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Superintendent Richard H Neiman Addresses the Institute of International Bankers on Managing
the Competitiveness of the New York State Charter for International Financial Institutions

June 13, 2007


Thank you, Larry, for that kind introduction. I’m so pleased to be here with you this afternoon to discuss an issue that is high on my agenda as Superintendent: maintaining and enhancing New York’s historic role as the premier center for the financial services industry.

The international banking community has played, and will continue to play, a large part in realizing this goal by furthering the competitiveness of New York as a hub for global finance.

New York State is already the charter of choice for the vast majority of the foreign banking organizations that operate in the United States. I like to think that this choice is – in good part - a reflection on our value as a regulator.

However, we know that the Comptroller of the Currency is aggressively marketing the federal branch license as an alternative to state licensing. So we understand that we need to continue to work hard to earn and maintain your confidence in us.

Your ability to select Charter type is at the core of the Dual Banking system. It results in a healthy competition between regulators which promotes innovation and responsiveness by each regulator while discouraging unreasonable or excessive regulations.

Managing the competitiveness of the state charter and, by extension, the vitality of the New York capital markets, is a far-reaching task that demands a comprehensive vision. And so, I thought it might be helpful for you to know a little bit more about who I am - my background and experiences - in order to better understand my vision in approaching this critical process.

I started my career as a lawyer with the Comptroller of the Currency in Washington, DC under John Heimann, also a former Superintendent. After four years, I joined Citibank as Counsel and Compliance Officer in their Money Market Trading Division, where they traded government, municipal and money market instruments. In my last position at Citibank, I served as General Counsel to its Global Equities Group, which was Citibank’s effort at the time to expand brokerage and trading activities in the UK and Far East.

I spent much of my time in London in the late ‘80’s during the time of Big Bang, when the UK was following the US with the elimination of fixed commissions and the adoption of brokerage rules along the lines of our NASD structure.

When John Reed exited that business in 1989, I returned to DC to join some former colleagues from the OCC who had established a regulatory consulting practice at Price Waterhouse. Most of my time there was spent developing a compliance practice to support US and foreign banks. I conducted numerous regulatory reviews – and drafted several compliance manuals – for New York branches of foreign banks.

One of my clients was Larry Waterhouse, the founder of Waterhouse Securities, one of the nation’s first discount brokerage firms. As a consultant I worked with him to establish a national bank to support his retail customer base. I left Price Waterhouse in 1994 to join Larry as his first General Counsel and participated in the introduction of internet trading, which revolutionized retail brokerage. In 1996, Waterhouse was sold to The Toronto-Dominion Bank and my role as General Counsel was expanded to include assisting TD expand its brokerage business globally, as well as develop its Global Compliance and AML Program. After TD Waterhouse was sold last year to Ameritrade, I remained with TD as President and CEO of TD Bank USA, the bank I had helped create back in the early 90’s.

I must admit that I have a special connection to the IIB - and it’s not only because I spent more than 10 years with an international bank. My first day as Superintendent was March 5th. However, rather than showing up at my office at One State Street, I accepted an invitation by your very persuasive CEO, Larry Uhlick, to join your annual meeting in Washington, DC. Despite my initial pangs of guilt, on reflection I can not think of a better introduction to my first two days on the job.

So, based on my past experience, I feel like I’ve been preparing for this responsibility my entire career. And I will certainly be putting those prior experiences to work going forward. Although the task ahead of us is challenging, I can’t think of a more exciting or important moment to be a state regulator, particularly in New York.

In the time we have together today, I’d like to share my initial thoughts on the Department’s priorities as I see them, including our key role in addressing the competitiveness of a New York license for international financial institutions. In thinking about these priorities, I find it useful to consider three questions:

First: “What are our strengths as a regulator?”

Second: “What are the issues facing us as a regulator, and you as regulated entities, to assure that New York remains the Charter of choice?”

Third: “How can we modernize and improve existing supervisory frameworks?”

