Forkner on the Future of State Regulation
Prepared Remarks for Albert J. Forkner
Chairman, Conference of State Bank Supervisors
Commissioner, Wyoming Division of Banking
2017 State-Federal Supervisory Forum
New Orleans, Louisiana
May 25, 2017
Good morning, and welcome to the final day of the 2017 state-federal supervisory forum. I hope everyone has enjoyed the conference so far, and that you’ve had time to enjoy beautiful New Orleans as well.
I am Albert Forkner, commissioner of the Wyoming Division of Banking, and the new chairman of the Conference of State Bank Supervisors. And while I would have loved to be there in person to deliver this speech, my daughter is graduating from high school this week. So as you can imagine, this is an incredibly exciting, emotional and life-changing event for me…and for her as well.
So, yes, I am proud and honored to be the new chairman of CSBS, but I am even more honored to be Tina’s husband, and father to three great kids who have all been very supportive of my career and participation in CSBS…even if they don’t all understand what exactly it is that I do.
I want to thank the Wyoming Division of Banking staff for all of their excellent work. My staff is the foundation of the Wyoming Division of Banking, and it is because of them that I am able to serve as chairman. I want to thank all of the past CSBS chairs, many who are in the room today, for their leadership and their role in making CSBS a central force in financial regulation and public policy.
I also want to recognize and thank our Immediate Past Chair, Mr. Charles Cooper of Texas, for his leadership this past year. A year ago, Charles asked us to “stay true to our mission, support communities, and bring perspective and leadership where it is needed.” Whether it has been regulatory relief for community banks, protecting consumers against bad actors or bad regulation, or championing our bold, new Vision 2020 for state regulation…Charles has been a true leader. And he has my thanks, appreciation, and respect. So, thank you, Charles.
While I appear today in the virtual world, our concerns as state regulators are very much in the real world:
- Whether banking is becoming too disconnected from the communities they serve
- Whether families and small businesses – no matter where they are – have equal access to banking services that are safe and fair
- Whether fintech companies can make the banking system better – or become a Trojan Horse that takes advantage of consumers
- Whether the federal government is a partner that supports a diversified banking system -- or a Club of State that enforces bigness and uniformity
These and other concerns are on my mind. And I know they have been on your minds, too. Now is the time we come together to address them. Now is the time for action.
And that is precisely what we are doing at the state level. We have committed to grabbing the patch-work quilt…shaking off all the old, negative dust…and transforming it into a regulatory system that empowers as well as protects. We are moving toward a modernized system of state regulation and a modernized partnership with federal officials:
- One that ensures there is a diversity of credit and banking services in every community
- One that empowers federal policymakers with our data, insight and expertise
- One that partners with federal colleagues to right-size regulation
- One that makes multi-state regulation a more seamless experience
- And, finally, one that sets a new, high standard for state supervision
Over the next year and beyond, here is what you can expect from CSBS and state regulators.
To ensure that credit is available in neighborhoods big and small, urban and rural, we will help community banks to strengthen their business. To us, effective regulation includes providing banks with business tools, not just regulatory rules. That’s why, through CSBS, the states have mounted an aggressive effort to arm banks with tools and research – ones to better manage the risk exposure to cybersecurity and money-laundering, comply with the Bank Secrecy Act, and even share services with other banks to remain competitive. We are driven by the belief that it is in the national interest to prevent the hollowing-out of community banking.
Next, to ensure that bank regulation supports small banks as well as big ones, we will provide our federal counterparts will data, insight and expertise. Our research partnership with the Federal Reserve will continue to unearth data on community banking – shining light on those working in the trenches, wading through the morass of regulation, and coping with compliance costs approaching $4.6 billion every year. Yes, that’s “billion” with a “b.” In addition, through our roles in the FFIEC and FSOC, we will help federal regulators identify areas for improvement, like capital simplification and streamlined Call Reports.
