DAVID GREENE, HOST:
When the U.S. plunged into a financial crisis seven years ago, much of the blame was put on big banks making risky investments. In the aftermath, one man is credited with collecting billions of dollars in fines from financial institutions.
RENEE MONTAGNE, HOST:
His name is Benjamin Lawsky. In 2011, he was named head of New York's newly created Department of Financial Services. And he's come to be known as the Sheriff of Wall Street. Now he's handing in his badge. As he prepares to leave his post, Benjamin Lawsky told us that the massive and often celebrated penalties he's been able to extract from banks for wrongdoing don't fully address accountability.
BENJAMIN LAWSKY: We also took a real focus on individual accountability over time. You needed more than just a large fine if you wanted to change conduct. Ultimately, when there's bad conduct at a bank, at an insurance company, at a financial institution, it's not the institution itself that's acting; it's the people who work there. And if you want to deter that going into the future and make our system better, there needs to be consequences for those people. So, eventually, we had a saying around the office. We'd say, if you're working on one of these cases and you can't find someone responsible for the bad conduct at the bank, you've just stopped looking.
MONTAGNE: What would be an example of where you saw a gap in regulations or at least a gap in enforcement, something that you, in your position, could do that was different from what the various federal regulators were doing or maybe even were able to do?
LAWSKY: Yeah, so I think with enforcement of sanctions, you know, the banks are supposed to have very robust protections in place to ensure they're not allowing transactions to happen where dollars get cleared for institutions that are terrorist states, basically. And...
MONTAGNE: We're talking sanctions against, say, Iran, sanctions relating to Russia?
LAWSKY: Absolutely, absolutely - Iran, Russia, Somalia, you know, go down the list of places where there's a lot of people who want to do a lot of harm to the United States and other nations. In the BNPP case, which was France's largest bank...
MONTAGNE: That's BNP Paribas.
LAWSKY: BNP Paribas. They had had massive sanctions violations for years. Those violations had continued even after they had self-reported and we had began our investigation with several other regulators. And there, a very senior executive towards the top had known about some of the conduct that had gone on. And we traced it up, moved up the chain from those who had put the systems in place, that violated all the rules and found that this person had known about it and condoned it and been in meetings about it. And we ultimately asked that there be consequences for him. So he stepped down from his position. His career was over.
MONTAGNE: Why have federal prosecutors been unable - or maybe unwilling - to go after senior executives in this period after the financial crisis?
LAWSKY: You know, I don't know the answer. I don't think that prosecutors or DOJ sat around and said, let's not do this. I think, you know, they have a lot of priorities, and they chose to pursue those cases in certain ways. And I think in those cases they made the judgments they thought were right. So I don't want to really answer for them. I do think, looking back on it, that if I were writing the script and had to - could redo it, I think it would have been wise to create a task force, post-financial-crisis, that would have looked like an Enron-type task force. Except it would have been even more well-resourced. If you had done that and put a financial frauds task force, post-financial-crisis task force - whatever you call it - together, you would have put hundreds of prosecutors together. You would have put, probably, thousands of agents together. And they could've really dug in. And I think if that had been done, you might have seen different results. But, again, this is all just speculation, and I don't attribute bad motives to anyone.
MONTAGNE: You know, it's been seven years since the financial crisis. And the Dodd-Frank law, aimed at reining in Wall Street, is still in the process of being implemented. Do you think regulators generally have the tools to prevent another crisis?
LAWSKY: Look, I think there are a lot of additional tools. And there are a lot of new requirements that will make the occurrence of the same type of crisis we saw far less likely, or if it happens, far less systemic and impactful for our economy. My worry is, you know, we always spend a lot of time figuring out how to fix the sins of the past. Every crisis, you know - if you look back in history, every crisis is a little bit different. And we need to both focus on the past but also focus on what are the new innovations? What are the new problems? Things like cyber security, for example - I think a number of very smart thought-leaders are saying, you know, the next financial crisis could be sparked by a very serious, multi-pronged, coordinated cyber-attack where people just lose confidence in the system for a period of time if they can't get access to their bank accounts, if a bank gets so hacked that it's shut down, et cetera. So we try to imagine the worst case scenario. And that's hard 'cause it keeps you up at night. But if we prepare for the worst case scenario - hopefully it never happens. But if it does, we're going to be in a lot better shape when it happens to mitigate those impacts.
MONTAGNE: Is there something you wish you had gotten to in this last four years but will not be able to do before you leave?
LAWSKY: That's a great question. I wish we had focused on individual accountability earlier. It took us about a year and a half before we started to look in the mirror and say, you know, we're starting to bring these cases and have real impacts with large fines. But now we really need to think about how do we make the system better through deterrence. And I wish we had focused on that earlier. I can't think of anything I wish we had gotten to except for we haven't done enough about the un-banked. I'll give you an example. In the Bronx in New York, where my father is originally from, 50 percent of the families in the Bronx don't have bank accounts.
MONTAGNE: That's amazing.
LAWSKY: And it's a terrible statistic. And I think there is so much we should be doing as a society to try and encourage more people into the banking system, to try and encourage people to start developing credit over time. Of course, all of these people have families, and they have children. Their children are going to grow up, and we want to see those children succeed. And getting people into the banking system could have a huge impact on that. So that is probably my biggest regret. And I hope, you know, when I'm on the other side in the private sector there's some work I can do on that as well to try and again make the system a little better.
MONTAGNE: Thank you very much for joining us.
LAWSKY: Thank you very much for having me.
MONTAGNE: Benjamin Lawsky is the superintendent of the New York Department of Financial Services. He is stepping down to start his own consulting firm and to teach at Stanford University. Transcript provided by NPR, Copyright NPR.