Still, the figure made me stop and think. Three-quarters of the industry? Seriously?

Nobody reading CU Times would be shocked to hear small institutions don't have sufficient compliance resources. But if the solution is to merely increase the exemption cap, the NCUA is just kicking the reg burden can farther down the road.

Only 11% of industry assets are held by credit unions with assets fewer than $100 million. The NCUA's primary objective is to protect the share insurance fund, so rules designed to do so would presumably be more important to enforce upon the remaining 89%.

However, if the NCUA can effectively supervise risk factors like interest rate mismatch, asset concentration and market stress through the exam process for up to 75% of the nation's credit unions, why not do the same for the other 25%?

After all, if these rules only apply to a minority, they're a waste of resources and a source of unflattering drama for the NCUA board.

According to the NCUA, there are two very good reasons to supervise with rules instead of guidance. The first is complexity. Supervising interest rate risk in a small credit union might be limited to a portfolio of relatively short-term auto loans and some CDs that need laddering. Compare that to a billion-dollar shop that portfolios mortgages and manages complex investments that risk losing much more than just dividends due to early withdrawal.

Clearly, the larger shop is far more complex. Which leads me to the next reason the NCUA says it needs to regulate by rule rather than by guidance: Clarity.

Rules give organizations concrete parameters around which to plan. I'll buy the NCUA's argument that it would be difficult for a large credit union to strategically plan by relying upon the proclivities of its current examiner, knowing the next one could take a very different position. As much as we hate rules, at least they're objective.

Remember the Exam Fairness Act from a few years ago? That bill would have required NCUA examiners to codify exam exceptions. The bill didn't go anywhere, but the NCUA implemented the practice anyway, codifying all DORs.

So now, the NCUA is stuck between a rock and a hard place. Credit unions are overburdened by regulations, but the agency also wants to respond to calls for a more objective exam process.

As the polarization of credit union assets continue, a two-tiered regulatory system will emerge.

I'd argue we're already there. Other than a not-for-profit structure and volunteer board, small credit unions have very little in common with the $10 billion-plus shops supervised by the NCUA's Office of National Examinations and Supervision.

It seems to me two entirely different objectives will weaken the regulator, potentially opening the door to a merger into the FDIC. The NCUA disagrees and points out this trend is nothing new. It's not just affecting credit unions; the FDIC faces similar challenges.

In fact, the elimination of small players is common in many industries. Just ask a former farm kid like me who no longer has a family farm to call home.

Like family farms, most small credit unions will eventually disappear. The two-tiered system will then evaporate through attrition.

Sure, the NCUA will charter a few new boutique credit unions (marijuana, cough, cough), but someday sooner than we realize, nearly all credit unions will have at least $100 million in assets.

What first looked like a poorly planned, temporary reg relief solution – merely expanding the small credit union definition – now looks like a long-term fix. Crazy like a fox.

I'm not saying it's up to the NCUA to reverse this trend or even find a way to save small credit unions. It is what it is. All the agency can do is adjust and regulate to the best of its ability.

Still, it's crazy to watch regulators and lawmakers pat themselves on the back for providing regulatory relief while ignoring such a ridiculously large elephant in the room.