A Former Wall Street Lawyer Facing Ethics Questions
J. Mark McWatters has had a long career as a lawyer and Washington, D.C. bureaucrat. While a partner at Patton Boggs, McWatters worked for some of the biggest players on Wall Street, including Goldman Sachs and HBK Capital Management. In 2009 he moved into government, serving as counsel for his lifelong friend and Chairman of the Financial Services Committee, Rep. Jeb Hensarling, a notorious anti-CFPB Republican from Texas. In 2014, McWatters was appointed to the board of the National Credit Union Association (NCUA) and was named Acting Board Chairman by President Trump in 2017. As the head of the NCUA, McWatters has consistently parroted industry concerns about federal credit union rules and publicly opposed the agency’s budget. Additionally, he has faced questions from Congress after the agency paid over $1 billion in legal fees.
McWatters was also nominated to serve on the board of directors of the Export-Import Bank, but the nomination was stalled over Republican opposition to the bank.
In January 2018 it was reported that McWatters may have violated ethics rules while serving on the board of the Financial Stability Oversight Council, which oversees financial markets to protect the economy from a 2008-like collapse. The ethical laps occurred in September when he cast the deciding vote to loosen regulations on AIG, a vote McWatters should have recused himself from given his personal holdings in the company.
Highlights: From Wall Street to the Swamp
McWatters Faces Ethic Questions After Vote to Loosen Regulations on AIG
McWatters apparently violated ethics rules by not recusing himself from a vote of the Financial Stability Oversight Council which “ended Federal Reserve scrutiny” of American International Group (AIG) in September 2017. At the time, according to his financial disclosures, “McWatters owned between $1,001 and $15,000 in AIG warrants” and “also held between $1,001 and $15,000 in regular AIG stock, which would be publicly traded.” [Victoria Guida, “Ethics oversight casts doubt on decision to deregulate AIG,” Politico Pro, 01/12/18]
McWatters Opposed Measure to Increase Lending to Small Businesses
J. Mark McWatters “opposed the creation of the Small Business Lending Fund,” which was designed to “help create jobs and promote economic growth in local communities across the nation.” J. Mark McWatters who served on the TARP Congressional Oversight Panel, “opposed the creation of the Small Business Lending Fund, arguing that providing financial institutions with capital at below-market rates could lead to ‘imprudent lending activity and, perhaps, the inflation of a series of government sanctioned and subsidized asset bubbles.’”[Nicholas Ballasy, “McWatters’ TARP Past: NCUA Board,” Credit Union Times, 01/08/14]
“Enacted into law as part of the Small Business Jobs Act, the Small Business Lending Fund (SBLF) is a $30 billion fund that encourages lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. Through the Small Business Lending Fund, Main Street banks and small businesses can work together to help create jobs and promote economic growth in local communities across the nation.” [Small Business Jobs Act Fact Sheet, Department of the Treasury, accessed 01/10/18]
McWatters Favored Using Optional “Guidelines” Instead of Actual “Rules” to Govern Excessive Risk Taking and Executive Pay on Wall Street
While serving on the NCUA Board, J. Mark McWatters asked if “the use of guidelines, instead of rules” would be a feasible approach to prevent “executives of large financial institutions from being paid in ways that encourage excessive risk taking.” In April of 2016, while J. Mark McWatters was serving on the National Credit Union Administration (NCUA), the Administration took up “a proposed joint agency rule under the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate in federally insured credit unions with assets of $1 billion or greater incentive-based compensation plans that encourage inappropriate risk-taking.” The proposal, “mandated by section 956 of the Dodd-Frank Act,” would have required “federally insured credit unions with assets of $1 billion or more to provide NCUA with information about the structure of future incentive-based executive compensation programs.” [Rules on Partial Occupancy and Incentive Compensation Proposed, National Credit Union Administration, April 2016]
Although he voted to approve the rule, McWatters expressed “concerns” with the proposal at the time. Specifically, he said, among other things: “Section 956 of the Act provides that regulators may address incentive-based compensation arrangements through ‘regulations or guidelines.’ Would the use of guidelines, instead of rules, offer a feasible approach to the implementation of Section 956? Could the NCUA issue guidelines if any of the other agencies adopt a rulemaking?”
McWatters concluded his remarks by noting that, “In reviewing the proposal it is critical to recall that credit unions were neither a perpetrator nor an aider and abettor of the recent financial crisis and, as I have stated on many occasions, it seems entirely inappropriate to hold the community to the same regulatory standards that may more appropriately fit the large money center or too-big-to-fail institutions.” [Statement of NCUA Board Member J. Mark McWatters on Section 956 of the Dodd-Frank Act Interagency Proposed Rule Incentive-Based Compensation Arrangements, National Credit Union Administration, April 2016 and J. Daniel Young, “NCUA Passes Incentive Compensation Proposal,” Credit Union Times, 04/21/16]
While McWatters was head of the National Credit Union Administration, he faced questions about the agency’s decision to authorize more than $1 billion in fees paid to two outside law firms.
As NCUA Chairman, J. Mark McWatters faced questions from Republicans about more than $1 billion in fees paid to two outside law firms. While he denied culpability for the fee arrangements, McWatters admitted the fees were “‘regrettably excessive.'” In March 2017, Rep. Ann Wagner (R-MO) sent a letter to the National Credit Union Administration questioning “‘The payment of over one billion dollars in legal fees to private counsel raises serious questions about the propriety of the NCUA’s legal fee arrangements, including whether the arrangements were in the best interest of the NCUA.'” McWatters said, “‘The agency should continue its efforts to negotiate a fair and transparent modification of these legal services agreements, where outside counsel has received, to date, over $1.1 billion in fees.'” McWatters added that, “‘In my view, these fees are regrettably excessive, yet our good faith efforts to reach an equitable accord with the recipient law firms have not succeeded.'” [David Baumann, “McWatters: Corporate CU Recovery Legal Fees ‘Regrettably Excessive,'” Credit Union Times, 08/03/17 and Victoria Guida, “GOP lawmakers probe $1B payment from regulator to two law firms,” Politico, 08/02/17]
McWatters Has Been Criticized for Failing to Show Up at Work
In February 2016, NCUA Chairman Debbie Matz took “a dig at McWatters’ attendance record.” She said that her staff could have addressed issues McWatters raised during a meeting if he “were in the office ‘more than three days a month.'” During a February 2016 NCUA board meeting where members sparred over a member business lending proposal, Chairman Debbie Matz took “a dig at McWatters’ attendance record.” She said that if McWatters “were in the office ‘more than three days a month,’ the staff could have discussions on the matters McWatters brought up.” [John Reosti, “Member Business Lending Vote Prompts Strong Response from Bankers,” American Banker, 02/22/16; J. Daniel Young, “NCUA Board Passes Final MBL Rule,” Credit Union Times, 02/18/16]