"Congratulations for attempting to address the rather complex questions of risk-based capital," Barry Jolette, president/CEO of $713 million San Mateo Credit Union in Redwood City, Calif., and a one-time NCUA examiner, wrote. "Shame on you for wasting agency and credit union resources on such a poorly constructed proposal!"

Jolette's five-paragraph March 31 letter chastised the NCUA Board for creating an initial proposal that required so much refinement in between its first and second iterations. Given that such massive regulatory restructuring was attempted to right the wrongs of about two dozen credit unions led Jolette to question whether the regulation was truly needed, or perhaps something for the agency to hide behind.

"Seems to me we learned long ago, when some children in a group misbehave, we don't punish them all, but we address behavior standards and punishment for those few who misbehave," Jolette wrote. "It is a simple concept. I respectfully suggest you apply it to risk-based capital."

The NCUA's changes to the initial RBC rule resulted from the review of the input the agency received in response to RBC1, according to NCUA Chairman Debbie Matz, writing in the agency's January Board Action Bulletin. The revised proposal would affect just 27 credit union "outliers" taking certain risks and require those institutions to hold additional capital to cover those risks.

"Both the Government Accountability Office and our Inspector General found that the existing NCUA rule on risk-based net worth failed to prevent credit union losses as a result of the recent financial crisis – losses that had to be paid by all surviving credit unions," Matz said in the bulletin. "The revised proposal is also flexible and forward-looking. It applies to the 22% of credit unions holding more than $100 million in assets, and it covers 89% of credit union system assets, which better protects the Share Insurance Fund."

In addition to extending the rule's effective date to Jan. 1, 2019, RBC2 lowers the risk-based capital level for a well-capitalized credit union from 10.5% to 10%. It also lowers the risk weighting for many asset classes, including investments, real estate loans, member business loans, corporate credit unions and CUSOs.

In addition, the revised rule removes interest rate risk from risk weights and eliminates individual capital requirements, according to revisions outlined in the bulletin. Despite the draconian changes, however, some credit unions believed the rule was still a bad idea in the first place, or at the very least needed further adjustment to be effective.

Read more: Callahan's Jon Jeffreys wrote in as a member of PenFed …

"While I appreciate the NCUA's efforts at improving the original risk-based capital rule, I remain unconvinced that a risk-based capital rule is necessary, or that it would even be effective at preventing credit union failures," Callahan & Associates' Managing Partner Jon Jeffreys wrote as a member of the $17.6 billion Pentagon Federal Credit Union in Alexandria, Va. "In essence, I believe the revised rule represents a solution that won't work to a problem that doesn't exist."

As an alternative, Jeffreys suggested that current leverage ratio rules be maintained and, if necessary, strengthened in their roles as a measure of capital and financial stability. He also suggested that rather than a rule, RBC2 become a modeling tool that allows examiners, boards and managers the ability to calculate RBC risk using risk weights appropriate to individual credit union environments.

"A model is far more flexible than a rigid rule, and allows opportunities to pragmatically manage risk, rather than distort decision-making through rule-based estimates of risk which may or may not be accurate," Jeffreys wrote.

Smaller credit unions that would not be directly affected by RBC2 also submitted letters. Some of those letters were more supportive than others.

Andrew Godfrey, president/CEO of the $11.4 million Cheektowaga Community Federal Credit Union in Cheektowaga, N.Y., applauded the NCUA's proposal to raise the threshold of affected credit unions to $100 million. He also supported the agency's authority to mandate that credit unions maintain buffers in excess of the regulatory minimums, if necessary, to be well-capitalized.

"I believe that we need an RBC framework that is no more complicated than necessary to accomplish its primary goals of safety and soundness," Godfrey wrote. "Therefore, I encourage the NCUA to continue to refine its RBC plan in response to the comments made by myself and other interested stakeholders."

