A Legacy of Credibility
Nick DiFrancesco (ND): Thank you for taking the time to sit down and recap all the work of the department since your appointment in 2011. Looking back over the past four years you have accomplished a lot. What do you consider to be your greatest accomplishment in the job?
Secretary Glenn Moyer (GM): First of all it’s hard to put the four years into perspective when there’s been a tremendous amount of moving parts. My mindset is that moving parts are a good thing, not a bad thing. Thank goodness that we had a lot of possibilities when we came in.
If I had to step back and look at what we’ve accomplished and ask, what was the biggest success and what perhaps will have the biggest impact on the industries we’re involved with at the Banking and Securities Departments? I’d have to point to the legislation that updates and modernizes. That was our approach, looking at ways to modernize all of the major lines of business that we touch and essentially they were all seen through to completion.
To run down the list first there’s the Banking Code, second the Loan Interest Protection Law, third the Department of Banking and Securities Code, the repeal of the Savings Association Code, the Credit Union Code, the Mortgage Licensing Act, the Securities Act of 1972, Debt Settlement Services Act, and finally, something that had been discussed by the Joint State Government Commission for several years, the Motor Vehicle Sales Finance Act.
The passage of all of these bills, as I’ve come to learn, coming into government service from the private sector, really was meant to try and position Pennsylvania’s financial services industries to be competitive in the 21st century.
You know, we’ve had remarkable input from the trade industry groups like the PACB, and the other groups that are involved with the issues we focus on, and we’ve had terrific cooperation on the part of the general assembly. I attribute that in large part to, not only to the overall credibility of the department, but someone like a Paul Wentzel (our Senior Legislative and Policy Director) on your staff who can guide and shepherd legislation through and have the experience and credibility that the legislature and their senior staffs really trust. We try to take the common sense approach to modernizing, but we really appreciate the power of teamwork!
ND: I want to talk about that a little bit. Framing this properly, the goals you’ve accomplished are even more amazing considering you did those things in the height of the Wall Street backlash. While the debate in our nation’s capital was heated rhetoric, you accomplished major code changes through the state legislature without that backlash ever being apparent. Your teamwork with the legislature really did an exceptional job.
GM: Coming out of a period like the great recession is either the worst time to take on this type of policy agenda or it’s possibly the most advantageous. We chose to take a forward looking, fact-based approach and keep the emotions in check and on the sideline. It was a thought process of what do we need to give the different industries in order to give them the best chance, coming out of a difficult economic environment, to proceed going forward.
When you take that forward-looking approach and you understand that, our legislature, senior staff members and the industry groups really understand the value, for instance in the banking world, of the community banking model. To say look, let’s make sure that there’s not an unintended consequence that the community banking model can’t at least, although being challenged further, do well for the citizens of the commonwealth.
Once we painted the portrait that way there were a lot of people that said you know what, we want to be part of the solution. It was eye opening to me as a novice as far as the process, but the impact was always out in front of us to say, “If we can get this accomplished in a manner that makes sense, then we have positioned ourselves to look forward rather than backward.”
ND: We’ve very much appreciated your leadership in this role as Secretary of Banking and Securities Department. Of course having a community banker in a regulatory role is a good thing because you bring a common sense perspective to the table. The industry has changed a lot so I’d like to get your thoughts on the changes you’ve seen through your experience and also your thoughts on an industry that is likely to go through further consolidation and what that means to the economy of Pennsylvania.
GM: Relative to my experience in the banking arena, I started in 1977 as I was coming out of the Air Force. I was fortunate enough to be accepted into a high quality and well-respected management training program at American Bank and Trust Co. of PA in Reading, PA. That really, as I look back now, was the building block that made all the difference.
As I think now about what is different and where we might be, there is no doubt the lack of investment in education of future leaders in the banking arena is a challenge that is becoming more obvious every day. The banking community is going to have to look at what is possible in that regard.
