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Speech
Superintendent Neiman Addresses the New York Bankers Association Annual Meeting


October 26, 2007

Good morning. Thank you Mike.

And I am very pleased to be with you here today.

The last time I spoke to your Association was at your CEO forum on Global Competitiveness in early May, just a few weeks after I had been confirmed.

I used that speech primarily to introduce myself to your organization. I talked about how I was still relatively new and in a listening and orientation mode- getting to know the Department, its mission, and its people.  I also mentioned that I’ve been reaching out to the industry, community groups and not-for-profits.

I have been trying to meet with as many bank executives as possible. In May, I referred to a lunch meeting that I held in Buffalo with a group of 15 state bank CEOs to introduce myself and also to hear their issues. I asked about the following:  

In the end of August, I continued that luncheon format in Rochester and expanded the participants to include national banks as well. 

After my orientation phase which lasted about three months, I then moved into a more action/results driven phase where I began to formalize my priorities as Superintendent.

While we want to remain flexible, I felt it important to articulate our priorities and commit to them.  I particularly wanted them to be clear for the Department staff.  I have shared them with the Banking Board, and provide updates on a regular basis.  I also provide a monthly update to the Governor.

This morning, I’d like to share my priorities with you as well, along with some thoughts on the changing federal/state regulatory paradigm in light of the subprime crisis. 

A. THE FIVE CORE PRIORITIES
1. To begin with, we’re working to enhance and promote the New York State charter.
We’ve taken a number of steps to strive for parity between charter types and ensure that the state option remains competitive.

2. Second, we’re strengthening our consumer protection and enforcement efforts.   Especially in relation to non-depository mortgage bankers and brokers.

3. For our third priority, we’re looking to expand economic development and economic inclusion.
Both through efforts to expand traditional banking into unbanked areas as well as efforts to expand the critical role banks – particularly community banks – play in enhancing economic development throughout the state.
 

4. Fourth, we’re leading the effort to reform the state system for financial regulation.
We need to ensure that our regulation of all financial services- whether related to banking, securities, or insurance—is consistent and optimal. 
With that in mind, Governor Spitzer created a Commission to “Modernize the Regulation of Financial Services.” The Commission is charged with identifying ways for New York to retain and enhance its status as a world financial center and bring our regulatory structure into the 21st Century.
The Department is gearing up to support the project. We’ve already formed an in-house committee to perform a top-to-bottom review of the banking law.
As a member of the Commission, I look forward to your input.

5. And finally, to support these initiatives my fifth priority is to build on staff development.
We’re working to recruit and retain the best people for the job. I’ve been very impressed with the caliber of our examination staff, they’re key to the superior service that we offer our supervised institutions.
We’re reviewing our hiring and training policies, and I would like to consider upstate hiring for examiners and trainees. 
To remain the premier agency, we need to retain quality.

B. SUBPRIME AND THE ROLE OF THE STATES
Before I close I’d like to spend a few minutes discussing the subprime crisis in the context of the evolving relationship between state and federal regulators. The subprime issue is one that has been consuming a great deal of my time.
1. Overview of the subprime problem
Let’s step back for a moment and consider the origins of the problem more fully.  The causes are diverse; that’s part of the reason it’s so challenging to resolve.  The subprime situation touches all market participants.

I think we should dig deeper into this issue of regulatory involvement.  Not for the purposes of assigning blame, however, but in order to consider how regulators can work together more effectively going forward. To begin with, it’s useful to consider the historic role of the states.

2. The history of state consumer protection
The states have always been active in financial regulation. And historically, states like New York have been zealous in protecting consumers.   
The first major actions against mortgage lenders, like Delta Funding, Household and Ameriquest, were state initiatives.   The NY attorney general and the Banking Department played in a lead role in all of them.  The Ameriquest settlement last year was a landmark victory for consumers, with $295 million of the $325 million settlement being earmarked for borrower restitution.   
And New York was one of the first states to recognize the subprime storm clouds gathering on the horizon. Our anti-predatory lending law in 2000 was among the first in the nation.
Other state and local jurisdictions followed suit, and a multitude of anti-predatory lending laws developed across the country.  These laws may not have been perfect.  But they were sincere and relevant attempts to protect consumers and to elevate the mortgage lending issue in public debate.
It has been suggested that these various state responses became a compliance nightmare for industry.  I’m not here to debate whether that was the case or not.  One thing I do know is that unfortunately too often the federal regulators – instead of cooperating and joining the state –  thwarted state efforts and tried to block their efforts by asserting preemption.  
But I think Barney Frank’s bill is a good start and it should be a lively debate over issues like duty of care, preemption, and assignee liability.
We also need a concerted effort toward greater cooperation between federal and state regulators.  And I am hopeful in this regard. I was glad to hear OTS Director John Reich’s remarks this morning about cooperation between the OTS and state supervisors.

3. Examples of cooperative state solutions
Let me share with you three examples of how state regulators are cooperating in developing solutions.

CONCLUSION

I’ve outlined some concrete steps that we have taken to protect consumers and restore market discipline.  There’s still much work to be done, but the subprime situation will be resolved.  We may not be able to say when, but I’m confident it will end.  

For now, we can all admit that the depth of the subprime problem took us by surprise, at least to some extent.  The rapid growth of the subprime sector had been a warning sign to many.  But it mushroomed into a global problem almost overnight, at a speed that alarmed us all.  I hope that lessons learned from this turmoil in the mortgage market will leave us all better prepared to anticipate future challenges.

We never know where the next test for the market will come from.  There are so many areas to watch- whether it’s in credit card lending, student loans, mobile banking technologies, or reverse mortgages marketed to the elderly.   There’s always the potential for misaligned interests to crop up, and regulators need to stay ahead of the curve.  We can meet these challenges best when there is cooperation, between the state and federal government and among the various states.

And constructive relationships between regulators and industry are equally vital.  That’s why I’m so pleased to be at this convention, and I hope that you will share your ideas.   I also look forward to providing continuing updates on the Department’s priorities and current activities in the future.    The issue of the moment may change, but my open door policy is a standing invitation. 

Thank you.

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