Then, just weeks after taking office, she found her powers sharply curtailed. The Office of the Comptroller of the Currency (OCC), which regulates national banks, announced that its rules would preempt those of state banking supervisors in case of conflict. Two of New York's largest state-chartered banks -- JPMorgan Chase & Co. (JPM
) and HSBC Securities Inc. (HBC
) -- promptly switched to national charters. When they walked, so did $24 million in yearly fees, or 30% of Taylor's $80 million annual budget. "It was a shock," she says. "A big part of our revenue stream was based on the big banks."
Despite the double whammy, the 50-year-old Taylor -- who left private industry and took a 77% pay cut, to a $127,000 salary -- has so far confounded her critics. As chief watchdog for 3,500 financial institutions with $1.3 trillion in assets, she is reshaping the largest and oldest U.S. state bank regulator, established in 1851 -- making it a model that others are emulating. Her first order of business: replenish the lost revenue with steep and controversial fee hikes. "The taxpayers should pay," gripes John Commons, president of the New York Association of Mortgage Brokers, whose members' annual fees increased from zero to six figures in some cases. Still, Wisconsin is reassessing fees so that its state banks and others pay the full cost of their supervision, too. And in February, Pennsylvania replicated New York's financial-crimes investigative team -- which was, until then, the only state-run operation.MONEY-LAUNDERING CLEANUP
Consumer protection looms large in Taylor's approach. She has mandated stricter rules for mortgage brokers, a new source for potential fraud in a booming real estate market. But she has wider concerns as well. To curb money laundering, she also initiated stringent new examination and licensing standards for check cashers and money-transfer agents, from mom-and-pop operations to Western Union Financial Services Inc. (FDC
). She has also lobbied hard to give state regulators a voice in Washington in the fight against terrorist financing. "She's not just saying that 'we're New York' but that we stand or fall together," says John Ryan, executive vice-president for the conference of state bank supervisors. In May of this year, for example, Taylor brokered an agreement between the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) that will both provide more resources for training and share data with examiners from all states who track illegal activities.
Disarmingly frank and outgoing, Taylor has a solid business background. After obtaining an economics degree at Dartmouth College, she earned an MBA at Columbia University and began working as an investment banker in the early 1980s. In 1987 she launched a minority investment bank, MR Beal & Co., with Bernard B. Beal, one of the first African Americans to build such a firm on Wall Street. Beal, in fact, once fired Taylor because the two disageed about how to run the business. After Beal realized he was wrong, he had to buy the firm she had joined to get her back. "Rarely do you walk away from her wondering what she means about something," says Beal, who still runs the firm.
Taylor is no stranger to controversy. After she joined the Pataki Administration in 1996 as assistant secretary for public authorities, she was the governor's representative during the takeover of Long Island Lighting Co. (LILCO) by the Long Island Power Authority (LIPA), one of the largest municipal mergers ever. Debt-laden LILCO was crippled by financial woes -- even though it charged the highest electric rates in the country. "It was a disaster," says LIPA Chairman Richard M. Kessel. After the acquisition, management was ousted, and rates fell by 20%. A couple of years later the $2.8 billion utility hired Taylor as its chief financial officer. Quickly, she determined it was time to raise rates -- unpopular but necessary. "Her management style is to be very insistent," Kessel recalls. "And by the way, she was right."
It's no surprise, then, that Taylor runs the state banking office more like a business than a government department. She's cutting the budget by 10%, or $8 million, this year and is outsourcing a contract to automate licensing and examination procedures. Says Taylor: "We're now in a competitive situation, and we have to look towards adding value, and make it worth something to be licensed by the New York State Banking Dept."
As the largest regulator for foreign banks doing business in the U.S. -- as well as nearly 300 check cashers and money-transfer agencies in New York -- Taylor sees herself on the front lines of tracking illegal activities. On Mar. 24, for example, her office -- along with the Federal Deposit Insurance Corp. and the Manhattan District Attorney -- was instrumental in indicting an unlicensed transfer agency called Vietnam Service, which allegedly moved almost $25 million to Vietnam over the past three years by falsifying business records. Its principals pled guilty and are no longer in business.
Taylor's office has also intensified oversight of more than 2,400 mortgage brokers and bankers. Keeping tabs on them is a huge problem for all states. People with prior convictions in financial services are drawn to the business because, unlike the securities industry, there are only intermittent background checks. "If I were a used-car salesman today, I could be a mortgage originator tomorrow," says William Matthews, general manager of the Mortgage Asset Research Institute Inc. in Reston, Va. Taylor got authority from the New York State Division of Criminal Justice Services to see state police fingerprint records and rap sheets. She's also spearheading an effort to create a national database of mortgage brokers so states can track individuals and companies who cross state lines in an attempt to hide prior convictions.FIRST, PROTECT CONSUMERS
Despite the OCC's preemption, Taylor believes state regulators have a critical role to play in the oversight of all banks. Often, she argues, state regulators have been the ones who have first spotted and fought abuses such as exorbitant fees, predatory lending, and red-lining of ethnic neighborhoods. Arthur E. Wilmarth Jr., a law professor at George Washington University, notes that the OCC has not issued a public enforcement order against any of the nation's eight largest national banks for violating a consumer law in a decade. Although Taylor has no real power over big banks, "Taylor is certainly one of the flagship supervisors, and people will look to her to lead the fight" to rebuild the role of state supervisor, says Wilmarth.
To help her do that, Taylor has powerful allies besides the governor and the mayor. Says New York Attorney General Eliot Spitzer, who slapped hefty fines on Citigroup (C
), Bank of America (BAC
), and JPMorgan for their mutual-fund and investment policies: "We both begin with the similar presumption that our role is to protect consumers." No doubt it has helped to have well-placed friends, but the successes of the New York bank regulator's office are Taylor-made. By Mara Der Hovanesian in New York