BU program guides lawyers in changing banking world

James Scott thinks teaching lawyers about banking law is serious business, especially these days. But that doesn't stop him from leaping into classrooms in a gorilla suit, to the amusement of his buttoned-down students, or bursting into country-western tunes to get his point across.

If Scott's levity has surprised his audiences in the past, imagine how it might strike a bunch of investment banking types, stressed out about the state of their industry and agitated at having to suddenly learn the ins and outs of commercial banking.

Scott is one of the founders of a Boston University program that puts 100 new lawyers through the paces of banking 101 each year. The classes usually are held in Boston and San Francisco. But this January, there's an extra session planned - in Manhattan, where Wall Street veterans from Morgan Stanley & Co. and Goldman Sachs Group, and their outside law firms, are under the gun to embrace a new set of rules and regulators, in their conversion to bank holding companies.

"We're aiming the course for the people who've experienced the recent upheaval, people that are going to be moving into the banking business," said Scott, a former attorney for Citigroup and the Federal Reserve who is special counsel at the New York law firm Cadwalader, Wickersham & Taft. He also chairs the American Bar Association's banking law committee.

Scott dons an ape suit to be instructive: Capital is, after all, the 800-pound gorilla of the finance system. It's a point that will hardly be lost on those likely to sign up for the Banking Law Basics class. Scott expects to see lawyers who work for or with American Express Co., which was approved in November to become a bank holding company, and brokerage Merrill Lynch & Co., which is becoming part of Bank of America Corp.

He also expects to see people connected to Goldman and Morgan. Both were among the initial group of nine financial institutions that took a total of $125 billion in investments from the US Treasury as part of the $700 billion financial rescue package. Amex reportedly has asked for funds but would not comment on its request.

With bank charters, these firms can attract deposits and can borrow funds from the Federal Reserve. It's a shift from the usual focus at the investment banks - managing money, handling stock and bond offerings, and advising companies on mergers and acquisitions. American Express is in the charge-card business.

Culturally, the investment banks are bristling at what they see as burdensome new rules coming with the new capital. Michael DuVally, a spokesman for Goldman, said the firm's lawyers need no additional training, having been regulated by the Securities and Exchange Commission for decades, plus regulators in other countries. Within Goldman, he said, "Legal, treasury, and the controllers are all very familiar with regulatory interactions."

At Morgan Stanley, spokesman James Wiggins said the company, prior to becoming a financial holding company, already owned two banks, and so has legal expertise on staff. "Obviously, as our banking business grows, we will make sure it is appropriately supported with the right expertise and personnel," he said in an e-mail.

But it's a different ballgame when you're being watched over by banking regulators, rather than by the Securities and Exchange Commission. The consensus among financial executives and regulators is that the SEC monitors companies poorly but has the power to bring strong enforcement actions. Banking regulators spend far more time with the institutions they oversee but rarely punish them.

Banking regulators essentially move into institutions and keep offices there, said Cornelius Hurley, a professor and head of the Boston University group that runs the Banking Law Basics program, the Morin Center for Banking and Financial Law. In fact, Fed examiners have taken up residence at all the major investment banks since the failure of Bear Stearns in March. Both Goldman and Morgan confirmed that banking regulators are now part of daily life at their institutions.

Scott's tongue-in-cheek musical act includes such titles as Patsy Cline's "Crazy," according to a faculty member; he changes hats repeatedly, to demonstrate the multiplicity of regulators who oversee the banking industry.

It's not all fun and games, of course. The class will run for two full days at Fordham Law School and will include a heavy dose of banking history. Teachers will cover the Federal Reserve's start (in 1913, after the financial panic of 1907) versus the launch of the Office of Thrift Supervision (amid the savings and loan crisis). They'll delve into why Thomas Jefferson backed a decentralized financial system, and Alexander Hamilton chartered the nation's first central bank.

Hurley, who has known Scott since their days at the Fed in the 1970s, will be on staff for the upcoming New York course. He'll be delving into the web of new credit lines the government has extended to institutions amid the credit crunch, as well as the regulation of US and foreign banks.

"It's a kind of inculcation into why there are so many bank regulators," Scott said, "why the rules are so complicated, and how it got this way."

Beth Healy can be reached at bhealy@globe.com.