At the same time, we will work with those in Congress to reform bank regulation laws. Through congressional debate over Dodd-Frank reform or the Choice Act, we will advocate for common-sense reforms. That does not mean we should relax regulation or supervisory approaches for their own sake -- or certainly across the board. Instead, it means we must get rid of the one-size-fits-all approach to financial regulation. I often hear that getting regulation right is complex. Well, here in Wyoming, the more complex the problem, the simpler the answer. When it comes to getting regulation right, just agree to our common definition of community banks or come up with one that’s better. Take these banks out of the regulatory regime designed for big banks. And then cut the cord. We’re not talking rocket science, folks.
Now, we cannot tell federal officials how to do their job without turning the mirror on ourselves. And my message to my fellow state regulators is direct – we need to up our game. The financial system is evolving, and we need to evolve with it. As state regulators, we have a common mission -- ensuring financial safety and soundness, protecting consumers, and encouraging the health and prosperity of local economies. We must apply this mission to the financial system of tomorrow, not yesterday. So, what does that mean?
To ensure that customers can benefit from more sources of banking services, we must make multi-state regulation a more seamless experience. Vision 2020 guides our efforts here. As CSBS members, we have committed that, “by 2020, state regulators will adopt an integrated 50-state licensing and supervisory system.” Enabling businesses to achieve scale while respecting local authority must not be mutually exclusive. Indeed, it is how we will modernize federalism.
How do we get there?
- First, we are organizing a fintech advisory panel to help us identify points of friction – and solutions -- in the multi-state experience
- Next, we are creating working groups to better standardize examinations of non-banks
- And then -- and this is a big one -- we are designing the next generation of the NMLS – our common platform for state regulation. Our goal is ambitious: to completely transform the state regulatory process. To move us away from a focus on discrete processing tasks to -- instead – identifying higher risks that need our intervention.
But that’s not all.
To effectively regulate new kinds of banking entities, we also must modernize state banking departments. CSBS has taken our accreditation program and enhanced it with new tools and training. Going forward, we will leverage a new online system to set higher standards and take action based on analytics. That includes identifying the expertise needed for our individual departments…knowing how to address our weaknesses…learning from other departments…and enhancing our regulatory regimes. So much of state regulation rests of the shoulders of our examiners and other staff. And we must empower them with knowledge and tools.
So, that is our game-plan. Work to ensure broad access to credit…partner with federal officials to right-size regulation…and modernize the state regulatory system.
As we move forward, we know that some forces in Washington will press for a more centralized role in federal regulation. We have already seen the OCC propose a new national bank charter for non-banks. Others might dust off an idea from the past -- a single federal regulator for all FDIC-insured banks for example. And the Treasury Secretary is currently looking at the financial regulatory framework.
Now, I do not pretend to know how all this might play out. But, here is what I do know. The dual banking system has served our nation well across three centuries. Through this system, we have balanced the need for limited federal action with respect for state laws. We have been able to construct a system of two, equal parts. One that recognizes consumers are best served by regulation that is designed and enforced closest to them. And two, our needs for system-wide matters that require federal leadership.
In fact, our regulatory system reminds me of our state motto here in Wyoming. Our motto is two words: “Equal Rights.” It is a reference to our leadership – dating back to the 19th century -- to support the women’s suffrage movement. And this meaning remains true today. But I believe “equal rights” applies to financial regulation as well.
- To a dual banking system where federal and state regulators perform different but essential roles
- To a regulatory system where all of us support the smallest community bank just as much as we do the biggest bank
- To a diverse financial system that supports farm lending in Rural America as well as neighborhood revitalization in our cities
- To technology-enabled solutions that bring new levels of scale and access while ensuring local accountability
- To a regulatory system where safety and soundness and business growth are compatible with each other
Folks, we are in this together. State regulators oversee 78 percent of all banks in the United States. And federal regulators oversee about the same percentage of bank assets. Those of us who are state regulators, we need to act more uniformly. Modernized financial services requires modernized regulation. Those of you who are federal regulators, recognize that Washington is not the answer to every problem. In state regulators, you have a partner that offers local insight and expertise.
So, with knowledge of the issues before, with actions plans at the ready, and with “equal rights” as our guiding principle, let us move forward. Together.
Thank you for listening. I hope you enjoy the rest of the forum.