------------

    Applying the productivity ratio to the total annual work hours for 
an examiner FTE results in the number of productive hours per year for 
each examiner. The budgeted productive hours for an examiner for 2016 
is 1,097. This calculation is illustrated in Table 24.

                   Table 24--Productive Hours per FTE
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Annual Work Hours per examiner FTE................           2,080
Times the Productivity Ratio............................         x 52.7%
                                                         ---------------
    Equals Annual Productive Hours per examiner FTE.....         = 1,097
------------------------------------------------------------------------

    The additional number of examiner FTEs necessary to complete the 
net additional FISCU insurance work is calculated by dividing the net 
additional FISCU insurance hours from Table 22 in Step 2 by the annual 
productive hours per FTE. The 2016 OTR calculation resulted in 155.3 
additional examiner FTEs needed to complete the additional insurance 
work in FISCUs. Table 25 illustrates this calculation.

        Table 25--Examiner FTEs Needed for Additional FISCU Work
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Net Additional FISCU Insurance Hours....................         170,401
Divided by Annual Productive Hours per FTE..............         / 1,097
                                                         ---------------
    Equals Additional Examiner FTEs Needed..............         = 155.3
------------------------------------------------------------------------


[[Page 4822]]

    Adding an additional 155.3 examiners would necessitate additional 
staffing in other areas, including additional Supervisory Examiners and 
Regional Office staff. Based on NCUA's staffing patterns and 
organizational structure, the following ratios of examiners to other 
regional positions were used to determine additional staffing needs and 
costs. The ratios are documented in Table 26.

                  Table 26--Other Regional FTEs Needed
------------------------------------------------------------------------
                                               Ratio
         Additional staff needed           examiners  to     FTEs per
                                             position        position
------------------------------------------------------------------------
Examiners...............................             1/1           155.3
Supervisory Examiners...................             1/9            17.3
Regional Office Analysts................            1/15            10.4
Regional Office Directors...............            1/25             6.2
Other Regional Support Staff............            1/20             7.8
                                         -------------------------------
    Total Number of Additional Regional   ..............           196.9
     FTEs Needed........................
------------------------------------------------------------------------

Step 4--Dollar Amount of the SSA Imputed Value
    The next step is to calculate the dollar amount of the SSA imputed 
value. The first step in this process is to calculate the average cost 
per regional FTE. The average cost is based on the actual budget for 
regional offices and field staff and includes employee pay and 
benefits, travel, rent, communications, utilities, administrative, and 
contracted services. The average cost of a regional FTE for the 2016 
OTR calculation was $185,508 based on 838.2 FTEs. The calculation is 
illustrated in Table 27.

                 Table 27--Annual Cost per Regional FTE
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Total Cost of Regions (2016 budget).....................    $155,492,604
Divided by FTEs in Regions (2016 budget)................         / 838.2
                                                         ---------------
    Equals Annual Cost Per Regional FTE.................      = $185,508
------------------------------------------------------------------------

    Next, NCUA applies the annual cost per regional FTE to the total 
number of additional FTEs necessary if NCUA were to complete all FISCU 
examinations and supervision. In Table 26, NCUA calculated the total 
number of regional FTEs to be 196.9 for 2016. Multiplying the 
additional FTEs by the average projected cost per FTE results in 
additional regional costs of $36,525,336 for 2016. Table 28 illustrates 
this calculation.

                Table 28--Total Additional Regional Cost
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Projected Average Cost per FTE for 2016.................        $185,508
Times Additional FTEs Needed............................         x 196.9
                                                         ---------------
    Equals Total Additional Regional Cost...............   = $36,525,336
------------------------------------------------------------------------

    The additional regional staffing would also have an impact on the 
workload of the following NCUA central offices:
    <bullet> Office of Human Resources,
    <bullet> Office of the Chief Financial Officer Division of 
Financial Control, and
    <bullet> Office of the Chief Information Officer Division of IT 
Operations.
    Adding 196.6 additional staff members to NCUA would represent a 
15.6 percent increase in staffing. This percentage increase is 
calculated by dividing the number of additional regional FTEs by NCUA's 
existing number of FTEs, which was 1,260.2 for the 2016 OTR 
calculation. Table 29 illustrates the calculation.

                  Table 29--Percentage Increase in FTEs
------------------------------------------------------------------------
                         Office                               Budget
------------------------------------------------------------------------
Additional FTEs Needed..................................           196.9
Divided by Current Number of FTEs.......................       / 1,260.2
                                                         ---------------
    Equals the Percentage Increase in FTEs..............         = 15.6%
------------------------------------------------------------------------

    The workload will increase for the central offices indicated above, 
as these offices directly support staff by processing personnel 
actions, providing computer support, and processing payroll and travel 
vouchers.\65\ Therefore, NCUA applies the 15.6 percent increase to each 
of the above office's budget to account for additional

[[Page 4823]]

resources and workload. The combined budgets for these three offices 
for 2016 was $36,064,124. The projected increase in cost for 2016 based 
on the 15.6 percent increase was $5,634,664. The calculations are shown 
in Table 30.
---------------------------------------------------------------------------

    \65\ Other central offices are considered sufficiently scalable 
or not directly impacted to absorb such an increase in regional 
positions without needing additional staff.

                Table 30--Additional Central Office Costs
------------------------------------------------------------------------
                          Office                              Budget
------------------------------------------------------------------------
Office of Human Resources...............................     $15,547,400
Plus Office of the Chief Financial Officer Division of      + $7,956,891
 Financial Control......................................
Plus Office of the Chief Information Officer Division of   + $12,559,833
 IT Operations..........................................
                                                         ---------------
    Equals Total Other Office Budgets Affected..........   = $36,064,124
Times 15.6 percent......................................         x 15.6%
                                                         ---------------
    Equals Additional Central Office Costs..............    = $5,634,664
------------------------------------------------------------------------

    In addition to the increases in certain costs, there would be some 
areas of savings to NCUA if it conducted all of the insurance related 
FISCU work. There would be no need to pay for the training of state 
examiners, or provide SSAs with computers and other equipment. The cost 
savings projected for the 2016 OTR calculation was $1,562,408. Table 
31shows the breakdown of the cost savings.

                      Table 31--Total Cost Savings
------------------------------------------------------------------------
 
------------------------------------------------------------------------
SSA Training and Travel.................................      $1,400,000
Plus SSA Computer Leases................................      + $162,408
                                                         ---------------
    Equals Total Cost Savings...........................    = $1,562,408
------------------------------------------------------------------------

    The SSA imputed value is calculated by adding the additional 
regional and central office costs from Table 28 and 30 and then 
subtracting the cost savings from Table 31. The SSA imputed value for 
the 2016 OTR is $40,597,592. Table 32 illustrates the calculation.

                       Table 32--SSA Imputed Value
------------------------------------------------------------------------
                  Additional cost area                         Cost
------------------------------------------------------------------------
Additional Regional Costs...............................     $36,525,336
Plus Additional Central Office Costs....................    + $5,634,664
Less SSA Training and Equipment Cost....................    - $1,562,408
                                                         ---------------
    Equals Imputed SSA Value............................   = $40,597,592
------------------------------------------------------------------------

    The SSA Imputed Value of $40.6 million is used to determine the 
total costs to NCUA of providing NCUSIF insurance (Table 10) and to 
determine the net cost of NCUSIF insurance for FISCUs (Table 12). As 
previously discussed in Section IV.e, Allocation of Insurance and Non-
Insurance Costs, NCUA includes the SSA Imputed Value in the OTR 
calculation to account for NCUA's reliance, to the fullest extent 
possible, on SSAs to perform much of the insurance related supervision 
of FISCUs. Therefore, the costs NCUA and thereby the NCUSIF avoid are 
taken into account when determining and allocating the total cost of 
providing NCUSIF insurance.

V. Request For Comment

    The Board invites comments on all issues discussed in this 
document. In particular, the Board solicits specific comments on the 
OTR's allocation of insurance and non-insurance related activities to 
the Operating Budget and the methodology used to determine the value of 
the work performed in FISCUs by SSAs. Further, commenters should not 
feel constrained to limit their comments to the issues discussed above. 
Rather, commenters are encouraged to discuss any other relevant OTR 
issues they believe NCUA should consider. Commenters are encouraged to 
provide documentation to support any alternatives they may suggest to 
adjust the existing methodology or components therein.

    By the National Credit Union Administration Board on January 21, 
2016.
Gerard Poliquin,
Secretary of the Board.

VI. Appendix A--Mapping of NCUA Regulations

    In its January 20, 2011, Overhead Transfer Rate Review, 
PricewaterhouseCoopers recommended that NCUA consider steps aimed at 
making the OTR methodology more transparent, along with all of the 
assumptions and steps that are utilized. In response, NCUA modified 
the classification of insurance and non-insurance related activities 
in May 2011 for the 2011-2012 ETS by establishing Insurance Related 
Activities, Insurance Regulatory Related Activities and Consumer 
Regulatory Related Activities. These definitions are mapped to the 
NCUA Regulations and were distributed to ETS participants as part of 
the ETS Instructions. The mapping of regulations deemed part of the 
examination process and distributed to the time study participants 
for the ETS period covering June 1, 2014 to May 31, 2015, is 
provided below. Footnotes have been added to provide additional 
insight. The current mapping has not yet been updated for NCUA's 
most recent final rules. Similar to other activities not explicitly 
classified in the ETS instructions, ETS participants defer to the 
overarching definitions of insurance and non-insurance related 
activities provided in the ETS instructions (see Appendix B) to 
appropriately allocate time as insurance or non-insurance.

