New York governor Eliot Spitzer and his insurance superintendent
Eric Dinallo are aggressively
moving to shake up the regulatory regime in New York State. This is probably
a good thing.
A new panel chaired by Dinallo will include the chief executives of Goldman
Sachs, Citigroup, AIG and MetLife, and the heads of several New York-chartered
banks and representatives of consumer and New York business groups. It will
also include the four state agencies overseeing the industry. It will look at
New York’s regulatory regime, and ask whether it makes sense to move to a principles-based
approach.
There are no easy answers here. Spitzer, remember, is still notorious on Wall
Street for disinterring the ancient Martin Act and using it to prosecute all
manner of transgressions which were more properly under the purview of the SEC
or other regulators. So the New York attorney general is likely to always have
a lot of power under any regime, and Wall Street is going to want a lot of comfort
that a capricious attorney general won’t use a principles-based approach to
come down hard on banks for political reasons. After all, the AG is elected,
unlike say the Financial Services Authority in the UK.
What’s more, even if New York does move to a principles-based approach,
that really wouldn’t reduce the number of rules its banks operate under, since
they will still have rules-based federal regulation. The hope, of course, is
that the Feds too will move to a principles-based approach. But I’m not holding
my breath.