Why the Matz-McWatters Feud Might Be Good For Credit Unions

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ALEXANDRIA, Va. — The recent sniping between NCUA Chairman Debbie Matz and board member J. Mark McWatters may have garnered attention, but former board members and others suggest this could actually be a good thing for credit unions.

If nothing else, one former board member says it's positively tame compared to what occurred in the late 1990s.

According to Geoff Bacino, an NCUA board member from 1999-2001 and now a partner at Bacino & Associates in Washington, the late 1990s saw "legendary fights" between then-NCUA Chairman Norman D'Amours and Board Member Yolanda Wheat. Those fights, he said, "culminat[ed] in Norm getting up and storming out of a board meeting and then having somebody from the general counsel come in and take the tapes that the board secretary recorded the meetings on. That's how bad it got."

Compared to that, the spats between Matz and McWatters are downright friendly, he suggested.

Bacino spoke to Credit Union Journal following a week in which the war of words between Matz and McWatters escalated beyond just differing regulatory and political philosophies.

Matz, a Democrat, and McWatters, a Republican, have differing opinions that have shown up during McWatters' brief tenure on the board. He was the lone dissenting vote — a vote that also fell along party lines — against the agency's most recent budget proposal, has claimed that NCUA is ignoring the illegality of its second risk-based capital proposal, criticized what he called NCUA's "FDIC-centric, one-size-fits-all" approach to regulation, and has been vocal in supporting bipartisan legislation that would require NCUA to hold public budget hearings, a move Matz has come out against.

However, things came to a head recently when McWatters told the Pennsylvania CU Association's annual meeting that the regulator was treating credit unions "as Victorian era children — speak when you're spoken to and otherwise mind your manners and go off with your nanny."

In that same speech he also blasted what he called NCUA's "imperious 'my-way-or-the-highway' approach" to regulation.

After news broke of McWatters' criticisms, Matz fired back, saying in a statement that "Professor McWatters would be better served by stepping down from his ivory tower and working with his NCUA Board colleagues to make policy rather than make headlines."

Following Legislators' Lead?
Though Congress has pressured the agency recently to be more transparent — including holding public budget hearings — Bacino quashed the notion that any of this will reflect poorly on NCUA with legislators. "If the members of Congress honestly looked at it, they'd say 'They're behaving the same way we are.'"

John McKechnie, a former NCUA and CUNA staffer who is now a partner at D.C.-based consulting firm Total Spectrum, reminded that some of these disagreements have come about precisely because the board is designed to have members from different political backgrounds working together.

"It's not unusual, nor is it a bad thing, to have substantive policy disagreements on a board such as NCUA, particularly when the board is structured to have representation from both parties," McKechnie. "This is symptomatic of the fact that you have two NCUA board members with divergent views on regulatory policy. That's not a bad thing — as a matter of fact, it could be a healthy thing, especially if it leads to a broader set of ideas being incorporated into regulatory policy."

But can what's taken place recently between Matz and McWatters really be called "substantive policy disagreements"? McKechnie said observers will have to see past that.

"When you look at the discussions the NCUA board has had on the budget and on risk-based capital, I think the substantive policy differences are there on display," he said.

McKechnie agreed with Bacino that these spats won't have a long-term implication.

"Anything that promotes serious discussion about issues and anything that promotes honest debate and deeper examination of the policy issues always has to be good for credit unions," he said.

Insider's View
Michael Fryzel, a former NCUA chairman who served on the board with Matz, told Credit Union Journal that far from being a bad thing, these exchanges can give outsiders a better understanding how the board works.

"More things go on at NCUA than just the dull board meetings," he quipped adding that because board members oftentimes work through their senior policy advisors, this public bickering "provides a good perspective for the industry to liven up conversation."

Far from causing Congress to look negatively upon the regulator — "Congress can look at themselves first and perhaps make some corrections there before they look at other agencies," Fryzel said — these public exchanges could help enlighten legislators.

"What I think generates congressional action to help credit unions is this type of environment," he said. "This open expression by board members as to their true feelings about how an industry needs to be regulated and what changes are necessary. It's clear there are real differences … but this is going to benefit credit unions in the long run."

'Cordial Relationship'
Despite the public bickering, Matz insisted in an interview with Credit Union Journal that the two "have a cordial relationship."

"I've always had a very collegial relationship with all of the board members I've been on the board with, and that includes Democrats & Republicans," Matz said. "I'm very proud of that. I've always reached out to them, and we've always worked well together. Sometimes things in print seem a lot worse than they really are."

McWatters, in a separate interview, also dismissed the notion of any rift between the two.

"It's a collegial relationship, a professional relationship," he said. "Any focus on these internecine issues among board members doesn't serve a constructive purpose, because it misdirects the debate here, and the debate … concerns NCUA policy. To put it in a nutshell, this is not personal with me, and I very much doubt that it's personal with the chair and the vice-chair [Rick Metsger]."

More Washington Dysfunction?
Despite their reassurances, CU Journal pressured the two to answer whether this kind of public sniping sends the wrong message to Congress.

"I don't feel like it's a reflection on me if the tone is not satisfactory," said Matz. "I feel like I do have a very good relationship with members of Congress on both sides of the aisle, and we have serious, substantive conversations."

McWatters responded: "It sends no message at all. To the extent that it sends anything, it's that these guys at NCUA are involved in what they're doing; they're engaged. There is a debate in Congress on these same regulatory philosophies. If you see what's going on in Senate Banking and House Financial Services [Committees], it breaks much the same way. All we are doing is playing out our little drama on a much smaller stage than is going on currently in Congress."

But if the two board members can't get along, isn't that another example of Washington dysfunction?

"As far as I'm concerned, I work well on both sides of the aisle," said Matz, pointing to working relationships with previous NCUA board members Dennis Dollar, JoAnn Johnson and Michael Fryzel. "I believe I work well on both sides of the aisle, and when somebody wants to play a constructive role, I'm happy to join in discussions with them and work with them."

For his part, McWatters said that NCUA is just one part of a larger discussion about income inequality in the United States, and offered the example of U.S. Sen. Elizabeth Warren and U.S. Rep. Jeb Hensarling as corollaries. The two of them, he said, "may appear to be at polar opposites, but in many respects they are speaking the same language."

Finding Common Ground
Matz deflected questions about how the two might get their relationship back on track, and said she is more focused on accomplishing her agenda of regulatory modernization, citing last month's FOM expansion, removal of limits on fixed assets, expanding the definition of what makes a "small" credit union, and more.

But her opportunities for further advancing that agenda could have an expiration date, given that her formal term as chairman has expired, and she currently serves at the pleasure of the president. But that hasn't changed the way she views her job or how she interacts with her fellow board members, she said.

"I don't think the fact that my term has ended has influenced what I say or how I say it," said Matz. "I'm known to speak my mind."

Similarly, McWatters said the relationship remains on track, albeit with differences of opinion.

"This is not personal," said McWatters. "This is strictly business. It's just a difference in regulatory philosophy. There is room for common ground and I think we're making a lot of progress there."

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