[[Page 4824]]



 
----------------------------------------------------------------------------------------------------------------
                                                                          Non-insurance
                                                           Insurance       and consumer
        NCUA Regulation                  Part              regulatory       regulatory          Description
                                                            related          related
----------------------------------------------------------------------------------------------------------------
Sec.   Part 701--Organization   .1--Federal credit      ...............               X   This part addresses
 and Operations of FCUs \66\.    union chartering,                                         the location of
                                 field of membership                                       NCUA's chartering and
                                 modifications, and                                        field of membership
                                 conversions.                                              policies
                                .2--Federal Credit      ...............               X   Requires FCU's to
                                 Union Bylaws.                                             operate in accordance
                                                                                           with their approved
                                                                                           bylaws.
                                .3--Member inspection   ...............               X   This part grants a
                                 of credit union                                           group of members the
                                 books, records, and                                       right to inspect the
                                 minutes.                                                  books and records of
                                                                                           an FCU.
                                .4-.5--Reserved.......
                                .6--Fees paid by        ...............               X   This section
                                 federal credit unions.                                    establishes the fees
                                                                                           to be paid by the
                                                                                           credit union to the
                                                                                           NCUA.
                                .7-.13--Reserved......
                                .14--Change in                       X   ...............  This section
                                 official or senior                                        establishes
                                 executive officer in                                      parameters under
                                 credit unions that                                        which a newly
                                 are newly chartered                                       chartered credit
                                 or are in troubled                                        union or a troubled
                                 condition.                                                credit union must
                                                                                           operate with regard
                                                                                           to management
                                                                                           decisions and
                                                                                           operations.
                                .15-.18--Reserved.....
                                .19--Benefits for                    X   ...............  This section allows a
                                 employees of federal                                      FCU to pay employees
                                 credit unions.                                            certain benefits as
                                                                                           part of their
                                                                                           employment with the
                                                                                           FCU.
                                .20--Suretyship and                  X   ...............  This section
                                 guaranty.                                                 establishes the
                                                                                           ability of a FCU to
                                                                                           enter into suretyship
                                                                                           and guaranty
                                                                                           agreements under
                                                                                           certain conditions
                                                                                           and limitations.
                                .21--Loans to members                X   ...............  This section
                                 and lines of credit                                       establishes the
                                 to members.                                               parameters for a
                                                                                           FCU's overall lending
                                                                                           program.
                                .22--Loan                            X   ...............  This section
                                 participation.                                            establishes the
                                                                                           ability of an FCU to
                                                                                           enter into loan
                                                                                           participation
                                                                                           agreements, and
                                                                                           establishes
                                                                                           limitations and
                                                                                           parameters under
                                                                                           which an FCU can do
                                                                                           so.
                                .23--Purchase, sale,                 X   ...............  This section of the
                                 and pledge of                                             regulation
                                 eligible obligations.                                     establishes the
                                                                                           ability of an FCU to
                                                                                           purchase, sell, or
                                                                                           pledge eligible
                                                                                           obligations (loans)
                                                                                           of the FCU.
                                .24--Refund of                       X   ...............  This section of the
                                 interest.                                                 regulations
                                                                                           authorizes an FCU to
                                                                                           refund interest to
                                                                                           members under certain
                                                                                           conditions.
                                .25--Charitable                      X   ...............  This sections grants
                                 contributions and                                         authority of an FCU
                                 donations.                                                to make charitable
                                                                                           contributions.
                                .26--Credit union                    X   ...............  This sections grants
                                 service contracts.                                        authority for an FCU
                                                                                           to enter into service
                                                                                           contracts with other
                                                                                           FCUs.
                                .27-.29--Reserved.....
                                .30--Services for       ...............               X   This section grants
                                 nonmembers within the                                     authority to FCUs to
                                 field of membership.                                      provide limited
                                                                                           services to non-
                                                                                           members within their
                                                                                           field of membership.
                                .31--Nondiscrimination  ...............               X   This section prohibits
                                 requirements.                                             an FCU from
                                                                                           discriminating
                                                                                           against a person or
                                                                                           group of persons and
                                                                                           establishes
                                                                                           parameters under
                                                                                           which it must operate
                                                                                           to ensure non-
                                                                                           discrimination and
                                                                                           notify others of its
                                                                                           non-discrimination
                                                                                           policies.
                                .32--Payment on shares               X   ...............  This section grants
                                 by public units and                                       permission to FCUs to
                                 nonmembers.                                               receive payments on
                                                                                           shares from public
                                                                                           units.
                                .33--Reimbursement,                  X   ...............  This section
                                 insurance, and                                            establishes the
                                 indemnification of                                        parameters under
                                 officials and                                             which an FCU may
                                 employees.                                                compensate officials,
                                                                                           and volunteers.
                                .34--Designation of                  X   ...............  Grants permission to
                                 low-income status;                                        LICU's to accept
                                 acceptance of                                             secondary capital
                                 secondary capital                                         accounts.\67\
                                 accounts by low-
                                 income designated
                                 credit unions.
                                .35--Share, share       ...............               X   Regulation grants
                                 draft, and share                                          permission for credit
                                 certificate accounts.                                     unions to offer
                                                                                           share, share draft
                                                                                           and certificate
                                                                                           accounts to members.
                                .36--FCU Ownership of                X   ...............  Sets parameters and
                                 fixed assets.                                             limitations on a
                                                                                           FCU's ownership and
                                                                                           treatment of fixed
                                                                                           assets
                                37--Treasury Tax and                 X   ...............  Grants permission for
                                 Loan Depositaries;                                        FCU's to act as
                                 Depositaries and                                          Treasury tax and loan
                                 Financial Agents of                                       depositary as well as
                                 the Government.                                           a depositary of
                                                                                           public money.
                                .38--Borrowed funds     ...............               X   Grants permission for
                                 from natural persons.                                     FCU's to borrow funds
                                                                                           from natural persons.
                                .39--Statutory lien...  ...............               X   Grants permission to
                                                                                           an FCU to establish a
                                                                                           lien against the
                                                                                           property of members
                                                                                           to secure a financial
                                                                                           obligation to the FCU
                                                                                           by that member.

[[Page 4825]]

 
Sec.   702--Prompt Corrective   .1--Authority,          ...............  ...............  This Part of the NCUA
 Action \68\.                    purpose, scope and                                        regulations
                                 other supervisory                                         (including subparts
                                 authority.                                                A, B, C and D) deals
                                                                                           exclusively with
                                                                                           safety and soundness
                                                                                           issues that impact
                                                                                           directly or
                                                                                           indirectly the
                                                                                           financial condition
                                                                                           of the credit union.
                                .2 Definitions........
Subpart A.....................  .101--Measures and                   X
                                 effective date of net
                                 worth classification.
                                .102--Statutory net                  X
                                 worth categories.
                                .103--Applicability of               X
                                 net worth req't.
                                .104--Risk portfolios                X
                                 defined.
                                .105 Weighted-average                X
                                 life of investments.
                                .106--Standard                       X
                                 calculation of risk-
                                 based net worth
                                 requirement.
                                .107--Alternative                    X
                                 components for
                                 standard calculation.
                                .108--Risk mitigation                X
                                 credit.
Subpart B--Mandatory and        .201--Prompt                         X
 Discretionary Supervisory       corrective action for
 Actions.                        ``adequately
                                 capitalized'' credit
                                 unions.
                                .202--Prompt                         X
                                 corrective action for
                                 ``undercapitalized''
                                 credit unions.
                                .203--Prompt                         X
                                 corrective action for
                                 ``significantly
                                 undercapitalized''
                                 credit unions.
                                .204--Prompt                         X
                                 corrective action for
                                 ``critically
                                 undercapitalized''
                                 credit unions.
                                .205--Consultation                   X
                                 with State officials
                                 on proposed prompt
                                 corrective action.
                                .206--Net worth                      X
                                 restoration plans.
Subpart C--Alternative Prompt   .301--Scope and
 Corrective Action for New       definition.
 Credit Unions.
                                .302--Net worth                      X
                                 categories for new
                                 credit unions.
                                .303--Prompt                         X
                                 corrective action for
                                 ``adequately
                                 capitalized'' new
                                 credit unions.
                                .304--Prompt                         X
                                 corrective action for
                                 ``moderately
                                 capitalized,''
                                 ``marginally
                                 capitalized'' or
                                 ``minimally
                                 capitalized'' new
                                 credit unions.
                                .305--Prompt                         X
                                 corrective action for
                                 ``uncapitalized'' new
                                 credit unions.
                                .306--Revised business               X
                                 plans for new credit
                                 unions.
                                .307--Incentives for                 X
                                 new credit unions.
Subpart--D Reserves...........  .401--Reserves........
                                .402 Full and fair                   X
                                 disclosure of
                                 financial condition.
                                .403--Payment of                     X
                                 dividends.
Sec.   703--Investment and      .1--Purpose and scope.  ...............  ...............  This part of NCUAs
 Deposit Activities \69\.                                                                  regulations deal with
                                                                                           investment and
                                                                                           deposit permissions
                                                                                           of FCU's and the
                                                                                           compliance or non-
                                                                                           compliance with this
                                                                                           section impacts
                                                                                           either directly, or
                                                                                           indirectly, the
                                                                                           financial condition
                                                                                           of the credit union.
                                .2--Definitions.......
                                .3--Investment                       X
                                 policies.
                                .4--Recordkeeping and                X
                                 documentation
                                 requirements.
                                .5--Discretionary                    X
                                 control over
                                 Investments and
                                 investment advisers
                                .6--Credit Analysis...               X
Sec.   704--Corporate Credit    .1--Scope.............  ...............  ...............  This entire part of
 Unions \70\.                                                                              NCUAs regulations
                                                                                           sets parameters on
                                                                                           the financial
                                                                                           operations of
                                                                                           corporate credit
                                                                                           unions. The
                                                                                           compliance or non-
                                                                                           compliance with this
                                                                                           section could impact
                                                                                           directly, or
                                                                                           indirectly, the
                                                                                           financial condition
                                                                                           of the corporate
                                                                                           credit union.
                                .2--Definitions.......
                                .3--Corporate Credit                 X
                                 Union Capital.
                                .4--Prompt Corrective                X
                                 Action.
                                .5--Investments.......               X
                                .6--Credit Risk                      X
                                 Management.
                                .7--Lending...........               X
                                .8--Asset-Liability                  X
                                 Management.
                                .9--Liquidity                        X
                                 Management.
                                .10--Investment Action               X
                                 Plan.
                                .11--Corporate CUSO's.               X
                                .12--Permissible                     X
                                 Services.
                                .13--Board                           X
                                 Responsibilities.
                                .14--Representation...               X

