Superintendent Neiman Addresses the New York Bankers' Association's CEO Forum on Issues of Global Competitiveness for New York Financial Institutions
May 11, 2007
I must admit, I was a little hesitant in accepting this speaking invitation since only started on March 5.
One part of me felt that it was too premature to address a room full of bank CEO’s. I am still learning the department and its staff and goals. However, I hope my 30 years in the industry will help me hit the ground running. Therefore I agreed with your “persuasive leadership” that there was benefit to speaking here today.
I thought it might be helpful for you to understand who I am, my background and experience, my initial thoughts on priorities for the department, and what I see as a critical role for the department in addressing competitiveness for New York financial institutions.
I believe I have been preparing for this job my whole career. My introduction to financial institutions really began as a congressional intern – working my way through college – for the then-House Banking Committee under Chairman Wright Patman, one of the last great populist chairmen and an outspoken advocate for the dual banking system.
Who would have thought that I would be going back to that same committee, 30 years later, only now as Superintendent, to address many of the same issues on behalf of the dual banking system?
My first job was as a lawyer with the Comptroller of the Currency. After the Comptroller, I spent 10 years at Citibank in a number of legal and compliance positions. In retrospect, I worked on many critical projects – not always evident to me at the time – that would impact not only Citibank – but the industry as a whole for years to come. For example, I spent one summer – thinking I might be wasting my time – drafting an application to the Fed to interpret section 20 of Glass Steagall to allow Citicorp to engage in securities underwriting and trading.
Another project – which I recalled last weekend – was my involvement in developing an online global trading tool called “Street Sense.” The product was never marketed, but I did win the Kentucky Derby last Saturday when Street Sense paid $11.80 to win.
My point in reminiscing about my Citibank days is not only to share my background – but also to highlight the power and creativity of New York banks and of those who work for them. It is also to stress the necessity of banks and regulators particularly in New York to identify opportunities and global trends and to continue to foster that competitiveness and entrepreneurial spirit.
After Citibank, I spent 4 years with Price Waterhouse in Washington as a regulatory consultant with a group of former colleagues from the OCC. I focused on bank compliance for consumer, trust and securities activities. Much of my consulting time spent in New York was on conducting compliance reviews for us and foreign banks for anti-money laundering and fair lending, or for preparing the bank for examination or to assist the bank in corrective action steps as the result of deficiencies.
One of my clients was Larry Waterhouse, who founded Waterhouse Securities, the discount brokerage firm. I helped Larry create a bank to market deposit and credit products to his brokerage customer base. When we received the charter (yes, it was an OCC charter), I felt like I had given birth but someone else was going to raise the child. So I went to work as General Counsel of Waterhouse.
The firm was sold 2 years later to Toronto-Dominion Bank and I had the honor of helping build the firm into a major online financial services firm. TD Waterhouse was sold to Ameritrade last year and I remained with TD as President and CEO of TD Bank USA, the bank I had created. When I left to join the Banking Department it had $15 billion in deposits.
Many people ask why I made this move; why give up a bank presidency to join state government?
In fact it was the first question by the Governor’s selection panel which included Diana Taylor. I will tell you exactly what I told them.
The night before my first interview, I told my 9 year old daughter Haley that I had an interview for an important job with the Governor’s office. Haley asked, “Dad, will you still be the bank president?” I said no. She asked, “Dad, are they going to pay you more money?” I said no. She then said “Dad, I would think about it if I were you.”
I told the Governor that I had indeed thought a lot about it. In fact, I could not think of a more exciting time to join state government or a more important time to become a state regulator
Over the past 2 months, in addition to getting to know the department, its divisions, and its people, I have also been reaching out to as many constituent groups as possible. This includes consumer and advocacy groups, trade associations – including several meetings with your President Mike Smith, fellow regulators and individual institutions. My main objective was to understand their businesses, their priorities, and their challenges.
In addition to larger gatherings like this, I am also meeting in smaller groups – such as a meeting in Buffalo a few weeks ago that Mr. Wilmers from M&T Bank was kind enough to host, where we invited a dozen banks in the region – some large, some small and even one just 45 days old. I used the opportunity to candidly ask them about the Banking Department. Questions like:
- What do we do well?
- Where can we improve?
- What do you think about the quality and experience of our examination staff?
- What is our Department’s knowledge of your business?
- How is our turn-around time on applications?
- How well do we interact with other agencies?
- What can the Department do to help make you more competitive?
In my view, this information is vital for me, the Department, its mission and its people.
In addition I view my role as twofold – first as the head of a premier supervisory and prudential regulatory authority, and second as a member of an active administration with the ability to help foster economic development, to insure competitiveness, to influence policies and to help shape legislation at the state and even federal levels.
As some of you may know, the Banking Superintendent also serves on the board of the Empire State Development Corporation. It should be no surprise that a strong state banking system and the continued growth of its financial institutions is a critical component to economic development throughout the state. I know that Dan Gunderson and Pat Foye, Chairs of ESDC, will be discussing their roles in the context of a discussion on competitiveness. I’ve assured Dan and Pat that the Banking Department can and will contribute to their mission.
One such contribution is through Department’s Banking Development District program. Under this program, banks that establish branches in under-banked areas and develop products tailored for those communities are eligible to receive below market rate municipal deposits from the state comptroller.
This is one small example of the type of program I want to encourage: the Banking Department, working together with banks and communities in a creative effort. So if you have any other ideas, my door is open. You have my phone number and e-mail address and I welcome your collaboration.
