“The circumstances of the world are so variable that an irrevocable purpose or opinion is almost synonymous with a foolish one.” – William H. Seward

News that Sandy Weill, the engineer of the Travelers-Citicorp merger and former Citigroup chairman, is calling for a break-up of the biggest institutions hit our computer screens like a tsunami.  Who could have imagined such a change of mind?  Yet Weill seemed to be acknowledging that the recent near-meltdown on Wall Street was cause enough to reconsider his long-held position.  Many in the banking industry worked for decades to repeal the Glass-Steagall Act, but changed circumstances now suggest that it should be revisited.  We hope that in the realm of civil discourse and debate, people will always be allowed to change their minds as the situation evolves.  After all, as one wag said, “Change is inevitable – except from a vending machine.”
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Munn Testifies Before Congress in Opposition to Federalization of Consumer Credit

This week John Munn, Director of the Nebraska Department of Banking and Finance, testified on behalf of CSBS before the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.  The hearing was held to garner feedback on H.R. 6139.  If enacted, the bill would create a federal charter granted by the Office of the Comptroller of the Currency for those financial services providers offering short-term consumer credit products, such as payday loans and stored-value cards.

In his testimony, Munn outlined three areas of concern for state regulators.  First, the legislation would establish a federal business charter without meeting the necessarily high thresholds traditionally required by Congress for such a charter.  Second, the legislation would circumvent the ability of state regulators to establish and enforce laws governing financial services providers.  Finally, the bill would undermine the carefully structured state-federal balance in financial services regulation.  Grovetta Gardinner, Deputy Comptroller for Compliance Policy at the OCC, testified alongside Munn.  Gardineer expressed the OCC's opposition to the bill, noting both consumer protection and safety and soundness concerns.

Photo by Kristoffer Tripplaar

“As state regulators, we benefit from our proximity to the consumer transaction and to the communities served by the financial services providers,” Munn said in his testimony.  “We hear first-hand about the regulatory burdens, and we see up close the consequences of bad actors.  This bill takes this perspective out of the picture, to the detriment of the marketplace and of consumers.”

Munn’s full written testimony is available here.

A video of the full hearing is available here.
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Commissioner G. Edward Leary Celebrates 20 Years Leading Utah’s Banking Department

Most state banking supervisors serve at the pleasure of their appointing state governor.  As such, their fate lies with the governor too.  And with every new governor often comes a new appointment.  Contrary to this reality is Utah Department of Financial Institutions (DFI, or the Department) Commissioner G. Edward Leary, who has headed the DFI for 20 years.

Leary was first appointed Commissioner of the Utah DFI in June 1992.  He’s served five Utah governors and currently serves at the pleasure of Governor Gary Richard Herbert.  “It’s been a real privilege and a real honor to serve as commissioner for this long,” Leary said.  “I’ve had the opportunity to serve with five very different governors, but the mission to protect and preserve the safety and soundness of Utah financial institutions has always remained the same.” 

In setting out to accomplish this mission, Leary lead the Department to many milestones.  Under his leadership, the DFI received its first CSBS banking accreditation, certifying the Department’s adeptness and commitment to providing high-quality banking supervision.  The Department also became accredited by the National Association of State Credit Union Supervisors.  Leary worked hard at fostering meaningful relationships with state officials, fellow state banking regulators, and his federal counterparts.  However, what he is most proud of is his work to help improve the training and skill level of bank examiners.  “The quality, the education and the experience of examiners have dramatically improved over the years,” said Leary.  “The bar has been raised significantly and it is impressive.” 

Affectionately dubbed the “dean of commissioners” for being the longest-serving state banking supervisor, Leary is highly regarded by his peers.  “I admire Ed’s leadership,” said Mick Thompson, Commissioner of the Oklahoma State Banking Department.  “As Chairman of CSBS, Ed brought us to a new level in state banking supervision and we all appreciate him for that.  My main focus in life, however, is to remain commissioner until after Ed retires,” said Thompson, who is the second-longest serving commissioner, lagging behind Leary by only 90 days. 