[[Page 4826]]

 
                                .15--Audit                           X
                                 Requirements.
                                .16--Contract/Written                X
                                 Agreements.
                                .17--State-chartered                 X
                                 corporate credit
                                 unions.
                                .18--Fidelity bond                   X
                                 coverage.
                                .19--Disclosure of                   X
                                 executive
                                 compensation.
                                .20--Reserved.........               X
                                .21--Enterprise Risk                 X
                                 Management.
                                .22--Membership Fees..               X
Sec.   706--Credit Practices    .1--Definitions.......  ...............  ...............  This entire section
 \71\.                                                                                     protects the member
                                                                                           from unfair or
                                                                                           deceptive acts by an
                                                                                           FCU as well as
                                                                                           compliance with other
                                                                                           federal law designed
                                                                                           to protect the
                                                                                           consumer (member).
                                .2--Unfair credit       ...............               X
                                 practices.
                                .3--Unfair or           ...............               X
                                 deceptive cosigner
                                 practices.
                                .4--Late charges......  ...............               X
Sec.   707--Truth in Savings    .1--Authority,          ...............  ...............  This entire section
 \72\.                           purpose, coverage and                                     protects the member
                                 effect on state laws.                                     from unfair or
                                                                                           deceptive acts by an
                                                                                           FCU as well as
                                                                                           compliance with other
                                                                                           federal law.
                                .2--Definitions.......  ...............               X
                                .3--General disclosure  ...............               X
                                 requirements.
                                .4--Account             ...............               X
                                 disclosures.
                                .5--Subsequent          ...............               X
                                 disclosures.
                                .6--Periodic statement  ...............               X
                                 disclosures.
                                .7--Payment of          ...............               X
                                 dividends.
                                .8--Advertising.......  ...............               X
                                .9--Enforcement and     ...............               X
                                 record retention.
                                .10--Reserved.........
                                .11--Additional         ...............               X
                                 disclosure
                                 requirements for
                                 overdraft services.
Sec.   712--Credit Union        .1--what does this      ...............  ...............  This entire section of
 Service Organizations \73\.     part cover?.                                              NCUAs regulations
                                                                                           deal with the
                                                                                           structure and
                                                                                           operations of a CUSO.
                                                                                           The compliance or non-
                                                                                           compliance with these
                                                                                           regulations could
                                                                                           have a direct or
                                                                                           indirect impact on
                                                                                           the financial
                                                                                           condition of an FCU.
                                .2--How much can an                  X
                                 FCU invest in or loan
                                 to CUSOs, and what
                                 parties may
                                 participate?.
                                .3--What are the                     X
                                 characteristics of
                                 and what requirements
                                 apply to CUSOs?.
                                .4--What must an FCU                 X
                                 and a CUSO do to
                                 maintain separate
                                 corporate identities?.
                                .5--What activities                  X
                                 and services are
                                 preapproved for
                                 CUSOs?.
                                .6--What activities                  X
                                 and services and
                                 prohibited for CUSOs?.
                                .7--Reserved..........
                                .8--What transaction                 X
                                 and comp. limits
                                 apply to an FCU and a
                                 CUSO?.
                                .9--When must an FCU                 X
                                 comply with this
                                 part?.
                                .10--How can a state                 X
                                 supervisory authority
                                 obtain an exemption
                                 for state chartered
                                 credit unions from
                                 compliance with Sec.
                                  712.3(d)(3)?.
Sec.   713--Fidelity Bond and   .1--What is the scope   ...............  ...............  This entire section of
 Insurance Coverage for          of this section?.                                         NCUA's regulations
 Federal Credit Unions \74\.                                                               requires credit
                                                                                           unions to obtain
                                                                                           fidelity bond
                                                                                           insurance coverage.
                                                                                           This coverage
                                                                                           protects the credit
                                                                                           union from covered
                                                                                           losses and therefore
                                                                                           protects the NCUSIF.
                                .2--What are the                     X
                                 responsibilities of a
                                 credit union's board
                                 of directors under
                                 this section?.
                                .3--What bond coverage               X
                                 must a credit union
                                 have?.
                                .4--What bond forms                  X
                                 may be used?.
                                .5--What is the                      X
                                 required minimum
                                 dollar amount of
                                 coverage?.
                                .6--What is the                      X
                                 permissible
                                 deduction?.
                                .7--May the NCUA Board               X
                                 require a credit
                                 union to secure
                                 additional insurance
                                 coverage?.

[[Page 4827]]

 
Sec.   714--Leasing \75\......  .1--What does this      ...............  ...............  This entire section of
                                 part cover?.                                              NCUAs regulations
                                                                                           deals with the
                                                                                           ability of FCUs to
                                                                                           enter into leasing
                                                                                           agreements and sets
                                                                                           parameters on types
                                                                                           of leases and
                                                                                           limitations on
                                                                                           financial
                                                                                           arrangements. The
                                                                                           compliance or non-
                                                                                           compliance with this
                                                                                           part could have a
                                                                                           direct or indirect
                                                                                           impact on the
                                                                                           financial condition
                                                                                           of the credit union.
                                .2--What are the                     X
                                 permissible leasing
                                 arrangements?.
                                .3--Must you own the                 X
                                 leased property in an
                                 indirect leasing
                                 arrangement?.
                                .4--What are the lease               X
                                 requirements?.
                                .5--What is required                 X
                                 if you rely on an
                                 estimated residual
                                 value greater than
                                 25% of the original
                                 cost of the leased
                                 property?.
                                .6--Are you required                 X
                                 to retain salvage
                                 powers over the
                                 leased property?.
                                .7--What are the                     X
                                 insurance
                                 requirements
                                 applicable to
                                 leasing?.
                                .8--Are the early                    X
                                 payment provisions,
                                 or interest rate
                                 provisions,
                                 applicable in leasing
                                 arrangements?.
                                .9--Are indirect                     X
                                 leasing arrangements
                                 subject to the
                                 purchase of eligible
                                 obligation limit?.
                                .10--What other laws                 X
                                 must you comply with
                                 when engaged in
                                 leasing?.
Sec.   715--Supervisory         .1--Scope of this part  ...............  ...............  This entire section of
 Committee Audits and                                                                      NCUAs regulations
 Verifications \76\.                                                                       deals with the roles
                                                                                           and responsibilities
                                                                                           of the Supervisory
                                                                                           Committee which are
                                                                                           designed to ensure
                                                                                           the safe and sound
                                                                                           operation of an FCU.
                                .2--Definitions used                 X
                                 in this part.
                                .3--General                          X
                                 responsibilities of
                                 the Supervisory
                                 Committee.
                                .4--Audit                            X
                                 responsibility of the
                                 Supervisory Committee.
                                .5--Audit of Federal                 X
                                 Credit Unions.
                                .6--Audit of Federally-              X
                                 insured State-
                                 chartered credit
                                 unions.
                                .7--Supervisory                      X
                                 Committee audit
                                 alternatives to a
                                 financial statement
                                 audit.
                                .8--Requirements for                 X
                                 verification of
                                 accounts and
                                 passbooks.
                                .9--Assistance from                  X
                                 outside, compensated
                                 person.
                                .10--Audit report and                X
                                 working paper
                                 maintenance and
                                 access.
                                .11--Sanctions for                   X
                                 failure to comply
                                 with this part.
                                .12--Statutory audit                 X
                                 remedies for Federal
                                 credit unions.
Sec.   716--Privacy of          1. Purpose and scope..  ...............  ...............  This entire section of
 Consumer Financial                                                                        NCUA's regulations
 Information \77\.                                                                         deals with an FCU's
                                                                                           communication with
                                                                                           its members and the
                                                                                           safeguarding of
                                                                                           member information.
                                .2 Model privacy form
                                 and examples.
                                .3 Definitions........
Subpart A--Privacy and Opt Out  .4--Initial privacy     ...............               X
 Notices.                        notice to consumers
                                 required.
                                .5 Annual privacy       ...............               X
                                 notices to members
                                 required.
                                .6 Information to be    ...............               X
                                 included in privacy
                                 notices.
                                .7--Form of opt out     ...............               X
                                 notice to consumers
                                 and opt out methods.
                                .8--Revised privacy     ...............               X
                                 notices.
                                .9--Delivering privacy  ...............               X
                                 and opt out notices.
Subpart B--Limits on            .10--Limits on          ...............               X
 Disclosures.                    disclosure of
                                 nonpublic information
                                 to third parties.
                                .11--Limits on re-      ...............               X
                                 disclosure and reuse
                                 of information.
                                .12--Limits on sharing  ...............               X
                                 of account number
                                 information for
                                 marketing purposes.
Subpart C--Exceptions.........  .13--Exception to opt   ...............               X
                                 out requirements for
                                 service providers and
                                 joint marketing.
                                .14--Exceptions to      ...............               X
                                 notice and opt out
                                 requirements for
                                 processing
                                 transactions.

