The plans are worrisome because the federal government has been largely MIA when it comes to cracking down on corporate crooks in the post-Enron era. While the feds have grabbed headlines with a few high-profile indictments, state law enforcers—most notably New York Attorney General Eliot Spitzer—are taking a far more active role in purging Wall Street of con artists and thieves.
Formulated by the Office of the Comptroller of the Currency, the shakeup would nullify state banking laws stricter than federal regulations. Headed by John D. Hawke, Jr., a K-Street player who’s worked for Democrats and Republicans, the OCC is a little-known regulatory backwater but it wields a vast amount of power over the nation’s financial institutions.
According to a notice in the Federal Register the new rules could wipe out state civil and criminal statutes covering lending, deposit-taking, credit cards, checking accounts, escrow accounts and “all [other] powers authorized” by federal law.
In early October, officials from numerous states issued a stream of scathing critiques of the proposed rule changes.
“This sweeping proposal would preempt virtually all state banking laws for national banks and their operating subsidiaries, essentially undermining the integrity of the recognized dual banking system,” wrote Thomas Curry, Massachusetts Commissioner of Banks, in a letter to the OCC.
The plan, Curry noted, would keep states from licensing or investigating local subsidiaries of national banks or from monitoring “finance companies, securities firms, mortgage lenders and brokers and collection agencies.” He says Massachusetts has secured $5.8 million in restitution for ripped-off consumers during the past two years.
State stock market cops fear the new regulations will curtail their work. “We think it could shield securities firms owned by banks from state regulation,” said Bob Webster, a spokesman for the Washington, D.C.-based North American Securities Administrators Association, which represents state securities regulators.
Webster and company are calling for more public input into the rulemaking process—an echo of the recent battle over media ownership at the Federal Communications Commission.
“Given the whole climate of corporate scandal, we think it’s time to strengthen, not weaken, investor protections,” he said. “We’re the early warning system. Investors naturally turn to their state officials for help before they call on Washington.”
The ongoing probe of possible fraud in the mutual fund market, Webster pointed out, originated with New York Attorney General Spitzer. Spitzer also orchestrated a “global settlement” between a dozen states and 10 prominent investment banks accused of feeding bogus information to mom-and-pop investors. In April, the banks paid $1.4 billion—a new record—and agreed to a host of reforms to make the case go away.
On the West Coast, California Corporations Commissioner Demetrios Boutris—who recently won a $6.5 million judgment against deceptive stock peddlers—also is annoyed by the OCC plan. In a previously unpublished October 6 letter obtained by In These Times, the commissioner challenged the proposal, saying the OCC “lacks the necessary Congressional authority” to overrule certain state laws.
At the OCC, spokesman Kevin Mukri played down the controversy. He portrays the whole effort as a simple attempt to untangle a mess of overlapping and contradictory state and federal statues.
“Our banks operate in 50 states and you have 50 states passing consumer protection laws, some very stringent, some not,” Mukri told In These Times. “This creates a uniform field. … It’s kind of like a housecleaning rule.”
Asked about criticisms leveled by the states, he replied, “they’re entitled to their opinions,” and pointed out that the proposal is backed by banking industry trade groups.
Mukri said his office has received more than 1,000 comments on the issue but has set no timeline for putting the rules into place.
The banking proposal looks suspiciously like another Bush administration scheme: HR 2179, a House bill introduced this session by Rep. Richard Baker (R-La.) and supported by Rep. Michael Oxley, (R-Ohio), Bush’s point man on corporate crime. The pending legislation is supposed to beef up the anemic and long-under-funded Securities Exchange Commission. But it, too, would curb the power of states to combat stock market scams.
HR 2179, which is currently idling but could be revived, has drawn howls from state authorities and consumer advocates, with Spitzer labeling it “an absolute, outright betrayal of the small investor.”
I hope you found this article important. Before you leave, I want to ask you to consider supporting our work with a donation. In These Times needs readers like you to help sustain our mission. We don’t depend on—or want—corporate advertising or deep-pocketed billionaires to fund our journalism. We’re supported by you, the reader, so we can focus on covering the issues that matter most to the progressive movement without fear or compromise.
Our work isn’t hidden behind a paywall because of people like you who support our journalism. We want to keep it that way. If you value the work we do and the movements we cover, please consider donating to In These Times.