Leary says over the years as commissioner he has enjoyed meeting and working with quality people that do great work.  “From commissioners of other states, to the examiners, and the staff at CSBS, all of them I have learned from, and their wisdom and guidance have been much appreciated,” Leary said.  

Leary served as Chairman of the CSBS Board from 1997 to 1998. He is also past chairman of the Federal Financial Institutions Examination Council's State Liaison Committee representing state banking commissioners.

The full audio recording of the interview with Leary is available here.
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They Said What?  Reactions to Sandy Weill Calling for the Break Up of the Big Banks

Wednesday morning on CNBC’s “Squawk Box,” former Citigroup Chairman and CEO Sanford “Sandy” Weill explained why he thinks the nation’s biggest banks should be broken up to separate traditional banking from investment banking.  During the interview, Weill said:

“What I think mostly is that there is such a feeling among people, among regulators, among the political system all over the world against the banking system, and I don’t think that’s going to change so soon.  So I think what we should probably do is go and split up investment banking from banking.  Have banks be deposit takers, have banks make commercial loans and real estate loans.  Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”

This remark represents a startling reversal, as Weill was a vocal supporter of the Gramm-Leach-Bliley Act in 1999.  Gramm-Leach-Bliley repealed the Glass-Steagall Act of 1933, which prevented commercial banks from engaging in brokerage and investment activities.  Weill’s comments caused an uproar on Wall Street and in Washington, D.C., causing regulators, politicians, pundits, and members of the industry all to weigh in.  Below is a sampling of some of those comments.

Remarks from the Regulators:

“There is finally a growing recognition among a wide range of market analysts, financial market participants and policy makers that the repeal of Glass-Steagall was a mistake.  It’s time now to restrict banks to core services.”
— Thomas Hoenig, Director of the FDIC

“Congress put in place limits on how large [banks] can get and deprived government of the ability to come in and rescue them from their mistakes.”
— Timothy Geithner, Secretary of the U.S. Treasury Department, in testimony before the House Financial Services Committee

Remarks from Former Regulators:

“So it is truly ironic.  But I obviously agree with him.  I think these banks are too big to manage centrally.  They’re too big to regulate, and they don’t produce good shareholder value, either.  There’s a lot of value to be had if they were broken up.”
— Sheila Bair, former Chairman of the FDIC, currently Senior Advisor of the Pew Charitable Trusts

“There is an irony.  [Weill] probably had a larger role than any other person in bringing down Glass-Steagall.  [But] there are lots of different points of view on this subject and we ought to have a good debate about it.”
— William Isaac, former Chairman of the FDIC, currently Global Head for Financial Institutions at FTI Consulting Inc.

“I was almost as astonished as I was when the Bernie Madoff scandal was revealed.  But this is a big and positive deal.  No one was more responsible for the repeal of Glass-Steagall than Sandy Weill.  And in my judgment, no one will be more responsible for the reinstatement of something that’s like … Glass-Steagall than Sandy Weill.”
— Arthur Levitt, former Chairman of the SEC, currently Senior Advisor to The Carlyle Group

Remarks from Congress:

“Sanford Weill is one of many banking industry experts who have observed that too-big-to-fail is often too big to manage….Allowing Wall Street megabanks to grow so large and over-leveraged that their downfall would send ripples throughout our entire economy isn’t fair to taxpayers, and it isn’t fair to mid-sized and community banks who don’t enjoy the implicit guarantee from the Treasury Department that comes with too-big-to-fail status.”
— U.S. Senator Sherrod Brown (D-OH)

“Isn’t it time to have a discussion and a debate about the reinstatement of Glass-Steagall?”
— U.S. Representative Walter Jones (R-NC)

“It is absolutely huge that Sandy Weill has called for the break-up of the big banks.”
— U.S. Representative Carolyn Maloney (D-NY)

“There are very credible establishment voices now saying we really gain little, if anything, from the size and complexity of these banks.”
— U.S. Representative Brad Miller (D-NC)

Remarks from Former Members of Congress:

“I don’t see any evidence that allowing [banks] to affiliate through holding companies had anything to do with the financial crisis, nor has anybody ever presented any evidence to suggest that it did.”
— Phil Gramm, former U.S. Senator (R-TX) and co-sponsor of the Gramm-Leach-Bliley Act

Remarks from Pundits and Journalists:

“Now you have the preeminent creator of the large financial conglomerate model agreeing that large banks should be broken up.  It’s going to make some people pretty upset, since he’s the one who created the current Citigroup model, and now he’s saying, ‘Look, we messed up.’”
— Michael Mayo, Analyst at CLSA Ltd. in New York

“To be fair, Sandy Weill saying break up the banks is kind of like Ronald McDonald saying don’t eat Big Macs.”
— Tweet by Ben White, Wall Street correspondent for Politico and author of “Morning Money” column.

Remarks from the Industry:

“I think it was a guy with a mask on who looked like Sandy Weill.  I’ve known Sandy for a long time and it didn’t sound like him to me.”
— Alan “Ace” Greenberg, former Chairman and Chief Executive of Bears Stearns Cos., currently Advisor to JPMorgan Chase & Co.

[If banks are broken up] “I think you’d look back 10 years from now and say, ‘Oh my God, what did we do?’”
— William Harrison, Jr., former Chairman and Chief Executive at JPMorgan Chase & Co.

"While I have great respect for Sandy Weill, I'm dismayed by his comments supporting the breakup of our country's largest banks.  As I've said in the past, the banking industry strongly believes that no bank -- or company -- should be too big to fail.  Moreover, these types of misguided proposals aren't the solution and would damage our still-recovering economy....Reducing the size of our largest banks would severely diminish their capacity to serve America's largest businesses, driving corporations to foreign competitors that would quickly move to meet their financial needs."
— Frank Keating, President and CEO of the American Bankers Association

“What is the risk of underwriting debt, underwriting equity, and providing [merger and acquisition] advice?  There is no risk.  Do you know how risky commercial lending is?  Traditional investment banking is less risky than commercial and consumer lending.  Exclamation point.”
— Richard Kovacevich, Chairman and CEO of Wells Fargo & Co.

Remarks from CSBS:

“The comments by Sandy Weill reinforce the need to address the too big to fail problem.  Mega-banks have dominated the regulatory philosophy and rule-writing, leaving community banks with hand-me-down, one-size-fits-all regulation.  If this problem is not address, I fear the community banks we so heavily rely upon as a nation will fall victim to regulatory schemes designed to mitigate risk at our nation’s largest and most complex institutions.”
— Greg Gonzales, Commissioner of the Tennessee Department of Financial Institutions and Chairman of CSBS.

“The comment by Sandy Weill reflects what I hear from many of my peers and many bankers.  The path we’re on is not good for our financial system and is not good for our country.  I have had concerns some U.S. firms are too big and complex to manage and regulate.  This is especially true as traditional banking operations and investment and brokerage activities were brought together in a single firm. The Dodd-Frank Act is an important step to resolving too big to fail by enhancing prudential standards and providing an orderly resolution regime for these banks.  However, if there is a shock that impacts several systemic institutions, I worry the provisions of Dodd-Frank will be insufficient.  A public policy debate on the systemic footprint of these firms, the activities they are engaged in, and the risk they pose needs to be held.”
— John P. Ducrest, Commissioner of the Louisiana Office of Financial Institutions and member of the Financial Stability Oversight Council (FSOC)

“There seems to be a growing recognition that today’s hybrid financial system—the merging of traditional banking and complex Wall Street finance—has questionable value and great risk.  And the greatest risk of all is that efforts to regulate this hybrid system’s complexity could have the result of killing the traditional banking system, which has served us so well. We need a system that allows for human judgment to make real loans to real people in real places and one that makes our real domestic economy prosper. We need a free enterprise system where failure has real consequences, but not systemic destruction.”
— John W. Ryan, President and CEO of CSBS

An excerpt from the Weill interview is available here.
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CSBS: Preserving the Dual-Banking System for 110 Years

The Conference of State Bank Supervisors celebrates 110 years of preserving the state banking system Monday.  For 110 years CSBS has been uniquely positioned as the only national organization dedicated to protecting and advancing the nation’s dual-banking system.  Founded in 1902 as a clearinghouse for ideas to solve common problems of state bank regulators, CSBS has evolved to become a recognized leader in promoting quality and effectiveness regulation and supervision in state banking and financial services.