[[Page 4828]]

 
                                .15--Other exceptions   ...............               X
                                 to notice and opt out
                                 requirements.
Subpart D--Relation to Other    .16--Protection of      ...............               X
 Laws; Effective Date.           Fair Credit Reporting
                                 Act.
                                .17--Relation to state  ...............               X
                                 laws.
                                .18--Effective date;    ...............               X
                                 transition rule.
Sec.   717--Fair Credit         .1 Purpose, scope and   ...............  ...............  This entire section of
 Reporting \78\.                 effective dates..                                         NCUAs regulations,
                                                                                           including Subparts A
                                                                                           through I, deals with
                                                                                           the implementation of
                                                                                           the Fair Credit
                                                                                           Reporting Act which
                                                                                           is designed to
                                                                                           protect consumers
                                                                                           (members) from unfair
                                                                                           or deceptive
                                                                                           practices.
                                .2--Examples..........
                                .3--Definitions.......
Subpart B.....................  Reserved..............
Subpart C--Affiliate Marketing  .20--Coverage and       ...............               X
                                 definitions.
                                .21--Affiliate          ...............               X
                                 marketing opt-out and
                                 exceptions.
                                .22--Scope and          ...............               X
                                 duration of opt-out.
                                .23--Contents of opt-   ...............               X
                                 out notice;
                                 consolidated and
                                 equivalent notices.
                                .24--Reasonable         ...............               X
                                 opportunity to opt-
                                 out.
                                .25--Reasonable and     ...............               X
                                 simple methods of
                                 opting out.
                                .26--Delivery of opt-   ...............               X
                                 out notices.
                                .27--Renewal of opt-    ...............               X
                                 out.
                                28--Effective date,     ...............               X
                                 compliance date, and
                                 prospective
                                 application.
Subpart D--Medical Information  .30--Obtaining or       ...............               X
                                 using medical
                                 information in
                                 connection with a
                                 determination of
                                 eligibility for
                                 credit.
                                .31--Limits on re-      ...............               X
                                 disclosure of
                                 information.
                                .32--Sharing medical    ...............               X
                                 information with
                                 affiliates.
Subpart E--Duties of            .40--Scope............
 Furnishers of Information.
                                .41--Definitions......
                                .42--Reasonable         ...............               X
                                 policies and
                                 procedures concerning
                                 the accuracy and
                                 integrity of
                                 furnished information.
                                .43--Direct Disputes..  ...............               X
Subparts F-H..................  Reserved..............
Subpart I--Duties of Users of   .80-.81 Reserved......
 Consumer Reports Regarding
 Address Discrepancies and
 Records Disposal.
                                .82--Duties of users    ...............               X
                                 regarding address
                                 discrepancies..
                                .83--Disposal of        ...............               X
                                 consumer information.
                                .84-.89 Reserved......
                                .90--Duties regarding   ...............               X
                                 the detection,
                                 prevention, and
                                 mitigation of
                                 identity theft..
                                .91--Duties of card     ...............               X
                                 issuers regarding
                                 changes of address.
Sec.   722--Appraisals \79\...  .1--Authority, Scope    ...............  ...............  This entire section of
                                 and Purpose.                                              NCUAs regulations
                                                                                           establishes rules for
                                                                                           obtaining appraisals
                                                                                           on collateral
                                                                                           securing financial
                                                                                           obligations of
                                                                                           members. The
                                                                                           compliance or non-
                                                                                           compliance with this
                                                                                           section could have a
                                                                                           direct or indirect
                                                                                           impact on the
                                                                                           financial standing of
                                                                                           the credit union.
                                .2--Definitions.......
                                .3--Appraisals                       X
                                 required;
                                 transactions
                                 requiring a State
                                 certified or licensed
                                 appraiser.
                                .4--Minimum appraisal                X
                                 standards.
                                .5--Appraiser                        X
                                 Independence.
                                .6--Professional                     X
                                 association
                                 membership;
                                 competency.
                                .7--Enforcement.......               X
Sec.   723--Member Business     1.--What is a member    ...............  ...............  This entire section of
 Loans \80\.                     business loan?.                                           NCUAs regulations
                                                                                           establishes
                                                                                           parameters under
                                                                                           which an FCU must act
                                                                                           in the creation,
                                                                                           implementation and
                                                                                           monitoring of a
                                                                                           member business
                                                                                           lending program,
                                                                                           including:
                                                                                           underwriting
                                                                                           guidelines, loan
                                                                                           limitations and loan
                                                                                           types. The compliance
                                                                                           or non-compliance
                                                                                           with this part could
                                                                                           impact the financial
                                                                                           condition of an FCU.
                                2.--What are
                                 prohibited
                                 activities?.

[[Page 4829]]

 
                                .3--What are the                     X
                                 requirements for
                                 construction and
                                 development lending?.
                                .4--What other                       X
                                 regulations apply to
                                 member business
                                 lending?.
                                .5--How do you                       X
                                 implement a member
                                 business loan
                                 program?.
                                .6--What must your                   X
                                 member business loan
                                 policy address?.
                                .7--What are the                     X
                                 collateral and
                                 security
                                 requirements?.
                                .8--How much may one                 X
                                 member or a group of
                                 associated members
                                 borrow?.
                                .9--Reserved..........
                                .10--What waivers are                X
                                 available?.
                                .11--How do you obtain               X
                                 a waiver?.
                                .12--What will NCUA do               X
                                 with my waiver
                                 request?.
                                .13--What options are                X
                                 available if the NCUA
                                 Regional Director
                                 denies my waiver
                                 request, or a portion
                                 of it?.
                                .14--.15--Reserved....
                                .16--What is the                     X
                                 aggregate member
                                 business loan limit
                                 for a credit union?.
                                .17--Are there                       X
                                 exceptions to the
                                 aggregate loan limit?.
                                .18--How do I obtain                 X
                                 an exception?.
                                .19--What are the                    X
                                 recordkeeping
                                 requirements?.
                                .20--How can a state                 X
                                 supervisory authority
                                 develop and enforce a
                                 member business loan
                                 regulation?.
                                .21--Definitions......
Sec.   740--Accuracy of         .0--Scope.............  ...............  ...............  This entire section of
 Advertising and Notice of                                                                 NCUA regulations
 Insured Status \81\.                                                                      requires federally
                                                                                           insured credit unions
                                                                                           to display signage in
                                                                                           facilities and in
                                                                                           advertising notifying
                                                                                           members that deposits
                                                                                           are insured by NCUA.
                                .1--Definitions.......
                                .2--Accuracy of                      X
                                 advertising.
                                .3--Advertising of                   X
                                 excess insurance.
                                .4 Requirements for                  X
                                 the official sign.
                                .5--Requirements for                 X
                                 the official
                                 advertising statement.
Sec.   741--Requirements for    0--Scope..............
 Insurance \82\.
Subpart A--Regulations That     .1--Examination.......  ...............  ...............  This section, subpart
 Apply to Both Federal Credit                                                              A of Part 741, of
 Unions and Federally Insured                                                              NCUAs regulations
 State-Chartered Credit Unions                                                             governs certain
 and That Are Not Codified                                                                 actions by FCUs as
 Elsewhere in NCUA's                                                                       well as FISCUs that
 Regulations.                                                                              relate directly to
                                                                                           their insurance
                                                                                           coverage under the
                                                                                           NCUSIF.
                                .2--Maximum borrowing                X
                                 authority.
                                .3--Criteria..........               X
                                .4--Insurance premium                X
                                 one percent deposit.
                                .5--Notice of                        X
                                 termination of excess
                                 insurance coverage..
                                .6--Financial and                    X
                                 statistical and other
                                 reports.
                                .7--Conversion to a                  X
                                 state-chartered
                                 credit union.
                                .8--Purchase of assets               X
                                 and assumption of
                                 liabilities.
                                .9 -Uninsured                        X
                                 membership shares.
                                .10--Disclosure of                   X
                                 share insurance.
                                .11--Foreign branching               X
Subpart--B--Regulations
 Codified Elsewhere in NCUA's
 Regulations as Applying to
 Federal Credit Unions That
 Also Apply to Federally
 Insured Stated-Chartered
 Credit Unions.
                                .201--Minimum fidelity               X   ...............  This section requires
                                 bond requirements.                                        any credit union
                                                                                           applying for
                                                                                           insurance under the
                                                                                           NCUSIF to obtain
                                                                                           fidelity bond
                                                                                           coverage. Failure to
                                                                                           obtain and maintain
                                                                                           bond coverage could
                                                                                           impact the credit
                                                                                           unions financial
                                                                                           condition.

