Bank consulting is a cushy, lucrative business, what with all of the handsome fees and the total lack of supervision to ensure that you are doing your job well. Or at all.
Unfortunately for those of you who work in New York, Benjamin Lawsky has discovered a 121-year-old law that basically lets him put you out of business if he doesn't like the work that you are doing (or not doing). And in the tradition of the immortal Eliot Spitzer, he's going to use it to show you (and the federal government) up.
In an attempt to force change upon a sector that operates with scant supervision and produces mixed results, Benjamin M. Lawsky, New York’s superintendent of financial services, plans to use an obscure state banking law to rein in banks’ use of consultants, these people said.
Among the aggressive moves under consideration, Mr. Lawsky is said to be weighing whether to ban temporarily at least one firm with a poor track record from advising banks chartered in New York. His office is also considering a new code of conduct for consultants, the people briefed on the plan said….
“It is worth considering the monitors’ lack of independence,” Mr. Lawsky said at a speech in Washington this year. “The monitors are hired by the banks, paid by the banks, and depend on the banks for future engagements.”
The move by Mr. Lawsky — who has a history of irking his federal counterparts by running ahead of them — could spur regulators in Washington to act against the consulting firms. After halting the foreclosure review amid the lingering problems, officials at the Federal Reserve and the Office of the Comptroller of the Currency, federal agencies that oversee many large banks, are already questioning the prudence of heavily relying on consultants, said people close to the agencies. In testimony before Congress in April, a senior official at the comptroller’s office said the agency was exploring new ways to curb the use of consultants and correct problems when they occur….
Under the law, the earliest version of which was created in 1892, Mr. Lawsky’s office controls access to certain regulatory documents that consultants need to review when advising a bank. The documents, including examination reports, are considered “confidential communications,” unless Mr. Lawsky’s office determines that their release will serve “the ends of justice.”
In the case of consultants, Mr. Lawsky is planning to choke off access to firms that fail to meet a set of standards, according to the people briefed on the plans. The standards Mr. Lawsky is likely to introduce would require, for example, that consultants disclose financial ties that could compromise their independence.