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Adrienne Harris

Checking in with America’s top state bank regulator

NEW YORK Adrienne Harris wields more power over the U.S. banking system than perhaps any other state official. As the superintendent of the New York Department of Financial Services, her decisions ripple far beyond Wall Street.

Just last week, Harris’ office toughened up guidance for its regulated crypto firms with new risk assessment standards for consumer-facing products and more. It’s the latest way that New York’s top financial regulator is establishing itself as a global leader in crypto oversight.

Harris, who took office in 2021, has also found herself in the middle of national economic politics this year. She played a key role in the spring’s miniature banking crisis. Harris even helped House Republicans design key crypto legislation that would carve out a more prominent role for states.

That’s why we recently traveled to Harris’ perch in lower Manhattan for a wide-ranging conversation about the state of the banking sector, her leading role in crypto regulation and more.

The banking system: The sector has been on the edge for much of this year. But Harris says the banking system is “very strong and very resilient.”

The American financial sector’s rollercoaster kicked off in March, when two large regional banks — California-based Silicon Valley Bank and New York-based Signature Bank — collapsed in a matter of days. The decision to close Signature came from Harris’ NYDFS.

The rapid response from both federal and state officials has been credited with stemming what could have become a panic. “A lot of people did a lot of work earlier this year to make sure that’s the case,” Harris said. “So I feel good.”

Her diagnosis echoes what we’ve heard from federal officials like Treasury Secretary Janet Yellen and the Federal Reserve’s Michael Barr.

Capital reform: The Biden administration’s push for tougher capital standards in the wake of the banking crisis this year is arguably the industry’s top threat from Washington.

Banking sector advocates say the rules under consideration are too complicated for banks to grasp their full potential impact, which risks slowing down the economy.

So we asked Harris: Is the Biden administration on the right track, or are bank regulators overreacting?

The superintendent didn’t want to opine on that without being in the room with federal regulators. But Harris said it was crucial for regulators to take industry feedback into account.

“It’s so important that all regulators — and it’s one of the things I’ve worked very hard to put in place here — be data driven, be looking at the evidence to say, ‘What is the impact of a proposal?’” Harris said.

The phrase “data driven” touches on a core complaint we’ve heard from the banking industry in recent weeks. Trade associations representing much of the financial sector warned regulators they hadn’t shown enough economic analysis to prove that capital reform is necessary.

“Not to be a complete political science nerd, but this is why we have the APA, or the state APA in our case,” Harris said. “So that stakeholders have the opportunity to weigh in both formally and then informally through engagement with the regulator.”

Commercial real estate: One of the big headwinds for the economy for a while now is uncertainty in the commercial real estate sector, where banks hold a lot of properties. Nowhere is that truer than in New York City.

But Harris says New York’s banks and supervisors are better equipped to handle that uncertainty than outside observers might assume, thanks in part to how they’ve diversified their portfolios.

Ahead on crypto: Harris defended her support for a national framework for crypto regulation without direct Federal Reserve oversight.

As lawmakers on the House Financial Services Committee spent months trying to develop bipartisan frameworks to better regulate crypto, Harris became a “central player” in those negotiations.

If that stablecoin bill eventually becomes law, Harris will have been critical in carving out a key role for state governments in the future of digital assets.

“We want federal partners at the table,” Harris said. “But there is a real role for states to play because we are here on the ground. We’re often much nimbler and can act faster.”

The bill cleared the House Financial Services Committee in July with support from all Republicans and a just handful of Democrats. It would allow state-regulated stablecoin companies to avoid direct oversight from the Federal Reserve. The Fed is not thrilled about that.

But Harris pushed back when we asked about the risks of a “race to the bottom” in stablecoin regulation, where companies can theoretically migrate to states with the weakest regulation. She argued that the success so far of New York’s BitLicense, the state’s business license for crypto firms, is proof that tougher rules can attract business when regulators are transparent.

What to watch: Congress is going to keep thinking about the future of finance and other structural changes to the banking system for the foreseeable future. We expect state regulators like Harris to continue to play a key role in those discussions.

— Brendan Pedersen (Photo credit: Johnny Angelillo for Punchbowl News)

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