Regulator Wants Greater Use of Bank Monitors

New York’s Lawsky Says Independent Monitors Enforcing Settlements Can Sniff Out Other Trouble

New York state’s top financial regulator plans to expand his scrutiny of banks and other firms using a tool previously reserved for companies that were in legal trouble.

Benjamin Lawsky , New York’s superintendent of financial services, said he is looking to expand the use of independent monitors at firms as a way to prevent bad behavior. Such compliance specialists are in place as part of settlements of legal cases covering issues as varied as allegations of U.S. sanctions violations and mortgage-servicing abuses.

In an interview last week, Mr. Lawsky said he has found the outside experts very effective at ensuring financial institutions comply with the terms of their settlements and at probing deeply into complex financial matters. Now, he says he is eager to deploy them for routine examinations at the largest firms he regulates.

“This has been a great process,” Mr. Lawsky said. “The monitor has skills we don’t.”

The expanded use of monitors could raise concerns in an industry that says it is highly regulated already. The biggest U.S. banks have 100 or more on-site examiners from an array of regulators, including the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp.

Mr. Lawsky’s office regulates nearly 1,900 financial institutions with assets of more than $2.9 trillion. While it doesn’t supervise the largest U.S. banks, which are generally overseen by federal regulators, a few big banks are chartered in the state, including Goldman Sachs Group Inc. and Bank of New York Mellon Corp

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