STATE OF NEW YORK
EXECUTIVE CHAMBER
GEORGE E. PATAKI, GOVERNOR

Press Office
518-474-8418
212-681-4640
http://www.state.ny.us

FOR RELEASE:
IMMEDIATE, Thursday
May 6, 1999

GOVERNOR ANNOUNCES FINANCIAL MODERNIZATION BILL
Legislation Would Protect Consumers, Enhance Competition for Financial Services

        Governor George E. Pataki today unveiled the New York State Financial Services Modernization Act of 1999, designed to ensure that New York will remain the world’s financial capital by providing a competitive and attractive environment for both domestic and international financial institutions while maintaining and enhancing important consumer protections.

        "Modernizing our Banking Law and Insurance Law is critical to ensure that New York will remain the world’s financial capital," Governor Pataki said. "This legislation would maintain New York’s position as the world’s financial capital and strengthen our tradition of strong consumer protections.

        "By providing a competitive and attractive environment for both domestic and international financial firms, this bill would enhance financial services available to New Yorkers while positioning New York’s financial services industry to benefit from federal modernization efforts currently underway in Congress," the Governor said.

        The Governor’s bill would repeal New York state statutes that mirror the federal Glass-Steagall Act, a Depression-era banking law that prohibits certain affiliations between banks and securities firms. The bill would also break down barriers to affiliations with insurers and other financial services providers and would usher in a new era for New York’s financial services industry.

        The Governor’s proposal is similar to the financial modernization initiative being undertaken at the federal level. This initiative, known as "H.R. 10," has been considered during the last several sessions of Congress. H.R. 10 would modernize federal banking law in several ways, but would mainly expand the permitted affiliations between financial services industries.

        Passing legislation to modernize the banking industry in New York would allow many financial services entities in the state to reap immediate benefits through expanded powers necessary to compete in the global marketplace.

        Citigroup Co-Chairmen Sandy Weill and John Reed said, "We welcome Governor Pataki’s strong leadership in this important national debate. We have encouraged Washington to reform the regulation of the financial services industry and bring it from the 1930s into the 21st Century. New York has a proud history as an innovator and incubator for many regulations later adopted by the federal government.

        "Today, Governor Pataki has kept that faith necessary to maintain New York as the home of the financial services industry for the nation and the world," Mr. Weill and Mr. Reed said. "His vision and leadership will chart a new course that reflects the changing realities to today’s competitive marketplace. We hope New York’s example galvanizes Washington to enact a comparable bill, but if that effort fails, it’s comforting to know that New York stands ready."

        Chase Manhattan Bank Chairman and CEO Walter V. Shipley said, "Chase enthusiastically supports Governor Pataki’s proposals. The economic vitality of New York State is directly linked to the successes of its financial services industry. This proposal puts New York in the forefront in support of the changes needed to enable its financial services companies to continue to compete effectively in the changing global marketplace."

        Merrill Lynch and Company, Inc. Chairman and CEO David H. Komansky said, "We commend Governor Pataki for this far-sighted initiative, which will benefit every New Yorker who invests in the securities markets, holds an insurance policy or has a checking account. Moreover, it will help New York advance its position as the global leader in financial services."

        The bill would make significant changes in the insurance industry by removing existing New York State law barriers that limit the ability of property/casualty insurers to own banking and banking related subsidiaries. The bill also increases the percentage of admitted assets that property/casualty insurers may invest in all subsidiaries to 20-percent. In 1998, similar restrictions on the ability of life insurers to invest in banking subsidiaries were removed.

        The Governor’s legislation underscores the State’s commitment to the concept of functional regulation of financial services by requiring banks that engage in the insurance business be subject to regulation by the Insurance Department and all applicable insurance laws and regulations. Subsidiaries of insurers that participate in banking will be subject to the supervision of the appropriate banking regulators and all applicable banking laws and regulations.

        Modernization of New York law would also be advantageous, even in the absence of a change in federal law, where banks are only subject to New York’s laws and regulations. For example, if a New York-chartered bank was a wholesale bank and not FDIC-insured, it would not come under certain restrictive federal laws. For such wholesale banks, which do not take retail deposits, the powers provided by this legislation are important and attractive.

        If H.R. 10 does not pass Congress, then current federal law restrictions on the activities of New York banks will remain unchanged. Under the Governor’s proposal, New York banks that are members of the Federal Reserve System would still be subject to the federal Glass-Steagall restrictions on affiliations with securities firms, and other New York banks would remain subject to the restrictions on subsidiaries’ activities under the Federal Deposit Insurance Act.

        Similarly, if this bill passed authorizing New York banks to engage in insurance underwriting, FDIC-insured State-chartered banks would still be prohibited from insurance underwriting because this activity is directly prohibited by current federal law for FDIC-insured banks and their subsidiaries.

        Federal limitations also may apply to state banks that are members of the Federal Reserve System or which have a holding company that is subject to regulation by the Federal Reserve System. In these cases, if an activity is prohibited under both federal and state law, repealing state law prohibitions will be of no effect because such banks will still be prohibited by federal law from engaging in these activities.

        Acting Superintendent of Banks Elizabeth McCaul said, "New York’s banking system, dating back to 1851, has served as an important historical model for United States banking policy, and the measure unveiled today will continue that tradition. More importantly, it immediately offers New York’s financial industry, the backbone of our state’s economy, the types of legal and operational structures that are enjoyed elsewhere in the world, permitting New York institutions to better compete in the global economy."

        Superintendent of Insurance Neil D. Levin said, "This bill is an important step in leveling the playing field within New York’s financial services industry. Most states allow insurance companies to invest in banks and it is essential for New York’s insurers to have these same tools so that they can compete effectively, both with their counterparts in other states as well as more generally in the rapidly-changing financial services industry."

        Specifically, the Governor’s bill would:

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