Credit unions that can't convince an NCUA examiner theyunderstand how certain features might affect the performance of anasset-backed investment may have to exponentially increase itsrisk-weight within the next year.

That's according to the regulator's proposed risk-based capital rule, approved by the NCUA board Thursday.For federally-insured credit unions with more than $50 million inassets, such asset-backed investments would be assigned a 1,250%risk weight if the rule is finalized as proposed.

The NCUA included a 10-category table in the proposed capitalstandards that outlines the risk-weights assigned to each assetclass.

Investments in CUSOs and mortgage servicing assets would beassigned a 250% risk-weight under the rule. Corporate credit unionperpetual capital, investments with a weighted average life of morethan 10 years and member business loans that exceed 25% of assetswould all be assigned a 200% risk-weight.

The category of assets weighted 150% includes investments with aweighted-average life of greater than five years but less than 10years, several classes of delinquent loans, real estate-securedloans greater than 20% of assets and member business loans greaterthan 15% of assets and less than 25%.

Also risk-weighted more than 100% would be real estate-securedloans greater than 10% of assets but less than 20%, which would beweighted 125%.

A long list of additional assets would be risk-weighted 100% orless. Corporate credit union nonperpetual capital, private student loans, foreclosed and repossessed assets,delinquent first mortgage loans, loans held for sale and otherassets were included in the 100% risk-weight category.

Cash on hand and government-guaranteed assets would be the leastrisky assets, weighted 0%.

The proposed rule would include real estate loans that reprice,refinance or mature within five years or less; the current standardof risk-weighting does not. That means current standards do notaddress a large amount of real estate loans, the rule said, andcredit unions build real estate loan concentrations withoutappropriate capital.

“We have already learned from the failures of Cal State 9,Chetco and Telesis, which cost the credit union industry more than$350 million, that our 15-year-old minimum standard can be improvedto better protect the industry,” said NCUA Chairman Debbie Matz ina release Thursday. “This modernized regulation would allow NCUA toenforce examiners' recommendations that credit unions holdinghigher risk on their books should hold more capital. We'reproposing a flexible, forward-looking standard that recognizes thecurrent realities of the industry and quantifies the risks oftomorrow and beyond.”

The comment period for the proposed rule will be 90 days. Matzsaid in addition to the extended comment period, the NCUA isplanning a phase-in period of at least one year for the finalrule.