Now, if I were to look at the one thing that has changed the most, in 1977 when I was learning to be a commercial lender, one of the things you would learn that there was a tacit gentlemen’s agreement, “I don’t steal your commercial relationships, and you don’t steal mine.” Somewhere after 1982 that changed. If you were going to be a successful commercial lender you were going to have to do the best you could for your existing portfolio accounts, but you’d also have to go out and convince people to bank with your organization. Going from that passive, but good service model to active, competitive, but still good service is really one of the most significant paradigm shifts in banking.
The constant in all of this is still relationship banking. At the end of the day, small businesses and consumers want to know somebody they can go to when they have a question, or more importantly, when they have a problem.
It’s the investment in people. It’s the investment in relationship banking in the business arena, consumer arena, or trust asset management arena that has not changed. With advances in technology and commoditization of products I would argue that relationship banking is even more important today than in the past.
ND: What do you see going forward? Do you see consolidation of the community banking industry continuing in Pennsylvania for some period of time?
GM: We’re experiencing consolidation right now and I think there will be more in the not so distant future, and a few in the near future. I know there are some people that judge Pennsylvania banking by the number of charters, which now stands at less than 200. I understand that, but for me it’s less a focus on the number of charters versus the number of community-oriented banks that we have, both larger and smaller. I was pleased to hear BB&T president and CEO Kelly King speak about continuing with Susquehanna Bank’s community business approach once their acquisition is implemented. If I see two good community-focused banks getting together, and if that dynamic merger gives their business model more staying power, it’s hard for me to see that as a bad thing.
Do I expect more M&A (merger and acquisition) activity? Sure. Do I expect a rapid declination in the number of charters? Not really.
ND: I think last week’s announcements revealed, at least to me, that community banks are looking for partners that might not traditionally be in their footprint, but can share a culture and some of those expensive compliance issues, and continue to serve the communities where they do business in.
GM: Geography to me has always been just one of a litany of variables when you look at partners coming together. You can look at organizations that have grown both organically and through M&A and they look like American cheese. You can look at others that look like Swiss cheese. Then you have to say, both of those models are working successfully so it must be an issue of efficiency, must be issues of culture, and must be an issue of cumulative shareholder value as they look forward.
ND: Clearly there have been several challenges with the changing nature of the market, including the evolution of technology. If you were to take ten bankers and ask them if ApplePay will have an impact on their business you’d get ten different opinions. How do we regulate an ever-evolving industry that is doubtful to mirror the industry of the past?
GM: The Department of Banking and Securities, in addition to being a firm but fair, prescriptive-oriented regulator looking at safety and soundness of our institutions, also has to keep looking to the emerging horizon. When I talk about the broad range of legislation we accomplished, one item that was not finalized was the state’s money transmitter’s act, and that was a very deliberate and conscious decision.
Part of that decision was based on the fact that embedded in the system is a need to address the virtual currencies that are out there. As we stand back and look at it, why did Bitcoin, if you assume it is a legitimate effort and I want to believe it is, why did that come about? I think it comes down to within our payment system, both nationally and internationally, something like a Bitcoin points out the inefficiencies that have evolved in how the traditional payment processors, including the Federal Reserve, relate to their customers and money. Certainly I can’t predict if Bitcoin is going to emerge as a significant or mainstream player in the financial markets in the coming years, but I am confident that the traditional payment providers are looking at ways to do things differently and better.
You and I recently heard the Federal Reserve talk about a fresh look at their payment systems to make it more convenient, more efficient, and less costly. I think those are all going to be at the base of how we look at licensing and overseeing say something like a virtual currency through the money transmission process. It is a concept that can be difficult for people to get their heads around because it has nothing to do with the hard currencies that we have come to rely on in our daily lives.
The biggest challenge is that as the efficiency occurs, as lower costs are put in, if someone has a problem where do they go for problem resolution? The risk embedded in that today is very large and I think we all have to be thinking about ways to reduce that risk if it is to be accepted as a mainstream form of currency. Bitcoin and virtual currencies are certainly on our radar screen and will remain a focus of this department.