[[Page 4830]]

 
                                .202--Audit and                      X   ...............  This section requires
                                 verification                                              a Supervisory
                                 requirements.                                             Committee to make or
                                                                                           cause to be made an
                                                                                           audit of the credit
                                                                                           unions books and
                                                                                           records. Non-
                                                                                           compliance can impact
                                                                                           the credit union's
                                                                                           financial condition.
                                .203--Minimum loan                   X   ...............  This section
                                 policy requirements.                                      establishes certain
                                                                                           requirements for an
                                                                                           FCU's compliance with
                                                                                           parts 723 and 701 of
                                                                                           NCUA regulations, and
                                                                                           exempts FISCUs if the
                                                                                           SSA has adopted their
                                                                                           own rules governing
                                                                                           certain lending
                                                                                           programs/practices.
                                .204--Maximum public                 X   ...............  This section requires
                                 unit and nonmember                                        compliance with part
                                 accounts, and low                                         701.32 regarding
                                 income designation.                                       acceptance of non-
                                                                                           member deposits.
                                .205--Reporting                      X   ...............  This section required
                                 requirements for                                          newly chartered
                                 credit unions that                                        credit unions in
                                 are newly chartered                                       existence under 2
                                 or in troubled                                            years or credit
                                 condition.                                                unions designated as
                                                                                           in troubled condition
                                                                                           to comply with part
                                                                                           701.14 of the
                                                                                           regulations.
                                .206--Corporate credit               X   ...............  Requires corporate
                                 unions.                                                   credit unions to
                                                                                           comply with part 704
                                                                                           of NCUA regulations.
                                .207--Community         ...............               X   This part of section
                                 development revolving                                     741 requires any
                                 loan program for                                          insured credit union
                                 credit unions.                                            to adhere to part 705
                                                                                           of NCUA regulations
                                                                                           governing loans to
                                                                                           LICU's for the
                                                                                           purposes of community
                                                                                           investment.
                                .208--Mergers of                     X   ...............  Requires compliance
                                 federally insured                                         with section 206 of
                                 credit unions;                                            the FCU act and parts
                                 voluntary termination                                     708a and 708b of the
                                 or conversion of                                          regulation regarding
                                 insured status.                                           termination or
                                                                                           conversion of insured
                                                                                           status.
                                .209--Management                     X   ...............  Prohibits an official
                                 official interlocks.                                      of one credit union
                                                                                           serving as an
                                                                                           official of another,
                                                                                           competing credit
                                                                                           union.
                                .210--Central                        X   ...............  Requires insured
                                 liquidity facility.                                       credit unions to
                                                                                           comply with part 725
                                                                                           of the regulation
                                                                                           governing the
                                                                                           membership of credit
                                                                                           unions in the CLF.
                                .211--Advertising \83\               X   ...............  This section of this
                                                                                           part of NCUAs
                                                                                           regulations requires
                                                                                           an insured credit
                                                                                           union to comply with
                                                                                           Part 740 of the
                                                                                           regulations governing
                                                                                           the advertising and
                                                                                           notification of
                                                                                           NCUSIF insurance.
                                .212--Share insurance.               X   ...............  This section addresses
                                                                                           the insurance of
                                                                                           member accounts as
                                                                                           prescribed in subpart
                                                                                           A of part 745 of the
                                                                                           regulations.
                                .213--Administrative                 X   ...............  This section addresses
                                 actions, adjudicative                                     an insured credit
                                 hearings, rules of                                        unions compliance
                                 practice and                                              with part 747 of the
                                 procedure.                                                regulations.
                                .214--Report of crime   ...............               X   This section of part
                                 or catastrophic act                                       741 requires insured
                                 and Bank Secrecy Act                                      credit unions to
                                 compliance.                                               comply with Part 748
                                                                                           a regulation that
                                                                                           deals with consumer
                                                                                           protection.
                                .215--Records           ...............               X   This section of part
                                 preservation program.                                     741 requires and
                                                                                           insured credit union
                                                                                           to comply with part
                                                                                           749 of the
                                                                                           regulations which
                                                                                           addresses the
                                                                                           preservation of
                                                                                           credit union records,
                                                                                           including member
                                                                                           information.
                                .216--Flood insurance.  ...............               X   This section of part
                                                                                           741 requires and
                                                                                           insured credit union
                                                                                           to comply with part
                                                                                           760 of the
                                                                                           regulations which
                                                                                           addresses the
                                                                                           requirement for flood
                                                                                           insurance on real
                                                                                           estate loans where
                                                                                           required for
                                                                                           protection of the
                                                                                           member's property and
                                                                                           credit unions
                                                                                           collateral.
                                .217--Truth in savings  ...............               X   This section of part
                                                                                           741 requires insured
                                                                                           credit unions to
                                                                                           comply with part 707
                                                                                           of the regulations
                                                                                           which addresses
                                                                                           compliance with the
                                                                                           Truth in Savings act,
                                                                                           as previously
                                                                                           discussed above.
                                .218--Involuntary                    X   ...............  Requires all insured
                                 liquidation and                                           credit unions to
                                 creditor claims.                                          comply with part 709
                                                                                           of the regulation
                                                                                           regarding involuntary
                                                                                           liquidation and
                                                                                           creditor claims
                                                                                           against FCUs.
                                .219--Investment                     X   ...............  Requires compliance of
                                 requirements.                                             all insured credit
                                                                                           unions to comply with
                                                                                           Part 703 of the
                                                                                           regulations. Part 703
                                                                                           is discussed earlier
                                                                                           in this chart.
                                .220--Privacy of        ...............               X   Requires compliance of
                                 consumer financial                                        all insured credit
                                 information.                                              unions to comply with
                                                                                           part 716 of the
                                                                                           regulation. Part 716
                                                                                           is discussed earlier
                                                                                           in this chart.

[[Page 4831]]

 
                                .221 Suretyship and                  X   ...............  Requires compliance
                                 guaranty requirements.                                    with Part 701.20 of
                                                                                           NCUA regulations
                                                                                           regarding an FCU
                                                                                           entering into a
                                                                                           suretyship
                                                                                           arrangement, and
                                                                                           limits a FISCUs
                                                                                           ability to enter into
                                                                                           such arrangements to
                                                                                           the applicable state
                                                                                           law.
                                .222--Credit Union                   X   ...............  Requires all insured
                                 Service Organizations.                                    credit unions to
                                                                                           comply with part
                                                                                           712.(d)(3) and 712.4
                                                                                           of NCUA regulations
                                                                                           regarding the
                                                                                           establishment and
                                                                                           operation of CUSOs.
Sec.   745--Share Insurance     ......................  ...............  ...............  This entire section,
 and Appendix \84\.                                                                        including subparts A
                                                                                           and B, addresses
                                                                                           membership accounts
                                                                                           and payments to
                                                                                           members.
Subpart A--Clarification and    .0--Scope.............
 Definition of Account
 Insurance and Coverage.
                                .1 Definitions........
                                .2--General principles               X
                                 applicable in
                                 determining insurance
                                 of accts.
                                .3--Single ownership                 X
                                 accounts.
                                .4--Revocable trust                  X
                                 accounts.
                                .5 Accounts held by                  X
                                 executors or
                                 administrators.
                                .6--Accounts held by a               X
                                 corporation,
                                 partnership or
                                 unincorporated
                                 association.
                                .7--Shares accepted in               X
                                 a foreign currency.
                                .8--Joint ownership                  X
                                 accounts.
                                .9-1 Trust accounts...               X
                                .9-2 Retirement and                  X
                                 other employee
                                 benefit plan accounts.
                                .10--Accounts held by                X
                                 government depositors.
                                .11--Accounts                        X
                                 evidenced by
                                 negotiable
                                 instruments.
                                .12--Accounts                        X
                                 obligations for
                                 payment of items
                                 forwarded for
                                 collection by
                                 depository
                                 institution acting as
                                 agent.
                                .13--Notification to                 X
                                 members/shareholders.
Subpart B--Payment of Share     .200--General.........
 Insurance and Appeals.
                                .201--Processing of                  X
                                 insurance claims.
                                .202--Appeal..........               X
                                .203 Judicial review..               X
Sec.   748--Security Program,   .0--Security program..  ...............  ...............  This section addresses
 Report of Suspected Crimes,                                                               the requirement for
 Suspicious Transactions,                                                                  insured credit unions
 Catastrophic Acts, and Bank                                                               to comply with the
 Secrecy Act Compliance \85\.                                                              Bank Secrecy Act
                                                                                           (BSA).
                                .1 Filing of reports..  ...............               X
                                .2--Procedures for      ...............               X
                                 monitoring Bank
                                 Secrecy Act (BSA)
                                 compliance.
Sec.   749--Records             .0--Purpose and Scope.  ...............  ...............  This part addresses
 Preservation Program \86\.                                                                the requirements of
                                                                                           and best practices of
                                                                                           preserving the
                                                                                           records of the credit
                                                                                           union.
                                .1--Definitions.......
                                .2--Vital records                    X
                                 preservation program.
                                .3--Vital records                    X
                                 center.
                                .4--Format for vital                 X
                                 records preservation.
                                .5--Format for records               X
                                 required by other
                                 NCUA regulations.
Sec.   Part 760--Loans In       .1--Authority, Purpose  ...............  ...............  This section deals
 Areas Having Special Flood      and Scope.                                                with the requirement
 Hazards \87\.                                                                             for flood insurance
                                                                                           where required. The
                                                                                           obtaining of flood
                                                                                           insurance, and proper
                                                                                           determination of the
                                                                                           requirement for flood
                                                                                           insurance, protects
                                                                                           the member's property
                                                                                           and the credit unions
                                                                                           collateral.
                                .2--Definitions.......
                                .3--Requirement to      ...............               X
                                 purchase flood
                                 insurance where
                                 available.
                                .4--Exemptions........  ...............               X
                                .5 -Escrow Requirement  ...............               X
                                .6--Required use of     ...............               X
                                 standard flood hazard
                                 determination form.
                                .7--Forced placement    ...............               X
                                 of flood insurance.
                                .8--Determination fees  ...............               X
                                .9--Notice of special   ...............               X
                                 flood hazards and
                                 availability of
                                 Federal disaster
                                 relief assistance.
                                .10--Notice of          ...............               X
                                 servicer's identity.
----------------------------------------------------------------------------------------------------------------