This may seem like an overwhelming list of questions to tackle, but it’s not as if we’re starting from scratch in developing the right approaches. The Department has a long history of leadership in designing innovative regulatory responses that meet the needs of international financial institutions.

1. Strengths

Beginning with our strengths - I’d like to highlight a few of the distinctive efforts that I believe have added value to the state charter option, particularly for foreign banks and branches.

Our first strength is: Knowledge of your business. The Department is the primary U.S. regulator of over a hundred branches and agencies of foreign banks, which we have been licensing since 1912. Consequently, we understand the needs and issues facing foreign banks operating in the U.S. market.

We understand the businesses you conduct and the challenges you face in serving your customers. I have spent much of my first 100 days meeting with your country heads or head office executives. I encourage this ongoing dialog and I look forward to getting to know many more of you.

The second strength is: Cooperation with home country supervisors. We have a long successful tradition of interaction with supervisors from 45 countries. It is critical for us to work constructively with home country supervisors, to help reduce duplication in oversight whenever possible.

It also helps us to develop a more comprehensive and detailed understanding of an institution’s cross-border operations. The level of engagement among supervisory authorities has been increasing over the past few years, and I am proud to say that we have been able to formalize our relationship with many home country authorities.

The Department currently has cooperative agreements with authorities in 17 foreign countries with diverse regulatory structures, ranging from the UK and Germany in the EU to Hong Kong, Brazil, and Qatar.

These MOUs, information sharing agreements, and policy statements foster a more integrated and streamlined approach to supervision. Just last week, we met with representatives from additional nations interested in adopting similar joint frameworks.

We also recently facilitated the signing of a “home/host/host” information sharing agreement that brought in our colleagues from the Federal Reserve.

Our third strength is: Cooperation with domestic regulators. Within our region, we meet semi-annually with supervisors from Connecticut, New Jersey, the FRB, OCC, and the FDIC in what we call our “tri-state meeting.” This more local dialogue is an important opportunity to discuss home country economies, liquidity needs, or proposed enhancements to our supervisory requirements. Cooperation among domestic regulators also works to ensure that we have a streamlined and coordinated inter-agency examination method that reduces regulatory burden.

The fourth and final strength I will cover today is: Our Framework for Prudential Supervision. Any banking regulator must balance the need to ensure compliance with its laws and avoid creating the moral hazard that can arise from lax enforcement, with the goal of ensuring public confidence in the integrity of the banking system. I believe the New York Banking Department strikes an appropriate balance between enforcement and prudential supervision. We genuinely want to help you comply with our laws.

We are looking to build on our strengths in all of these areas, especially in developing additional and closer ties to home country supervisors. But, while New York is clearly still ahead, there is no room for complacency. As the market changes, certain challenges are emerging that should prompt us to respond -- and respond, not with alarm, but with resolve.

2. Current challenges

That brings me to my Second opening question related to the challenges facing us as a regulator and you as regulated entity.

It is no secret that the competitiveness of both the state charter and the New York capital markets are under increasing pressure. But, I believe the Banking Department has unique skills and perspectives that argue well for New York’s continued leading role as the licensing jurisdiction for non-U.S. banks. And, the healthy competition you provide can also fuel innovation and positive growth.

But in order for these challenges to have a creative outcome and lead to innovation, there are several issues that need to be addressed. Let me highlight just 4 issues: Basel – AML –Regulatory Harmonization between States as well as within New York.

1. The issue of Basel II standards. We know you are concerned with the approach the U.S. federal bank regulators have taken on Basel II. We know that you are concerned because if the U.S. adopts a different capital standard from the one that applies in your home country, you will need to comply with inconsistent standards.

Since the Department is the regulator of branches and agencies from home countries that have adopted Basel II, we have been very active at a national level in developing the US response to these standards.

2. Issues around AML and BSA compliance - a topic that continues to occupy a significant amount of time for both regulators and the industry.

In order for New York to remain a premier market, we must promote investor confidence that our institutions are taking appropriate steps to protect their businesses from being used as conduits by criminals.