The other one I get asked a lot about is peer-to-peer (P2P) lending. It’s a relatively new way to move capital that really can’t be ignored because it’s really picking up. I want to say two things about this. First, there are no P2P lenders that are licensed to do business in Pennsylvania and secondly, lenders that are soliciting or making loans to Pennsylvania residents must be licensed under the Consumer Discount Company Act. We are trying to follow what’s going on in the peer-to-peer lending arena and make sure people that are involved in it today understand that there is a licensing procedure so we’ll see how that plays out over the next few years.
ND: It’s certainly a constantly changing industry with plenty to do on the horizon. You’ve been a staunch advocate for the preservation of the dual banking system and there have been several conversions to state charters from federal charters. Can you share a little on your perspective?
GM: It’s been pretty gratifying to see the number of Pennsylvania banks that have made the state charter their “charter of choice.” The best thing about the depository world is that every board and every single management team has a choice. Take for example my counterpart in the Insurance Department. If you want to be in the insurance business in Pennsylvania, you have a state license. In the banking arena you can choose to be a federally chartered or a state chartered organization.
I firmly believe that whatever this department and I can do to make sure that the dual banking option remains viable and strong is worth everyone’s effort to do that, because there’s no right or wrong answer. In the last four years, we’ve seen 17 federally chartered banks choose to convert to a state charter and we have had no state chartered banks convert to a federal charter.
I attribute that to the boards and directors looking hard and seriously at what provides the best choice for them based on their business model and what they hope to accomplish. But it also speaks to the dedication and professionalism of the state Department of Banking and Securities staff. It has been a tremendous opportunity for me to work with and learn from the staff at the department. My hope is that I have been able to share some of my private sector experience is a positive manner that will help the department thrive going forward. The institutions that are overseen by the department, the state charters, are really well served. Our goal is that they feel like they’re getting good value for their money.
ND: You’ve been very deliberate about acknowledging the work of the entire department and to an extent shedding the limelight that comes with being a cabinet secretary. Talk a little about the team environment here.
GM: Probably the best example I can point to regarding teamwork is the merger of the former Pennsylvania Securities Commission into the Department of Banking that was effective in October of 2012. I can tell you that there was nothing about the merger in any transition plan when I walked into the department and it was unplanned for most of the first year. However, this administration was focused on, “are there more efficient ways to still do an effective job by bringing together different government organizations?” I feel good that we were able to get a good piece of legislation, Act 86 of 2012, through the general assembly after the merger was proposed by the Governor.
I’m very pleased with how both staffs worked together to implement; I’ll use the term a “rare bird,” of two government agencies merging and our whole mantra was that we would do so without “missing a beat.” While I’m sure we didn’t do everything perfectly, by keeping that goal and focus on the clients that we’re serving out in front of us, our people were able to wade through a myriad of challenges and found a way to bring things together. What is remarkable is that we reached consensus on just about every front that had any impact, and we are well along in that merger.
At the end of the day, we wanted it to be an integrated department and not something where the merged partner felt they were bolted on the side. That’s been what we’ve tried to accomplish and this speaks greatly to the team effort at the department.
ND: Can you talk about some of those efficiencies that came via the merger since it’s been integrated? It seems like a much leaner operation.
GM: It definitely is a leaner department. When the merger was proposed, the Office of Budget estimated there would be about 10-12% savings over the operating expenses of the Securities Commission. That was savings coming from pure redundancies like not needing two HR departments, two IT departments, two finance departments, etc… When we got people around the table and started talking about how they did their work in the securities industry and how we did our work in the depository and non-depository world, we found operational similarities that would allow for greater efficiencies. One of those was office space. We were able to move them from their building into what was Department of Banking space here in Harrisburg. That gets you further down the road to resolving issues when people are seeing each other on a daily basis.
We ended up having savings that are in the 30-40% range of the previous operating costs of the securities commission. The good news is that even though the funding is separated, the overhead costs have reduced, because they’re being shared, so that the burden of the entire department is not on the Banking Fund. That will hopefully serve those that pay into the Banking Fund over the longer term.
This interview can be found featured in the December 2014 issue of Transactions. Not a subscriber? Visit the Transactions page on this website or call PACB at 717-231-7447 to start receiving the magazine.