The first annual meeting was held July 29 and 30 at the Hotel Cadillac in the City of Detroit.  During this inaugural meeting, state bank examiners set out to formally organize a group in order to “increase the usefulness and efficiency of the state banking departments and to promote the general welfare of the institutions under their supervision by securing a greater uniformity of methods among the departments and the laws of the various states,” according to official minutes from the 1902 meeting.  They named the group the National Association of Supervisors of State Banks (NASSB).

In 1971 NASSB changed its name to CSBS to better reflect the ongoing nature of the association’s activities.  CSBS supports the leadership role of state banking supervisors in advancing the state banking system and works actively to convene state and federal regulators, other state associations and industry to identify regulatory challenges and facilitate consensus.

“While much of the way we do our work has changed over the years, the mission remains the same,”   said John W. Ryan, President and CEO of CSBS.  “We support the leadership role of state bank supervisors.  So whether it’s enhancing professional development, fostering innovative state regulation and supervision, or promoting economic growth and consumer protection, CSBS continues to champion a system that offers competitive chartering options, efficient and effective supervision and a lower cost of regulation for all banks.

For more about CSBS visit www.csbs.org or read the CSBS 2011 Annual Report here.
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Around the States

ID: The Idaho Department of Finance will host its Senior Scam Jam seminar Aug. 9 at Idaho State University.  The free seminar will teach seniors what they need to be vigilant of fraud.  A series of speakers will discuss reverse mortgages, Medicare, and the different abuses targeted at seniors.  Read more here. 

ME: Maine's Department of Professional and Financial Regulation is highlighting a new Small Business Survey from the Department of Economic and Community Development (DECD).  The survey can be obtained and completed online at www.maine.gov/decd/survey.  Survey feedback will be used by the Governor LePage to address the needs of small businesses and enhance economic activity. Read more here.
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Around the Agencies

FDIC: The FDIC announced a series of outreach workshops to provide information on how to become an FDIC Investor and/or Asset Purchaser.  The FDIC is responsible for disposing of assets from failed banks in a cost-effective manner.  The FDIC has assets from failed banks available for acquisition by depository institutions, investors, and asset purchasers.  To ensure a diversity of participation in the structured sales program, the FDIC has encouraged minority- and women-owned investors and asset managers to participate and/or partner in bidding on the equity interests sold to investors under the program.  The workshops take place August 7 in Nashville and August 9 in Dallas.  Read more here.
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Around D.C.

CSBS: On Monday, CSBS announced the availability of public state regulatory actions on NMLS Consumer Access beginning July 23.  In addition, NMLS Consumer Access now directly connects the public to state agencies for the purpose of submitting a consumer complaint on a state-licensed company or individual loan officer.  “These enhancements to NMLS Consumer Access continue state regulators’ efforts in improving the information available about the companies and individuals that serve the American home-buying public,” said Robert J. Entringer, North Dakota Commissioner of Financial Institutions and Chairman of the State Regulatory Registry LLC.  “NMLS Consumer Access is now more transparent, user friendly, and a consolidated repository of information about state licensees.”  Read more here.
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Upcoming Events

August 2: The House Financial Services Committee’s Subcommittee on Domestic Monetary Policy and Technology will hold a hearing titled “Sound Money: Parallel Currencies and the Roadmap to Monetary Freedom,” Thursday at 10 a.m. in the Rayburn House Office Building. Read more here.
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Closing Comment

“New regulation may not always be popular, but, when crafted appropriately, it can effectively alter the actions of those financial institutions that follow low-road business models.”

Federal Reserve Governor Sarah Bloom Raskin, during a July 23 speech at the Graduate School of Banking at Colorado.
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Catherine Woody, Editor
Rockhelle Johnson, Writer
Edward Smith, Contributing Editor