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On the Hot Seat

After financial crisis, banks commissioner adjusts

By Beth Healy
Globe Staff / September 26, 2010

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Steven L. Antonakes has been commissioner of banks for the Commonwealth since 2003 and has worked for the Banking Division since 1990. He sat down to speak with Beth Healy of the Globe staff about the subprime mortgage crisis, banks’ financial health, and the many nonbank companies the division is charged with regulating, from debt collectors to check cashers.

Where are your priorities in the wake of the subprime mortgage mess and the financial crisis?

The nation’s economic challenges have really required us to focus primarily right now on the financial safety and soundness of state-chartered banks and credit unions. Fortunately, the picture here in Massachusetts is very different than it is in other parts of the country. The vast majority of our banks remain healthy and well capitalized, but nevertheless, given the economic realities, all of our banks are managing some increased delinquencies.

How did the crisis change things for your agency?

It’s required more frequent exams, and the exams have been longer duration, as we do deeper penetrations of the loan portfolios than we’ve had to do, frankly, in many years during this very good period we came out of — in which it wasn’t unheard of for banks to have zero delinquencies. You weren’t really looking at the commercial credits as deeply, or some of the other loans, because you didn’t have to.

Did credit unions generally stay out of the trouble that banks got into?

I would broaden it — I would say that credit unions and community banks got out of the trouble that a lot of the money center banks and larger institutions got into — the subprime loans, some of the shaky investments, things of that nature.

Do you just review the filings of the mortgage firms, debt collectors, and check cashers, or do you actually go visit them?

We actually go examine them on site. We do the banks and credit unions generally every 18 months — more frequently, if needed.

On the nonbank side, it’s generally a two-to-three-year cycle.

Other than that, you only know if something’s going wrong at an institution when you receive complaints?

Right. Well, on the banking and credit union side, there’s fairly robust quarterly reporting that’s coming in. So if we can see that delinquency is peaking, or there’s some problem, then we can go in at any time. On the nonbank side, you’re not getting that type of real-time information. The consumer assistance function that we have serves two purposes: First off, it’s providing direct assistance to consumers who call, but secondly, it is what we refer to as an early warning system. If there’s a pattern of complaints, then we can be out to an entity the next day.

When the subprime crisis hit, it seemed to reveal an industry that no one had been watching. Have you changed your approach to regulating these businesses?

It changed things for us, but I think it’s important to remember that there were a lot of players involved. Certainly there were bad practices by mortgage brokers; I don’t deny that for a second. There were bad practices by mortgage companies, there were bad practices by large banks, by the Wall Street firms that funded and created these unsustainable mortgage products, the securitization folks, the appraisers, the closing attorneys.

But it did change the way we examine and we look at mortgage lenders and brokers . . . We moved entirely away from scheduled examinations to surprise examinations. We also changed the focus from compliance exam to a fraud-based exam, looking to see if the loans were appropriately underwritten, looking to see if the income was truly there.

But the guy sitting in the office getting people to sign up for the bad mortgage — a lot of them were nonbank mortgage brokers.

Sure. But the loans were often being funded, or originated, by banks — large banks, not community banks here. My only point is, there were bad practices in a lot of areas. Certainly, there were bad practices in the nonbank world, but it wasn’t limited to that.

During a period in which we were trying to rein in the practices of the nonbank lenders in the Commonwealth, the federal agencies at that very time were trying to preempt what we were doing, trying to give their banks a pass on consumer protection laws.

Will the new Consumer Financial Protection Bureau have an impact on your office?

I think it’s going to make things a lot better in many respects. It is important and history has shown that you need a federal agency focusing exclusively on consumer protection. Frankly, we were frustrated over the past several years with some, not all, of the federal bank agencies that were working at cross purposes, looking to shield banks from our state consumer protection laws rather than enforce them. I think a CFPB, which focuses on the largest institutions, is appropriate. And I also think they can complement state efforts on the nonbank side.

Debt collectors prior to 2006 were another group that seemed to operate under the radar. Have you stepped up your regulation of those firms?

I don’t think they operated under the radar. They’ve been required to be licensed by the Commonwealth since the 1940s. And there’s been joint rulemaking by our office and the attorney general since the 1980s.

Is that a high bar? What does it mean when you’re licensed? You file some papers?

You file some papers. There are some other requirements, and you’re subject to the jurisdiction of the Commonwealth in terms of investigating their compliance with state and federal laws.

Some debt collectors are rough players, but you’re out trying to make sure banks aren’t failing. Is anybody really paying attention to these smaller firms?

We do exams of all our entities. Part of the reason that I welcome the partnership with the CFPB is it will provide the opportunity to throw more resources at some areas, be it debt collection, be it the larger institutions, the larger banks that I would argue have not been as rigorously examined for consumer protection.

Another area, frankly, of equal, if not greater, concern for us right now is debt-settlement firms. They are completely unlicensed. We have talked and worked with the Legislature about creating a licensing scheme for debt-settlement firms that, from where we sit, are marketing very aggressively, overpromising, charging high up-front fees, and not really providing any real assistance to consumers. At the end of the day, they’re often worse off than before.

Have you received complaints about these firms? We’ve received some and we refer them to the AG because we don’t have any direct jurisdiction over them.

Your office is charged with overseeing large institutions, as well as firms that are more in the shadows that can prey on the poorest people in the state. How do you balance those demands?

First and foremost, I think our role has always been consumer protection . . . Ensuring the financial safety and soundness of banks and credit unions really at the end of the day gets to consumer protection, gets to the protection of the depositors.

I do think the goals are complementary in many respects. I don’t think you have to sacrifice — despite the fact it appears we need a federal agency focused on consumer protection. I don’t think you have to say that you can’t have both safety and soundness and consumer protection.

Steven L. Antonakes,
Mass. commissioner of banks