NGA 2007 Economic Development and Commerce Committee Policy ...
EDC-07. Economic Development and the Evolving
Financial Services Industry
7.1 Governing Principles on Financial Services
7.1.1 Preamble. Governors believe it is imperative that functional regulation remain
the guiding principle for financial services regulation. A broad range of forces
continues to reshape the financial services marketplace and affects the nation's
consumers. The Gramm-Leach-Bliley Financial Services Modernization Act (GLBA)
(P.L. 106-102) was enacted in 1999 to eliminate the barriers among and permit a
convergence of the banking, insurance, and securities industries. The financial
services industry includes commercial, merchant, and investment banking; corporate
credit firms; insurance; securities; investment advisors; and other activities that
have yet to be defined under Federal Reserve Bank or U.S. Treasury regulations.
The nation's Governors assert that both access to capital and the availability of
financial services are critical to state, city, community, and rural economies, and
states must have at their immediate disposal the ability to work with financial
services companies to promote such interests as economic development, community
investment, and credit availability.
7.1.2 General Principles. As Congress and the Administration consider regulatory
and statutory changes affecting the financial services industry, the Governors urge
them to respect the following general principles necessary to advance economic
growth in the states.
• Government should help ensure that access to capital and modern financial
services at reasonable prices are available throughout the nation.
• Congress should facilitate financial modernization as it has through the
adoption of the GLBA and, having authorized affiliations among different kinds
of financial institutions, should continue to recognize the successful role of
states as financial services regulators and particularly as the functional
regulators of insurance and securities products.
• Federal laws and regulations should not give federally chartered institutions a
competitive advantage over state-regulated financial institutions.
• Boards established by federal law and regulation that set policy affecting
state-regulated financial institutions or financial services should include
representatives of state regulatory agencies as members.
• No federal law or statute should preempt, limit, or interfere with states' ability
to tax under the U.S. Constitution or other federal laws currently in effect.
The federal government should be neutral with respect to the methods a state
can use to tax a financial services company.
• No federal law or statute should provide for federal audit authority over
states, state-regulated entities and state agencies, any state official, or state
activities and programs in the absence of a linkage to a federal program or to
the state receipt of federal funds.
• Corporations and business law is principally state-derived law.
7.1.3 State-Federal Relations. The Governors call on Congress and the
Administration to consult with the nation's Governors concerning the impact on
states, consumers, and investors of any federal regulatory and legislative proposals
regarding the continued evolution and possible convergence of the financial services
Changes in federal law or regulations issued by federal agencies should not stifle or
interfere with state innovations that promote investor confidence, protect or benefit
consumers or claimants, promote competition, reduce systemic risk, or otherwise
maintain or strengthen the safety and soundness of financial institutions. Federal law
should not preempt or undermine state authority over banking and lending
institutions nor should federal implementation of the financial modernization law
impede authorization of financial modernization for state-regulated institutions. Any
such federal regulatory implementation should ensure that states may continue their
historic role in promoting innovative financial activities, so long as such activities are
determined by federal depository insurers to be fiscally prudent.
The federal government—and its federal financial regulators—should refrain from
taking any action that impinges on or impairs states' ability to enforce laws regarding
consumer protection, investor protection, community reinvestment, and fair credit.
7.2.1 Banking Generally. The Governors believe the dual-banking system has been
and continues to be one of the most significant strengths of the nation's financial
system. Choice of charter allows institutions freedom to decide how to conduct their
business, while state charters create focused regulation tailored to the needs of each
individual state. The only way that system can succeed, particularly in an era of
rapid consolidation, is if both national and state charters exist on an even playing
field. Recent federal regulations have created a significant imbalance at the expense
of state charters. The Governors believe that parity between national and state
banking charters should be restored as quickly as possible.
7.2.2 Federal Preemption. Federal banking and securities regulators should not
preempt or undermine state authority. Deference to the opinions of federal
regulators should not be given over state regulatory opinions in functionally
To prevent a bias favoring national bank requests and issues, the charterer of
national banks should not be given oversight of state-chartered banks. Also, to
prevent a bias in favor of federally chartered institutions, it is necessary to avoid a
vacancy of the Federal Deposit Insurance Corporation board position designated for
an individual with state bank supervisory experience.
