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NCUA Examination and Insurance Director Larry Fazio on Friday answered questions from NAFCU staff on the agency's revised risk-based capital proposal, or RBC2, in a NAFCU webcast moderated by Senior Vice President of Government Affairs and General Counsel Carrie Hunt.

Fazio detailed the various differences between the original and revised proposals, including the increased asset-size threshold for "complex" credit unions to $100 million and the reduced risk-based capital prompt corrective action threshold for "well-capitalized" credit unions to 10 percent.

"We estimate that 93 percent of all credit union investments would receive a zero or a 20 percent risk weight, and 96 percent of all investments would have a hundred percent or less risk weight," Fazio said. "So, virtually all credit union investments are going to have relatively low risk weights. There's only handful that would be above the hundred percent."

NAFCU Director of Regulatory Affairs Alicia Nealon and Chief Economist and Director of Research Curt Long also participated in Friday's program.

Asked by Long about the number of downgrades in capitalization statuses expected under the revised proposal, Fazio said it that wasn't clear yet but that he would expect about 20 downgrades. He said without the changes made to remove interest-rate risk considerations from the rule, that number would likely be "north of 100." NCUA is expected to issue a separate IRR proposal later this year.

The NAFCU representatives also posed questions about the cost of NCUA's proposed two-tier RBC ratio for well-capitalized and adequately capitalized classifications; the legality of the rule itself; how NCUA will assess capital adequacy through the supervisory process; concerns about the examination process; and opportunities for regulatory relief in the face of increased capital requirements.

Fazio, comparing the proposed RBC system to the current one, said the system in place now takes a "backward approach." He explained, "We want to make sure that larger, more complex credit unions remain well-capitalized as they grow and expand. We do want a more modern approach to calculating risk capital."

NAFCU published a Regulatory Alert last week on RBC2 and is seeking members' input by April 3. It also released its new member-only risk-based capital calculator with a feature that NCUA doesn't include on its own version: five-year forecasting based on estimated return on assets and asset growth rates.