New York Gov. Eliot Spitzer, who rose to political prominence by uncovering wrongdoing on Wall Street, Tuesday proposed overhauling how the state oversees financial firms to reflect their consolidation.
Business lobbyists and some politicians say tough U.S. rules drive initial stock listings and other lucrative financial businesses overseas, jeopardizing New York's standing as a top financial hub.
In an interview with CNBC, Gov. Spitzer said, “The objective is to make sure New York remains the financial capital, and that the financial markets in New York are the most transparent, most honest and most desirable – both for investors and for the equities companies, insurance companies, commercial banks and entities of any sort, who want to use New York as a home and as a platform” for their endeavors.
New York's banking and insurance regulators and attorney generals are among the nation's most important state watchdogs because it is home to so many financial giants. And federal
regulators sometimes heed New York developments, as the former state attorney general showed with his Wall Street probes.
The Democrat, who became governor in January, told reporters a new commission he has created will recommend how the now-outdated regulatory system should be overhauled by June 30, 2008.
The current framework was devised when federal laws, including the 1933 Glass-Steagall Act, curbed banks' commercial activities, and banks, insurance companies and securities firms
did not share corporate parents.
But in 1999, the Depression-era federal banking law was repealed. And financial firms now compete globally, not nationally, and offer what Spitzer called a full array of services.
"It no longer makes sense to regulate each of the separate areas as an independent business endeavor," the governor said.
"We are bringing different measures of risks across various investments which are being made by different companies, and it no longer provides any logic, and it has become, I believe, an
impediment to some business done here in New York State."
Spitzer said the new panel, led by Insurance Superintendent Eric Dinallo, will draft a more coherent regulatory system that also will make the state more competitive. It will examine, for
example, whether New York should adopt a principle-based framework, instead of a rule-based system, he added.
Spitzer said, “We want to ensure that the regulatory framework is an affirmative one,” and not viewed as “hostile or incoherent” by domestic and foreign firms.
Maurice “Hank” Greenberg, former CEO of insurance giant AIG, was once Spitzer’s adversary when the ex-attorney general targeted him for investigation. But Greenberg, now the chairman and CEO of CV Starr, said he agrees with Spitzer’s proposals.
Greenberg told CNBC, “Change is necessary. We’re losing IPOs to London and Hong Kong. More public companies are going private.”
The CEO believes “the best model is the U.K.,” where regulators do not have direct subpoena authority. Such a legal buffer is “conducive to having companies list and grow their business there,” he said.
The United Kingdom's Financial Services Authority uses a principle-based system. U.S. business lobbies complain it is more costly to comply with the rule-based regulations favored by the U.S. Securities and Exchange Commission.
After years of grappling with New York's banking and insurance giants as the state's top prosecutor, Spitzer as governor has taken a more collegial approach. Earlier this year he lent his support to a regulatory reform panel pushed by New York Mayor Michael Bloomberg and Sen. Charles Schumer.
His new panel will include the chief executives of Goldman Sachs Group, Citigroup, American International Group and MetLife, as well as heads of state-chartered banks.
"It makes good sense to take a close look at these regulatory structures and find ways to streamline them," AIG Chairman and Chief Executive Martin Sullivan said in a statement. He agreed that Britain's FSA was "a good model to consider."
The panel will also include former SEC enforcement chief Steve Cutler, who is now general counsel at JPMorgan Chase and Ted Levine, who helped represent Wall Street in the
$1.4 billion settlement of the brokerage research scandal.
Rodgin Cohen, a lawyer who fended off Spitzer's effort to investigate mortgage lending practices at nationally chartered banks, is also on the panel.