7.3.1 Insurance Generally. The Governors are pleased that the GLBA reaffirmed
the role of the states as the functional regulators of the business of insurance and
securities. However, at the same time that states are actively taking steps to
streamline and simplify insurance regulation, the Governors continue to be
concerned by congressional, regulatory, and industry initiatives that would preempt
state authority to regulate financial services.
States are responsible for safeguarding insurance consumers, policyholders, and
claimants, as well as for ensuring the solvency and stability of the insurance
industry. Therefore, states must maintain their authority to regulate the business of
insurance as the functional regulator of insurers pursuant to the Gramm-Leach-Bliley
Financial Services Modernization Act. Federal law should not preempt or undermine
this state authority by any means, including allowing insurers the ability to obtain
federal charters, or through congressional mandate that imposes national standards
for implementation in the states.
7.3.2 State Modernization. The Governors acknowledge the need for continued
state-based reforms to ensure an insurance regulatory system that is even more
responsive to the needs of a modern, evolving marketplace. As testament to the
ability of states to move quickly and implement fundamental change, the states
successfully implemented reforms to meet the requirements of the GLBA, including
agent licensing reform and consumer financial privacy protections. The Governors
will continue to work with the state insurance commissioners, state legislators,
consumers, and industry to promote additional streamlining and regulatory
efficiencies, including the consideration of market regulation reforms, streamlined
licensing initiatives, and speed-to-market reforms that include consideration of an
interstate insurance product regulation compact for certain insurance products.
Governors, however, continue to be concerned by congressional initiatives that
would preempt state authority to regulate the business of insurance and undermine
those successful state efforts.
7.4.1 Securities Generally. Governors believe that state securities regulation is an
integral part of a complementary system of state, federal, and industry oversight
that has made the U.S. market the strongest and most transparent in the world.
State securities regulators are responsible for investor protection and fostering
legitimate capital formation in their jurisdictions.
The Governors understand the many ways that state securities regulators serve and
protect investors in the United States. The regulatory and enforcement roles of state
securities regulators differ in some ways from the Securities and Exchange
Commission and the self-regulatory organizations. State securities regulators work
with self-regulatory organizations and the securities industry to ensure an efficient,
automated licensing system for securities firms, stockbrokers, investment advisers,
and their representatives. The Governors will continue to support the authority of
state securities regulators to investigate complaints and take necessary enforcement
actions, examine firms to ensure compliance with securities laws, provide investor
education to their constituents, and assist small businesses with raising capital.
7.4.2 State Investigation and Enforcement Authority. Governors believe that
federal law should not preempt or undermine existing state authority in the
securities area because, to maintain investor confidence, states must maintain their
authority to investigate and bring enforcement actions for fraud and abusive sales
practices, as well as to require the registration of securities and licensure or
registration of broker-dealers, securities agents, investment advisors, and
investment advisor representatives.
No federal law or statute should preempt, limit, or interfere with states' ability to
receive monies resulting from the states' securities enforcement cases, to allocate
those monies as states deem appropriate to meet the specific needs of their
constituencies, or both.
7.5 Company Formation
Governors believe that state company formation and governance laws play a critical
role in promoting economic growth and free markets. Further, laws regarding the
chartering, formation, and internal governance of corporations and other business
entities are the responsibility of the states.
States will continue to work cooperatively to promote state business entity laws that
protect the privacy of the individual equity holders while providing appropriate and
reasonable means for law enforcement to investigate criminal and civil matters.
Federal laws and regulations should not preempt state business entity laws or limit
state economic benefits or development opportunities derived by the states from
company formation laws and regulations.
Time limited (effective Annual Meeting 2007–Annual Meeting 2009).
Adopted Annual Meeting 1992; revised Winter Meeting 1994, Annual Meeting 1995,
Annual Meeting 1997, Annual Meeting 1999, Annual Meeting 2001, Winter Meeting
2002, Annual Meeting 2003, Annual Meeting 2005, and Annual Meeting 2007
(formerly Policy E-8).