[[Page 4832]]

     
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    \66\ Part 701 deals with the organization of FCUs. Portions of 
Part 701 deal with safety and soundness and are classified as 
Insurance Regulatory Related, other sections are Non-Insurance or 
Consumer Regulatory Related. Certain sections are classified as 
Insurance Regulatory Related not because the section authorizes the 
activity; but rather, the section establishes limitations and other 
criteria to ensure the activity is done safely and soundly.
    \67\ Aids in meeting the necessary net worth levels under Prompt 
Corrective Action.
    \68\ Part 702 defines the various statutory levels of net worth 
for all federally insured credit unions and the actions required 
when credit unions fall below well capitalized per the FCU Act. The 
entire Part protects the NCUSIF and is Insurance Regulatory Related.
    \69\ Part 703 is designed to provide reasonable controls to 
ensure FCUs conduct investing safely and soundly. The entire Part 
protects the NCUSIF and is Insurance Regulatory Related.
    \70\ Part 704 governs the organization and operations of 
corporate credit unions. Corporate credit unions do not have direct 
consumer operations and are systemically critical to the FICU 
system. The entire Part protects the NCUSIF and is Insurance 
Regulatory Related. This section has been updated since the 
PricewaterhouseCoopers 2013 report to reflect changes in Part 704.
    \71\ Recently Rescinded. Part 706 deals with FCU credit 
practices. Portions of 706 are designed to protect consumers from 
unfair credit practice while other parts are designed to ensure FCUs 
establish appropriate credit exposure limits in relation to their 
net worth. The consumer related portions of this Part are classified 
as Non-Insurance or Consumer Regulatory Related while those dealing 
with FCU safety and soundness are classified as Insurance Regulatory 
Related.
    \72\ Part 707 is designed to protect FICU members from unfair or 
deceptive practices by requiring adequate consumer disclosures. The 
entire Part is classified as Non-Insurance or Consumer Regulatory 
Related.
    \73\ Part 712 deals with CUSOs. The rule sets requirements for 
the legal structures and approved and prohibited activities. Since a 
poorly organized or operationally unsound CUSO can have a negative 
impact on a FICUs' net worth, the entire Part protects the NCUSIF 
and is classified as Insurance Regulatory Related.
    \74\ Part 713 governs establishes the requirements for credit 
union bond and insurance coverage. Bond and insurance coverage 
protects credit unions from losses. The entire rule is classified as 
Insurance Regulatory Related.
    \75\ Part 714 governs FCU authority to enter into lease 
agreements and sets requirements designed to protect FCUs from 
losses associated with leasing activities. The entire Part is 
classified as Insurance Regulatory Related.
    \76\ Part 715 establishes the roles and responsibilities of the 
Supervisory Committee. Since the Supervisory Committee performs an 
oversight and control function related to safety and soundness, the 
entire Part is classified as Insurance Regulatory Related.
    \77\ Part 716 deals exclusively with the safeguarding of member 
information and the entire Part is classified as Non-Insurance and 
Consumer Regulatory Related.
    \78\ Part 717 deals exclusively with the Fair Credit Reporting 
Act which is designed to protect members from unfair or deceptive 
reporting practices. The entire Part is classified as Non-Insurance 
and Consumer Regulatory Related.
    \79\ Part 722 establishes requirements for obtaining appraisals 
securing financial obligations of members. Sufficiently valued 
collateral can mitigate losses associated with secured loans and 
protects the credit union and thereby the NCUSIF from losses. The 
entire Part is categorized as Insurance Regulatory Related.
    \80\ Part 723 establishes the requirements and restrictions for 
FICU member business lending. This section is designed to promote 
safe and sound underwriting of business loans and establish 
reasonable concentration risk limits. This entire Part protects 
FICUs and the NCUSIF from losses and is classified as Insurance 
Regulatory Related.
    \81\ Part 740 establishes the requirement for federally insured 
credit unions to properly disclose that deposits are federally 
insured. This entire Part is classified as Insurance Regulatory 
Related.
    \82\ Part 741 establishes the requirements for obtaining and 
keeping NCUSIF insurance coverage. Certain sections of this Part are 
designed to promote safety and soundness and are categorized as 
Insurance Regulatory Related while other sections deal with 
requirements for the benefit of members and are categorized as Non-
Insurance and Consumer Regulatory Related.
    \83\ In practice, section 741.211 is classified as Insurance 
Regulatory Related since it both invokes Part 740, which itself is 
Insurance Regulatory Related, and it relates to requirements for 
FISCUs. Previous ETS instructions contained a clerical error 
classifying section 741.211 as Non-Insurance and Consumer Regulatory 
Related. However, since section 741.211 is applicable only to FISCUs 
and the ETS only samples FCUs, the results of the ETS and OTR were 
not affected. The classification of section 741.211 has been updated 
here and will be reflected this way during the next ETS instruction.
    \84\ Part 745 defines insurance coverage by account type and 
establishes priority during payout. In practice, Part 745 is 
classified as Insurance Regulatory Related as it relates to the 
insurability of accounts. Previous ETS instructions contained a 
clerical error classifying Part 745 as Non-Insurance and Consumer 
Regulatory Related. AMAC and OCP primarily execute Part 745 as it 
relates to NCUA's payout function and consumer inquiries regarding 
insurance coverage. Part 745 is captured in the Financial Budget 
section of the OTR calculation through AMAC's and OCP's financial 
budgets, with 100 percent and 17.7 percent of the respective budgets 
allocated to insurance-related activities. Thus, the actual OTR 
calculation was not affected by the clerical error in the 
instructions. The classification of Part 745 has been updated here 
and will be reflected this way during the next ETS instruction.
    \85\ Part 748 deals with required regulatory reporting designed 
to protect members. The entire Part is categorized as Non-insurance 
and Consumer Regulatory Related.
    \86\ Part 749 deals with the preservation of vital FICU records 
necessary for ongoing operations. Failure to properly protect 
records could jeopardize the viability of an insured credit union 
and the insurance coverage of member accounts. This entire Part is 
categorized as Insurance Regulatory Related.
    \87\ Part 760 is designed to protect member's property and the 
entire section is categorized as Non-Insurance and Consumer 
Regulatory Related.
---------------------------------------------------------------------------

VII. Appendix B--Examination Time Survey Instructions

    NCUA issues instructions to participants in the ETS prior to the 
start of each ETS cycle. Training for participants is also provided 
to ensure time spent on insurance and non-insurance related 
activities is captured accurately and consistently. Below is the 
version of instructions distributed to participants prior to the 
June 1, 2015 through May 31, 2016 ETS cycle.

