Matz Focusing on Risk, Regulatory Burdens and Consumer Protection
Credit Union Times: What's the biggest difference between being at the NCUA now than when you were there the last time?
Debbie Matz: The economy is in more serious condition and the issues are more intense and more immediate. The initial agenda is not my own, topped by getting the proposed rule on corporate credit unions out by the end of the year.
CU Times: In May when testifying before a House subcommittee, Board Member and former Chairman Fryzel outlined some principles that the rules would contain. Are you in agreement with those?
Matz: Pretty much. We won't prescribe how many [corporate credit unions] there will be, but we will set out parameters for how they should function. One area was risk, if we had stronger regulations about the concentration of risk and more closely regulated the types of securities, it might have had an impact on the current situation.
CU Times: Will there be minimal requirements for corporate credit union board membership?
Matz: We will regulate governance to some extent, in terms of who can sit on their board, because there is a lot of blame to go around. There were mistakes made by the boards of corporates and of the natural person credit unions. Both kinds of boards made unwise decisions. But right now, we don't want to get into the governance of natural person credit unions.
CU Times: You've come back to the NCUA after serving as a senior executive at a credit union, what surprised you about being on the receiving end of NCUA regulations?
Matz: I found that the NCUA examiners we dealt with had respect for the credit union and what we were trying to do and that respect went both ways.
CU Times: CUNA and NAFCU and individual credit unions often complain that they find the regulatory burden to be excessive. Did you find that the case and will that change your approach to regulating?
Matz: Yes, the burden was excessive, but we didn't always blame the NCUA. The biggest burden is the BSA and that's not an NCUA regulation. Many of the changes have to be done statutorily, not by the NCUA. My goal is to do the best job we can and meet safety and soundness requirements. I like the approach to regulation articulated by Board Member and former Chairman Fryzel that regulation should be effective and not excessive.
CU Times: Do you expect you'll be going to Capitol Hill a lot?
Matz: I worked there for many years. and I am comfortable there and have many contacts. On Friday, we had a meeting with representatives of CUNA and NAFCU and some credit unions so I could better understand the compliance difficulties of the CARD Act [provisions that included a 21-day notification requirement on open-end statements.] I plan to go to Capitol Hill because members of Congress need more information about the unintended consequences of the bill.
CU Times: One of the items on President Obama's agenda for restructuring regulation is the proposed creation of a new regulatory agency for consumer financial products. What do you think of that? And will that impact the proposal that Fryzel had put forth to create an Office of Consumer Protection at the NCUA?
Matz: We will move forward with the office, regardless of what happens with the Consumer Financial Protection Agency. Credit unions have always been consumer oriented. Our goal is to have a place where consumers can go and for the agency to be seen as consumer friendly.
CU Times: Back to the corporates. What will the impact on credit unions of some of the larger credit unions not wanting to recapitalize the corporates?
Matz: It's a changing environment, and we can't hold on to the past. Corporate and natural person credit unions will have a large part in deciding what they want the corporates to look like and whether corporates are just going to be a clearinghouse. Whether or not a credit union decides to invest in the corporates will be their decision, but if the big ones don't, it will affect the system.
CU Times: One of the big issues is the expansion of member business lending. What do you think of the legislation that has been introduced on this?
Matz: It's a regulatory issue, not a statutory issue. There was no ceiling until H.R. 1151. The NCUA is capable of determining what level is appropriate. It's very risky, and we are aware of that and regulate it accordingly, but I don't think there needs to be a statutory cap.
CU Times: What should Congress do?
Matz: It's not my highest priority, but if there are credit unions hampered by the statutory cap, that's an issue. Member business lending should be done in a regulated environment, and we are keeping a close eye on credit unions that do it. Some have too many business loans in their portfolios. Credit unions need to really understand the riskiness of business lending and have people with significant experience in that area overseeing it and they also have to do due diligence.
CU Times: Due diligence is something the agency often emphasizes, why is that such a problem at some credit unions?
Matz: Credit unions tend to trust one another, and when they are asked to go in on something with another credit union, they assume the other person has done due diligence. They need to do their own due diligence and not just rely on a third party.
CU Times: You're an economist, what's your prediction about the future of the economy in general and for credit unions?
Matz: It's anyone's guess. The next year or two will be a shaking out period for credit unions. There will be fewer credit unions. Some have gotten in over their head because of bad loans. Not necessarily because of bad decisions they made but because of members losing their job. We will do everything we can to help credit unions get over the hump.
CU Times: What about small credit unions? That was one of your big areas of interest last time you were on the board?
Matz: I continue to care about them. We will continue to work with them and do workshops for them and other things to help them survive. They play an important role.
CU Times: Are there things the agency can do, and help credit unions do, to avoid being as adversely effected the next time there is an economic downturn?
Matz: Nobody could have anticipated the severity of the situation, but we could have done things to lessen the impact, such as prevent the concentration of risk, which I spoke about the last time there were rules approved. We should also encourage credit unions to sell more of their mortgages. So many credit unions are holding mortgages on their books and that could spiral, especially if interest rates go up.
CU Times: As chairman, you'll have more influence than when you were a regular member. How do you expect you will use it?
Matz: I look forward to working collegially and getting them to buy in to my ideas. I hope that internal communications will be more effective so that the board's views and policies are communicated to the examiners. I also note that our staff has been working extremely hard-sometimes nights and weekends-and it is important to let them know that we appreciate what they're doing and let them know I consider them our number one asset. I plan to work with the employees' union in partnership and not have bickering.
CU Times: Will we see some personnel changes?
Matz: There are some openings-such as the heads of human resources and the office of corporate credit unions-and they will be filled. But I don't anticipate other changes.
CU Times: We've covered a lot of ground, are there other issues you'd like to see the agency focus on?
Matz: The issue of chartering and field of membership, making the process of converting to a community charter more standardized. I also want to encourage credit unions to be sure that they are reaching out to everyone in their field of membership. It's both a good business practice and is what credit unions are supposed to do.
CU Times: What's the biggest difference so far you've found as chairman?
Matz: The chair sets the agency's tone and is its chief spokesman. You get to shape the issues.
CU Times: Is the Sunshine Law, which forbids two members from meeting in private an obstacle and would you try to get the law changed to expand the board's size.
Matz: My staff has talked to the staff of other board members, but some things get lost in translation. But adding to the board's size isn't a top priority at this time.