Other letter-writers were less upbeat in their correspondence. Michelle Spanbauer, manager of the $4.6 million Oshkosh Postal Employees Credit Union in Oshkosh, Wis., believed that RBC2 would shift credit unions' emphases from serving members to unnecessarily worrying about the balance sheet's bottom line, which would significantly dull the uniqueness and effectiveness of the movement.

"I have been working in the credit union movement since 1975 and have seen many changes, so change is not my enemy," Spanbauer wrote. "However, some of the changes we have seen over the years have actually hurt the movement and its members. I believe this proposal to be one of them. Please withdraw this proposal."

Strong opinions expressed throughout the comment letters highlight objections, some serious, to both the nature and need of RBC2. The one consensus all seem to share is that the proposal revisions were steps in the right direction, albeit faltering ones, according to Dennis Dollar, a principal partner with Dollar and Associates LLC in Birmingham, Ala., and a former NCUA Chairman.

"RBC2 is much improved over RBC1, and the comments definitely reflect that improvement," Dollar said. "But the devil on RBC is in the details."

Some of the comments about RBC2 focused on recommendations for specific – and much-needed – improvements in CUSO investment risk weights, consumer loans and the unnecessary capital maintenance plan requirement, Dollar said. But many comments asked the question of whether a two-tier capital requirement is necessary considering how well-capitalized credit unions already are, even in the face of a statutory net worth requirement higher than what's required for banks.

Commenters also raised considerable concern about the way the proposal transfers to the regulator control of a greater amount of credit union capital through demands for higher reserve requirements, Dollar noted. More reserves mean less available capital to fund credit union growth, and that could negatively affect member service.

"That is the biggest concern about RBC, that it will not be balanced between the legitimate safety and soundness need for credit unions with higher-risk balance sheets to maintain more capital, and the equally legitimate competitive need for credit unions to be able to invest in products, services, branches and technology," Dollar said.

Other critics of RBC2 and the NCUA itself are more pointed in their attacks on the proposed rule's current iteration.

Read more: SECU's Jim Blaine says RBC1 was a signal that something wasn't right …

"In short, while the objective is understandable, the shortcomings [of RBC2] are almost too much to encapsulate, including the lack of demonstrated need for credit unions, given their historically strong capital and the failure to mitigate risks in banks with similar approaches," Callahan & Associates Executive Vice President Jay Johnson said. "Our view is that it could be helpful as an examination tool to start a discussion with credit union board and management, but as a rule it makes no sense."

Jim Blaine, president/CEO of the $32 billion State Employees' Credit Union in Raleigh, N.C., agreed with many of the critics, but the industry veteran's fears ran even deeper in terms of his opposition to RBC2 as currently proposed.

"We are proponents of risk-based capital as an additional tool to the leverage ratio, but RBC1 was so wrong-footed when it came out that it should have been a signal that something in the process was just not right," Blaine said.

Blaine's concerns focused not only on the rule itself, but with the process overall. SECU filed seven comment letters, including six short-form letters from individual staff members and one formal credit union response from SECU Chief Financial Officer Mike Lord. Blaine chose to submit one under his own name as a "concerned citizen and credit union member."

"I did that because I wanted to say something blunt and direct," Blaine explained. "To me there are bigger issues that need to be addressed about the agency and its relationship to credit unions, the laws and credit union members."

Blaine's April 24 email pulled no punches, challenging not only RBC2 but NCUA's right to introduce and enforce it.

"The proposed RBC rule purposefully and knowingly rewrites, in plain language, the Federal Credit Union Act, nullifying and preempting the Constitutional authority of Congress," Blaine wrote. "Any new law adversely affecting 100 million American citizens should not be concocted, administered and then enforced by an opaque, unaccountable and unelected agency captive to and driven by its own self-interest."

Blaine's email further challenged the NCUA's alleged lack of accountability, oversight and transparency. He also called on Congress to step in and block RBC2, as well as formally review the NCUA's leadership and its apparent lack of accountability.

"[One hundred million] Americans should not be snubbed so flagrantly and indifferently," Blaine wrote in his concluding comments.