During the past 2 months I have spoken to a number of former superintendents as to what I might expect in my new role. In almost every instance, I was told that some type of incident or event, sometimes a major bank merger, conversion or financial crisis, struck within the first few weeks of their tenure.
I suspect that the recent developments in the subprime market, coupled with the Supreme Court’s recent decision in the Watters v. Wachovia case, will prove to be my initiation. Two events that will not only have a lasting impact during my term, but that may result in significant market and structural changes long after I am gone.
With respect to subprime issues, shortly after my arrival, the Governor created an Interagency Task Force which I chair, to develop a strategy for New York. The agency heads of this task force have been meeting weekly since April and are coordinating efforts to assist both current borrowers facing foreclosure and future borrowers, without negatively affecting the housing market and the availability of credit.
We know that in New York different regions often have different issues. We therefore kicked off a statewide campaign to halt abusive lending transactions through a series of summit meetings that bring together community groups, regulators, law enforcement and industry members.
We conducted the first summit on April 11 in New York City and we’re working with the city of Buffalo to conduct our next one this summer.
In addition to reviewing efforts at the state level, we are also reviewing -- in light of the preemption issues -- the need for legislation at the national level for statutory anti-predatory standards.
I look forward to having the opportunity to guide this task force and the HALT summits to address the unique problems facing New York borrowers and lenders.
Preemption and Watters v. Wachovia
This leads me nicely into the other significant event – the Supreme Court decision in Watters v. Wachovia. I believe this decision will further impede local efforts to respond quickly and with innovative measures. It is likely to have a significant adverse impact on the federal-state balance and the dual banking system.
In terms of competitiveness, the decision further undermines the competitive equality between state and national banks. In addition to making the national charter more attractive, the decision is likely to chill state regulation and/or encourage the migration of state institutions to states with the less regulation. No state wants to put its own state institutions at a competitive disadvantage. Certainly, with New York’s vibrant financial markets this is a critical issue for us.
As evidenced by my remarks about the subprime issues, the decision threatens to further undermine the vital role states like New York have historically played in the area of consumer protection, particularly with respect to mortgage fraud and predatory practices.
I do believe that Congress must act to preserve and promote states’ roles in this regard.
But how Congress can act is a question that many government agencies, legislators, community groups and industry members are all pondering.
One thought is to look at other regulatory models that could be considered as an enhancement to the dual banking system and not a hindrance. Consider the Federal Trade Commission model where either states or the federal government (or both) have the ability to step in when they become aware of a violation. And both entities agree that they each enhance the others’ ability to be an effective regulator.
This is the approach Congress adopted when it enacted the privacy provisions of the Gramm-Leach-Bliley act. The Sarbanes amendment permits states to apply stronger privacy protections if they believe it’s appropriate. Several states such as California have adopted additional privacy requirements which are applicable to all financial institutions, including national banks.
When you look at the current issues facing subprime borrowers, it’s hard to argue that we don’t need multiple levels of enforcement – to put it quite succinctly, we need more cops on the beat, not less. The goal is never to unduly burden our financial institutions but to make sure there is a baseline high standard – which we all want. Again, regulation should never be a competition in laxity.
The Watters case is at the heart of the discussion about competitiveness. Though we are discussing it in the context of the dual banking system it raises the same types of issues when we talk of global competitiveness and competition between global institutions and global regulators.
Everywhere we look, the country and the world are growing smaller, and telecommunications will continue that for the foreseeable future. We all know that regulatory agencies are struggling to adapt to this reality. State regulators are asking: “Can the dual banking system respond to the needs of the financial world in a positive way? Or does pre-emption mean the eventual death of the dual system?”
While I will not tolerate a race to the bottom in regulation, I do believe that New York, in order to remain a strong financial center must allow its institutions the ability to compete – with prudent regulation.
- Not duplicative or uneconomic regulation.
- Not competing with other states or the federal regulators
- But all of us working together to create mutual recognition of regulatory regimes and harmonization of regulation.
I am for this reason interested in exploring state and regional compacts and model laws. I intend to look into these efforts to see if New York can take a leadership role.
In another attempt to seek to eliminate competitive disparities between state and national charters, I am pleased to announce that our efforts to establish a more streamlined and direct Wild Card statute have been introduced to the New York legislature this past month. I am very hopeful that we will get passage this year and I will be speaking to the Chairs of the Senate and Assembly Banking Committees regarding the importance of this legislation - both to the dual banking system and to aiding in the retention of our state-chartered institutions.
Competitiveness in the U.S. -- and particularly in New York -- requires that regulators work together to see what we can do to help our own New York banks to compete. This is true on the international level, on the federal level, and on the state level.
I can speak for this state: We intend to reach out to others to make the regulatory system work and to keep New York competitive.
So after looking at these significant – even historical – issues facing me as I begin my new role, I thought I should conclude my first speech to the banking industry with some thoughts on what kind of superintendent I want to be.
- I want New York to continue in the forefront of prudential supervision working with industry to ensure a regulatory system that works while not sacrificing compliance.
- I want New York to continue in the forefront of the effort to protect consumers particularly with regard to mortgage fraud and predatory lending.
- I want New York to continue to seek the counsel and guidance of all comers, consumer groups and lenders, policy makers and academics, leaders of the financial industry and individual consumers and
- I want to help keep New York as a global financial center competitive and vibrant.
I am honored by the Governor's confidence and I know that I need everyone's help to do this job and do it right.
Please continue to bring me ideas and solutions to problems you see so that together we can build a stronger and more competitive financial industry for New Yorkers and the nation.