If the NCUA's luncheon session atthe NACUSO conference was any indication, Chairman Debbie Matz andcrew could face hostile crowds during this summer's listeningsessions.

The NACUSO audience's response to usually winsome Rick Metsgerwasn't the worst reception I've seen for an NCUA board member, butit was a far cry from Metsger's debut on stage at GAC, where he hadthem eating out of the palm of his hand.

In Orlando, nobody laughed at his jokes. Nobody even cracked asmile.

And most importantly, nobody bought what he was selling: Thatbecause the risk-based capital rule only causes some 200 creditunions to slip below well-capitalized status, it is nothing tofear.

I can't imagine any credit union has net worth to spare, even ifit is currently managing a comfy safety cushion well above 7%.Should a credit union lose any capital ground under the RBC rule,members would have to pay for the credit union to recover to itsprevious strategic capital levels.

Those numbers aren't arbitrary.

I'm sure, as Metsger claimed, some credit unions will find theyhave more capital under RBC standards than the current net worthmeasure.

But I'd also venture to guess those credit unions aren't amongthe industry's top performers, and probably shouldn't be held up asan example of balance sheet management done right.

Metsger's speech was followed by a panel of NCUA staffers whowere more directly involved in writing the RBC proposal and theNCUA's proposed CUSO rule. It took a while for the crowd to getrolling with questions for NCUA attorneys Pamela Yu and FrankKressman, and Director of Supervision D. Scott Neat.

But when it did, the frustration showed.

One audience member nailed the underlying problem with RBC. Riskbrings reward in the form of higher returns, he said, which are theonly way credit unions can build capital. The proposed rule soseverely limits those risks, it may have the unintended consequenceof reducing the industry's capital cushion, not increasing it.

I hope you thought about that as you wrote this rule, theexecutive told the panel.

Radio silence.

A second audience member succinctly summed up regulatoryoverreaction to the financial crisis.

“We move money for a living. It's inherently risky. You can'tregulate the risk out of that,” he said.

Neither of those comments are Earth-shattering observations,which is why I was stunned the panel didn't prepare betterresponses. I sure hope Matz has something better than thedeer-in-the-headlights expressions displayed by the NCUA staffers,or things could get ugly this summer.

I don't think credit unions are upset they will be subjected toRBC. Instead, the problem is that the NCUA's proposal –specifically, asset risk weighting – is far more conservative thanwhat Basel requires of bankers.

Additionally, the NCUA tries to address other balance sheetrisks with its RBC rule, like interest rate risk, concentrationrisk and credit risk.

The CEO of a large credit union recently sent me a copy of hiscomment letter to the NCUA on this proposed rule. The 20-pageletter was very well written and included several charts and graphsthat illustrate how poorly the rule compares to Basel, and thenegative effects the rule would have on the industry and his creditunion.

The CEO also proposed specific ways the NCUA could adjust itsrisk weights so they more closely match Basel.

And, he pressed the point that a capital rule is a poor tool formanaging additional risks. Yes, interest rate, concentration andcredit risks are a concern. But, he said, this rule is not the wayto avoid losses due to those risks in the future.

I agree with him, and it appears banking regulators do too.

Further, the CEO said the rule would be yet another hit to thecredit union charter, which is already unfavorable compared to bankcharters thanks to field of membership restrictions, the MBL capand lack of supplemental capital. Effectively reducing real estatelending and MBL balances may help NCUA officials sleep better atnight, but it's a short-sighted solution, and he said it's simplynot viable.

Again, I agree.

I caught up with Metsger right after the lunch session, and heassured me the NCUA is making major changes to the RBC proposal.Specifically, it sounds like the regulator is going to adjust itsproposed risk-weights.

Let's hope so. As much as journalists love controversy, nobodywants to see a return to the contentious days of corporatereform.