Commissioner John P. Burke Opinion Article by
John P. Burke, Banking Commissioner
on Financial Services Reform

Published in Hartford Business Journal -
January 24, 2000


It’s fitting that a new millennium ushers in sweeping changes to the financial services industry. One-stop shopping is now touted as the new wave of the future.

After several failed attempts, Congress was able to pass The Gramm-Leach-Bliley Financial Modernization Act of 1999, a financial services reform bill that was signed into law on November 12, 1999. The law is complex with sweeping changes affecting every segment of the banking industry, from community banks to mega banks. It repeals certain provisions of the Glass Steagal Act, which in 1933 forced the separation of the banking and securities business, and reforms the Bank Holding Company Act to allow for the creation of financial holding companies (FHCs.) These FHCs now can own insurance, banking and securities firms, preempting state laws which would prohibit such affiliations.

The Act also addresses a consumer’s right to privacy and calls for the quick adoption of regulations to govern the privacy policy of all financial institutions. Changes to the Community Reinvestment Act make up a section of the new law, as does the preemption of state law regarding banking and insurance activities. It even deals with electronic funds transfer rules, specifically in a provision requiring disclosure of ATM surcharges at the time of a transaction. ATM surcharges were prohibited in Connecticut until the state Supreme Court recently cleared the way for banks to impose the additional non-customer fee.

Thankfully, a number of the important aspects associated with this massive, multifaceted law will be phased in over time. This will give the Department of Banking an opportunity to thoroughly review the 140 sections of the Act, determine the impact it will have on our state laws and regulations and develop a process to deal with the changes.

An easy way to deal with the changes is to wait until federal regulations corresponding to the Act have been written and then mirror our state regulations to what the feds do. Or, we could initiate another re-codification of Connecticut’s banking laws by working closely with the state’s Law Revision Committee and a task force of lawyers, investment bankers, insurers and the insurance regulators.

I have another three years to serve as banking commissioner and, with a little luck, whatever changes may be required will be done on my watch. And, whatever changes are implemented, should be done in such a way that the integrity of the state banking system be kept intact and not routinely jeopardized by federal preemption.

During the 1990s, preempting state law has been the hallmark of incumbent federal bank regulators at the Office of the Comptroller of the Currency and Office of Thrift Supervision. This preemption centralizes authority, control and leverage in Washington, D.C., rather than within the boundaries of the state. Federal preemption is supposedly done in the name of efficiency, free enterprise, good government and "apple pie and motherhood." Not from where I sit.

Surely, in some instances, it may be a hindrance to business if multiple state laws have to be considered when setting up operations. However, no industry has been able to convince me that dealing with varying state laws is cost-prohibitive. I empathize with the multi-state businesses that have to deal with conflicting and different state laws and with 52 different commissioners who bring to the office varying biases. Nevertheless, these same companies are generating more profits than ever before. And they are making money by providing a myriad of products to more customers than they ever would have dreamed of a decade ago. I’m not sure if these companies really want regulatory relief, or if they have something else in mind, like self-regulation.

Federal preemption of state law has been an issue for bankers, securities professionals and businesses in the consumer credit industry. Now, with the passage of the omnibus financial modernization bill, the insurance industry and its connections to banking and securities, becomes a greater target as well. I have tried to be open-minded on the subject, but I can’t comprehend how a centralized authority, on a national level, could be more responsive to the needs of consumers who are located all across the country. The needs of someone in Connecticut might seem trivial when you have someone in Washington, D.C. looking at it through a national telescope.

My sense is that any regulatory agency, state or federal, should not only attempt to make doing business less bureaucratic but at the same time should not expect to become a profit center by creating a prohibitive fee structure. Instead, a regulator’s primary role should be to protect consumers from poor management, or even mismanagement, of the regulated industry and to provide for a consistent and convenient means for addressing problems. The regulator should be more than just a mediator. It must have the necessary leverage to correct an injustice. That empowerment can be in the form of licensing, registration, examination, and even in the levying of monetary penalties for infractions of laws or regulations.

For better or worse, financial reform is here to stay. The law gives credence to the Citicorp model where banking, insurance underwriting and brokerage activities will be housed under a financial services holding company roof. Charles Schwab Corp., the prominent discount brokerage, just announced a deal to buy U.S. Trust Corp. and create the first FHC under the terms of the new law. Such mergers will continue to be commonplace and may even accelerate as the large mutual companies, both banks and insurers, convert to stock organization.

The big question, which has yet to make it to the top of Regis’ million-dollar mark, is, "will the consumer of the 21st century prefer one-stop shopping?"

At the Department of Banking, we will proceed as quickly as possible to understand the changes that will be brought forth by the new law and to amend state laws and regulations, keeping in mind that we must retain sufficient state authority and the enforcement powers that are consistent with our goal of protecting Connecticut’s consumers.

Contact the Banking Commissioner