And for you, too, having a reputation as a bank with a robust BSA/AML compliance regimen is an important first line of defense against fiscal and reputational risk. We encourage you to fully document your risk assessment and monitoring process.

Intuitive judgments may be correct, but unless you document them, they may not comply with the requirements.

Having seen AML Compliance from numerous perspectives – industry, regulator and consultant – I have a special appreciation for what you are living with. I hear regulators confirm that the standard is a risk-based approach, not one of zero tolerance. I also hear institutions, particularly foreign banks, challenging whether a risk-based approach is really being employed - and whether enough consideration is being given to the enormous efforts and resources being dedicated by institutions.

I intend to continue to focus significant attention in this area and to continue the dialogue with my federal counterparts to assure that the right standards, assessments and remedies are being utilized.

3. The issue of Regulatory Harmonization between states.
In order to maintain the utility of state licensing for non-U.S. banks, I believe the states must develop consistent regulatory standards that reflect current thinking on “best practice” standards.

I also believe it’s important for the states and the federal, and even international, regulators to develop harmonized national and international standards. The goal is to reduce the barriers to cross-border operation, unless compelling local considerations exist that would dictate a local variation.

4. The issue of Regulatory Harmonization within New York.. Another issue that we’ve begun to look at is whether the regulation of financial institutions in New York is too fragmented. Unfortunately, different financial regulators may apply different standards to substantially similar products, depending upon whether the company offering the product is a bank, an insurance company, or a securities firm.

For example, banks issue certificates of deposit, while life insurers issue guaranteed investment products. There is also an analogy between securities firms, that market bonds, and life insurers who sell annuities.

These overlapping state supervisory structures may reduce New York’s appeal, especially to global companies that have already experienced the benefits that can accompany a more consolidated regulatory approach.

To the extent that these structures treat functionally equivalent business activities inconsistently, we may undermine both our intended consumer protection purpose and our competitiveness.

This last point transitions nicely into my third opening question as to

3. “How can we modernize and improve our existing supervisory framework.”

One important step toward regulatory reform within New York State is Governor Spitzer’s recent announcement of the appointment of a Blue Ribbon Commission to “Modernize the Regulation of Financial Services.”

This panel, which is being chaired by the Superintendent of Insurance Eric Dinallo, brings together a prestigious group of executives, consumer organizations, elected officials, and the heads of state agencies overseeing the industry. As a member of the Commission, I look forward to working with Eric and the rest of the team as we strive to promote continued economic innovation.

I want to emphasize that this new commission is no mere think tank; although the complexities of the issues require deep analysis, the goal is to produce tangible results in the form of an action plan for change. And as new winning strategies are identified, we hope to implement them on a rolling basis. While the commission has just been announced, there are several areas that are likely to merit review:

  • Getting a holistic review of how all financial institutions and products are regulated at the state level and whether the existing structure is effective and optimal.
  • Identifying regulatory hurdles in bringing new products to market
  • Eliminating redundancies, gaps and inefficiencies between and among agencies and
  • Assessing whether the approach to regulations should be more “principal based” or “prescriptive based” - or a combination of the two.

The goal is to identify ways in which regulatory powers can be integrated, rationalized and changed in order to promote economic innovation, while protecting consumers.

I hope and expect that each of you, as well as the IIB, will not hesitate to make your views known and I look forward to your input and involvement with the Commission.


Although I have covered three very important and expansive questions today, I want to leave you with this unifying thought:

Yes, challenges exist and need to be managed proactively.

But, the state charter and the New York market remain in a vibrant and leadership position.

Our focus on international finance and your choice of New York as the location for your foreign banking organizations have combined to keep us at the forefront together.
Finally, I want to hear from you. Please, let me know how the Banking Department and the Governor’s Commission can contribute to your growth in the US.

I’m interested and open to hearing your suggestions - and I encourage you to be creative. I believe that ideas directly from the industry can help us to design the most efficient and effective regulatory framework. Together we can build a supervisory structure which continues to foster innovation, competition and economic growth.

Thank you for the opportunity to speak with you today.


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