“It is incorrect to say that a regulation doesn't impact a credit union over 10% RBC when it takes out of a credit union's strategic control a sizable portion of the additional capital they have built over the years through good risk management and requires those dollars to remain reserved under penalty of regulation – rather than invested in member service, branches, technology and product enhancement,” he argued. “RBC will impact all credit unions that seek to grow, which is frankly the overwhelming majority of the credit unions that will survive the next 10 years.”

“I'm not saying RBC is bad, because it's not,” Dollar added. “The concept is very sound. It is just essential that the risk weights be balanced properly, the well-capitalized trigger be appropriate and those credit unions with 7% statutory net worth not face draconian corrective actions because their RBC is slightly below the 10% level – which should probably more appropriately be 9%.”

Some of the proposed risk weights on mortgage, business and consumer lending need tweaking, Dollar said. The risk weight assigned to CUSO investments should also change, he said.

Dollar added the NCUA should also look to the banking industry when defining “small” institutions.

“A $300 million bank is a small institution under banking rules, but a $300 million credit union is not, under credit union rules – that doesn't make sense to me since both face the same marketplace and adhere to virtually the same regulatory requirements,” he said.

Over time, that will give banks and other competitors a significant advantage, he added.

Credit unions probably won't change their product or service mixes due to RBC2, but they probably will face tough decisions about strategic growth and expanded products or services, the former NCUA chairman said.

“Some will feel it will be easier to handle the next examination if they follow the RBC balance sheet template,” he explained. “That will be okay if that balance sheet structure works for that particular credit union with its unique FOM and business model. But, if a credit union needs a balance sheet structure that is not perfectly aligned with the RBC model, those credit unions will have to make the strategic decisions that are best for them and be prepared to answer the examiner questions when they come.”

He added, “Excessive fear of the referee's flag can kill an otherwise winning game plan – particularly in today's challenging financial marketplace.”