Examination Time Survey

I. General Definitions
    A. Rules and Regs Classification
II. Specific Instructions About Individual Scope Categories
    A. Planning/Scope Development
    B. Call Report Review
    C. Supervisory Committee Review
    D. Financial Analysis
    E. Loan Analysis
    F. Investment Analysis
    G. Liquidity Analysis
    H. Asset Liability Management
    I. Compliance
    J. Information Systems Technology
    K. Management Analysis
    L. Contact Report/Joint Conference/Follow-Up Procedures

I. General Definitions

Insurance Related Examination Procedures

    Insurance Related examination or supervision contact procedures 
address safety and soundness issues. On the time survey forms, 
respondents should classify the time used to evaluate safety and 
soundness as ``insurance related.'' ``Insurance Related'' time 
includes:

<bullet> Evaluating financial trends and Call Report data
<bullet> Determining the credit union's solvency position
<bullet> Evaluating risks, and potential costs, the credit union 
presents to the NCUSIF (when appropriate)
<bullet> Assessing management's efforts to protect earnings and net 
worth by identifying, evaluating, controlling, and monitoring 
internal and external risks
<bullet> Assessing management's abilities to develop strong policies 
and a reliable internal control structure

Insurance Regulatory Related Examination Procedures

    Insurance Regulatory related examination or supervision contact 
procedures address regulations that are not designed to protect 
consumers directly. This includes assessing compliance with all 
regulations outside of consumer oriented regulations--see listing of 
consumer regulations in the following section--Consumer Regulatory 
examination procedures.
    Insurance Regulatory related regulations include those 
regulations that address safety and soundness issues. Examples 
include (this is not all inclusive):

<bullet> 701.21--Loans to Members and Lines of Credit to Members
    [cir] Includes total loan limit to one individual, limitation on 
maturity, rate of interest, and security.
<bullet> 702--Prompt Corrective Action
    [cir] Establishes net worth categories and mandatory and 
discretionary supervisory actions
<bullet> 703--Investments and Deposit Activities
    [cir] Establishes permissible investments and requires credit 
analysis prior to purchase and requires ongoing monitoring of 
securities
<bullet> 712--Credit Union Service Organizations
    [cir] Establishes investment and loan limits as well as outlines 
permissible activities
<bullet> 713--Fidelity Bond and Insurance Coverage
    [cir] Requires minimum bond coverage
<bullet> 715--Supervisory Committee Audits and

[[Page 4833]]

Verifications
<bullet> 722--Appraisals
    [cir] Establishes minimum appraisal standards based on loan size
<bullet> 723--Member Business Loans
    [cir] Establishes prohibited activities, requires specific 
policies and sets overall loan limits as well as limits to one 
member or group of associated members

Consumer Regulatory Related Examination Procedures

    Consumer Regulatory Related examination or supervision contact 
procedures address compliance with consumer regulations. The 
regulations include:

<bullet> Reg. B--Equal Credit Opportunity Act
<bullet> BSA--Bank Secrecy Act
<bullet> Reg. C--Home Mortgage Disclosure Act
<bullet> Reg. CC--Expedited Funds Availability
<bullet> COPPA--Children's Online Privacy Protection Act
<bullet> Reg. D--Reserve Requirements
<bullet> Reg. E--Electronic Funds Transfer Act
<bullet> FACTA--Fair and Accurate Credit Transactions Act
<bullet> FCPR--Fair Credit Practice Rule
<bullet> FCRA--Fair Credit Reporting Act
<bullet> FDCPA--Fair Debt Collections Practices Act
<bullet> FDPA--Flood Disaster Protection Act
<bullet> FHA--Fair Housing Act
<bullet> GLBA--Gramm-Leach Bliley Act
<bullet> HOEPA--Home Ownership and Equity Protection Act
<bullet> HOPA--Home Owner's Protection Act
<bullet> Reg. M--Consumer Leasing
<bullet> OFAC--Office of Foreign Asset Control
<bullet> PCFI--Privacy of Consumer Financial Information
<bullet> RFPA--Right to Financial Privacy Act
<bullet> SCRA--Service Members Civil Relief Act
<bullet> Reg.--X Real Estate Settlement Procedures Act
<bullet> Credit Card Act
<bullet> Unlawful Internet Gaming Enforcement Act
<bullet> SAFE Act--Secure and Fair Enforcement for Mortgage 
Licensing Act
<bullet> Reg.--Z Truth in Lending
<bullet> Rules and Regulations Part 706--Credit Practices
<bullet> Rules and Regulations Part 707--Truth in Savings
<bullet> Rules and Regulations Part 717--Fair Credit Reporting

    The chart below will help you determine the appropriate 
regulatory category (Insurance Regulatory or Non-Insurance and 
Consumer Regulatory) for all regulations. [The chart normally 
embedded here is shown as Appendix A in this document].

II. Specific Instructions about Individual Scope Categories

    Note: The procedures referenced within each time category of the 
survey are not all encompassing. These guidelines merely provide 
examples respondents should consider when estimating the allocation 
of their time.

A. Planning/Scope Development

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Reviewing prior contact reports to identify historical 
safety and soundness concerns;
    [cir] Reviewing scope workbook to become familiar with potential 
safety and soundness concerns;
    [cir] Reviewing correspondence between contacts that address 
safety and soundness issues;
    [cir] Reviewing recent financial trends;
    [cir] Evaluating changes to the credit union's product and 
service mix that could present new safety and soundness concerns;
    [cir] Determining whether a Subject Matter Examiner could assist 
during the supervision process in addressing safety and soundness 
concerns;
    [cir] Considering whether additional resources (i.e., grants, 
technical assistance, low-income designation) are available to 
assist management in addressing safety and soundness concerns;
    [cir] Evaluating prevailing economic conditions;
    [cir] Reviewing risk management reports;
    [cir] Interviewing key officials to learn status of action taken 
to correct previously identified safety and soundness concerns;
    [cir] Developing on-site procedures for evaluating safety and 
soundness concerns;
    [cir] Completing portions of scope workbook that pertain to 
safety and soundness concerns; and
    [cir] Updating scope workbook to document new information about 
safety and soundness issues.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to Insurance Regulatory compliance such as:
    [cir] Reviewing prior contact reports for previously cited 
noncompliance and regulatory violations related to Insurance 
Regulatory issues;
    [cir] Reviewing correspondence between contacts that addresses 
Insurance Regulatory concerns;
    [cir] Determining the potential applicability of new Insurance 
Regulatory requirements;
    [cir] Considering whether additional resources (i.e., grants, 
technical assistance, low-income designation) are available to 
assist management in addressing Insurance Regulatory compliance 
concerns;
    [cir] Interviewing key officials to determine management's level 
of expertise regarding, and attitude toward, Insurance Regulatory 
compliance;
    [cir] Developing on-site procedures for evaluating Insurance 
Regulatory concerns;
    [cir] Completing portions of scope workbook that pertain to 
Insurance Regulatory concerns; and
    [cir] Updating scope workbook to document new information about 
Insurance Regulatory issues.
    3. Time related to Consumer Regulatory Issues includes the time 
for tasks related to consumer regulations such as:
    [cir] Reviewing prior contact reports for previously cited 
noncompliance issues and regulatory violations related to Consumer 
Regulatory issues;
    [cir] Reviewing scope workbook to become familiar with potential 
Consumer Regulatory concerns;
    [cir] Reviewing correspondence between contacts that addresses 
Consumer Regulatory concerns;
    [cir] Determining the potential applicability of new Consumer 
Regulatory requirements;
    [cir] Determining whether a Subject Matter Examiner could assist 
during the supervision process in addressing Consumer Regulatory 
compliance concerns;
    [cir] Considering whether additional resources (i.e., grants, 
technical assistance, low-income designation) are available to 
assist management in addressing Consumer Regulatory compliance 
concerns;
    [cir] Evaluating changes to the credit union's product and 
service mix that could require an expanded review of Consumer 
Regulatory compliance;
    [cir] Interviewing key officials to determine management's level 
of expertise regarding, and attitude toward, Consumer Regulatory 
compliance;
    [cir] Developing on-site procedures for evaluating Consumer 
Regulatory concerns;
    [cir] Completing portions of scope workbook that pertain to 
Consumer Regulatory concerns; and
    [cir] Updating scope workbook to document new information about 
Consumer Regulatory issues.

B. Call Report Review

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Determining if factors causing inaccuracies in Call 
Reports are symptoms of internal control weaknesses;
    [cir] Reviewing Call Report trends for potential risk 
indicators;
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to Insurance Regulatory compliance such as:
    [cir] Verifying the accuracy and timeliness of Call Reports 
filed by management.
    3. Time related to Consumer Regulatory Issues while reviewing 
the Call Report is not applicable considering no consumer 
regulations are addressed in the Call Report.

C. Supervisory Committee Review

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Reviewing general internal controls and segregation of 
duties;
    [cir] Evaluating if the supervisory committee serves as a 
legitimate ``check'' upon management activity; and
    [cir] Determining whether supervisory committee is effective in 
correcting identified internal control weaknesses.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to Insurance Regulatory compliance such as:
    [cir] Ensuring the supervisory committee is carrying out its 
fiduciary responsibility to ensure member account verifications and 
annual audits are complete and timely and meeting the supervisory 
committee's regulatory requirements.
    [cir] Reviewing the actual documentation from the supervisory 
committee audit and member account verification.
    3. Time related to Consumer Regulatory Issues includes the time 
for tasks such as:
    [cir] Review of follow-up actions related to Consumer Regulatory 
violations.

[[Page 4834]]

D. Financial Analysis

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Reviewing the current financial trends; and
    [cir] Determining whether management has adequate controls and 
risk management systems in place.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks such as:
    [cir] Reviewing general accounting procedures to ensure 
compliance with the Accounting Manual for Federal Credit Unions;
    [cir] Verifying that current financial statements reflect the 
balances in the general ledger;
    [cir] Determining that management is maintaining adequate 
subsidiary ledgers; and
    [cir] Testing the validity of delinquency computation and income 
accrual procedures.
    3. Time related to Non-Insurance Issues is not applicable 
considering no consumer regulations are addressed during the review 
of this area.

E. Loan Analysis

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Reviewing loan underwriting procedures;
    [cir] Determining the risk associated with the product mix;
    [cir] Evaluating loan policies to determine if sound practices 
exist;
    [cir] Reviewing collection efforts for timeliness;
    [cir] Evaluating whether the level of the credit union's 
reserves is consistent with the loan products offered by the credit 
union.
    [cir] Assessing the controls management has over loan losses.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following regulations:
    [cir] 701.21--Loans to Members and Lines of Credit to Members 
Assessing
    [cir] 702.22--Loan participation
    [cir] 722--Appraisals
    [cir] 723--Member Business Loans
    3. Time related to Consumer Regulatory Issues includes the time 
for tasks such as:
    [cir] Evaluating compliance with consumer and mortgage 
compliance laws and regulations--Refer to listing under General 
Definitions; and
    [cir] Ensuring the written policies comply with all applicable 
lending regulations.

F. Investment Analysis

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Reviewing appropriateness of the investment portfolio and 
overall practices;
    [cir] Determining the adequacy of the internal controls related 
to investments;
    [cir] Assessing investment trends;
    [cir] Ensuring adequate safekeeping procedures are in place; and
    [cir] Evaluating management's effectiveness in addressing 
investment risks.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following regulations:
    [cir] Reviewing the permissibility of the investments included 
in the portfolio--703--Investments and Deposit Activities; and
    [cir] Reviewing the written investment policy to ensure the 
policy includes all elements discussed in the regulations.
    3. Time related to Consumer Regulatory Issues is not applicable 
considering no consumer regulations are addressed in the review of 
investments.

G. Liquidity Analysis

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Determining whether the credit union has sufficient 
liquidity to cash needs for loan and share transactions; and
    [cir] Evaluating whether management has sound contingency plans 
for addressing unanticipated liquidity needs.
    [cir] Ensuring risk management processes (measuring, monitoring, 
controlling, and reporting) are appropriate for credit union.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following:
    [cir] Ensuring management is complying with statutory borrowing 
limitations.
    3. Time related to Consumer Regulatory Issues is not applicable 
considering no consumer regulations are addressed in the review of 
liquidity.

H. Asset Liability Management

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Determining if management has adequate controls in place 
and assigns clear responsibilities to address the credit union's 
overall exposure to interest rate risk;
    [cir] Reviewing the adequacy of the credit union's modeling and 
risk monitoring procedures; and
    [cir] Ensuring that management initiates corrective action when 
internal analysis identifies concerns relative to interest rate 
risk.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following:
    [cir] Ensuring written asset liability management policies do 
not contain provisions that are inconsistent with regulations that 
apply to loans, investments, or shares.
    3. Time related to Consumer Regulatory Issues is not applicable 
considering no consumer regulations are addressed in the review of 
asset liability management.

I. Compliance

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Determining whether any identified regulatory violations 
could cause the credit union to have financial risk exposure.
    2. Time related to Insurance Regulatory Issues includes the time 
reviewing compliance with the following regulations:
    [cir] 701.21--Loans to Members and Lines of Credit to Members
    [cir] 701--Prompt Corrective Action
    [cir] 703--Investments and Deposit Activities
    [cir] 712--Credit Union Service Organizations
    [cir] 713--Fidelity Bond and Insurance Coverage
    [cir] 715--Supervisory Committee Audits and Verifications
    [cir] 722--Appraisals
    [cir] 723--Member Business Loans
    3. Time related to Consumer Regulatory Issues includes Assessing 
management's compliance with the consumer and mortgage compliance 
laws and regulations. This includes:
    [cir] Reg. B--Equal Credit Opportunity Act
    [cir] BSA--Bank Secrecy Act
    [cir] Reg. C--Home Mortgage Disclosure Act
    [cir] Reg. CC--Expedited Funds Availability
    [cir] COPPA--Children's Online Privacy Protection Act
    [cir] Reg. D--Reserve Requirements
    [cir] Reg. E--Electronic Funds Transfer Act
    [cir] FACTA--Fair and Accurate Credit Transactions Act
    [cir] FCPR--Fair Credit Practice Rule
    [cir] FCRA--Fair Credit Reporting Act
    [cir] FDCPA--Fair Debt Collections Practices Act
    [cir] FDPA--Flood Disaster Protection Act
    [cir] FHA--Fair Housing Act
    [cir] GLBA--Gramm-Leach Bliley Act
    [cir] HOEPA--Home Ownership and Equity Protection Act
    [cir] HOPA--Home Owner's Protection Act
    [cir] Reg. M--Consumer Leasing
    [cir] OFAC--Office of Foreign Asset Control
    [cir] PCFI--Privacy of Consumer Financial Information
    [cir] RFPA--Right to Financial Privacy Act
    [cir] SCRA--Service Members Civil Relief Act
    [cir] Reg.--X Real Estate Settlement Procedures Act
    [cir] Credit Card Act
    [cir] Unlawful Internet Gaming Enforcement Act
    [cir] SAFE Act--Secure and Fair Enforcement for Mortgage 
Licensing Act
    [cir] Reg.--Z Truth in Lending
    [cir] Rules and Regulations Part 706--Credit Practices
    [cir] Rules and Regulations Part 707--Truth in Savings
    [cir] Rules and Regulations Part 717--Fair Credit Reporting

J. Information Systems Technology

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Ensuring that the credit union's written policies 
contribute toward the establishment and maintenance of a system of 
sound internal controls; and
    [cir] Determining if weakness in the control structure presents 
any exposure to financial risks.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following:
    [cir] Ensuring that all agreements with outside parties meet 
applicable legal requirements.
    3. Time related to Consumer Regulatory Issues includes Assessing 
management's compliance with the following consumer regulations:
    [cir] Children's Online Privacy Protection Act (COPPA)
    [cir] Gramm-Leach-Bliley Act (GLBA) related to guidance on 
identity theft.

K. Management Analysis

    1. Time related to Insurance Issues includes the time required 
for tasks such as:

[[Page 4835]]

    [cir] Reviewing planning and general business practices for 
overall soundness;
    [cir] Reviewing income/expense budget process and controls; and
    [cir] Assessing management's capabilities in implementing 
strategies to address risks.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following:
    [cir] Reviewing compliance with Federal Credit Union Bylaws;
    [cir] Reviewing Board minutes to ensure meetings take place in 
accordance with the Federal Credit Union Act and Bylaws; and
    [cir] Ensuring that all written policies are consistent with 
applicable Insurance Regulatory laws and regulations.
    3. Time related to Consumer Regulatory Issues includes the time 
for tasks such as:
    [cir] Ensuring that all consumer and mortgage written policies 
are consistent with applicable laws and regulations.
    [cir] Review of compliance with implementing corrective action 
related to regulatory violations associated with consumer and 
mortgage loans
    [cir] Ensuring that all written policies are consistent with 
applicable Consumer compliance laws and regulations.

L. Contact Report/Joint Conference/Follow-Up Procedures

    1. Time related to Insurance Issues includes the time required 
for tasks such as:
    [cir] Communicating safety and soundness or risk management 
issues to credit union officials and employees during the exit 
interview process;
    [cir] Documenting supervision plans for monitoring safety and 
soundness concerns noted during an on-site contact;
    [cir] Discussing safety and soundness or risk management 
concerns with management during the joint conference;
    [cir] Preparing written reports that provide guidelines for 
correcting safety and soundness concerns;
    [cir] Drafting correspondence for the Regional Director's 
signature that discuss safety and soundness concerns;
    [cir] Preparing internal monitoring reports that assess 
management's progress in addressing safety and soundness or risk 
management issues; and
    [cir] Implementing administrative remedies designed to correct 
safety and soundness or risk management concerns.
    2. Time related to Insurance Regulatory Issues includes the time 
for tasks related to compliance with the following:
    [cir] Communicating regulatory violations related to Insurance 
Regulatory issues;
    [cir] Documenting supervision plans for monitoring for Insurance 
Regulatory violations noted during an on-site contact;
    [cir] Discussing Insurance Regulatory concerns with management 
during the joint conference;
    [cir] Preparing written reports that provide guidelines for 
complying with Insurance Regulatory issues; and
    [cir] Drafting correspondence for the Regional Director's 
signature that discuss Insurance Regulatory concerns.
    3. Time related to Consumer Regulatory Issues includes the time 
for tasks such as:
    [cir] Communicating regulatory violations related to consumer 
and mortgage loans
    [cir] Documenting supervision plans for monitoring Consumer 
Regulatory violations noted during an on-site contact;
    [cir] Discussing Consumer Regulatory concerns with management 
during the joint conference;
    [cir] Preparing written reports that provide guidelines for 
complying with consumer regulations that do not specifically pertain 
to insurance-related concerns; and
    [cir] Drafting correspondence for the Regional Director's 
signature that discuss Consumer Regulatory concerns.

[FR Doc. 2016-01626 Filed 1-26-16; 8:45 am]
 BILLING CODE 7535-01-P


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