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Florida Small Business



April 22, 2018

When Rhetoric Meets Reality

John D. McKinnon | 10/1/1995
A window of opportunity for reforming Florida's financial regulatory system is closing, without having let in as much change as some observers had hoped.

Not long after he was elected comptroller last November on a reformist platform, retired Marine general Bob Milligan appointed a task force to study regulation of financial services. To head the panel, the Republican comptroller appointed former Miami Democratic legislator Art Simon, who had lost in a primary challenge to the corrupted regime of Gerald Lewis, the man Milligan ousted in the election.

Like Milligan, Simon trumpeted reform of the antiquated comptroller's office, which holds sway over state banking and securities regulations. Florida enjoys the dubious distinction of having the only bank regulator in the country who is elected, not appointed, to office - making the job a magnet for corrupting campaign financing by the industry. Members of Milligan's panel even explored combining bank oversight with insurance regulation, which also is run in Florida by an elected commissioner.

But the reforms have been downsized by political realities. As of late summer, the Simon task force had voted to place bank regulation in the hands of an appointed regulator. But the task force bowed to tradition - and Milligan's own desires - by leaving bank regulation in the comptroller's office instead of placing it under the governor. And despite the widely perceived need for cabinet reform, the insurance commissioner would remain a separate elected office.

Increasingly, as banks, insurance companies and other financial institutions offer many of the same products (see page 66), progressive reformers call for combining regulatory oversight. "Why not be prepared?" asks Alan Gart, author of "Regulation, Deregulation, Reregulation: The Future of the Banking, Insurance and Securities Industries."

Government regulation should accommodate the market, observes Harvey Rosenblum, senior vice president and director of research at the Federal Reserve Bank of Dallas, who shared his views with Milligan's task force in a May meeting in Miami. "From the customer's point of view, the distinctions between banks, thrifts, finance companies, mutual funds and insurance companies will be meaningless," says Rosenblum. "Thus, there will be a single market for all financial services."

Gart, who also advised the study commission, recommends a unified system that combines banking, insurance and securities regulation under a single financial-services authority, perhaps a panel appointed by the governor.

Both the comptroller and the insurance commissioner have been elected positions more or less continuously since statehood in 1845. Only for about 17 years during Reconstruction, from 1868 until 1885, were the two positions appointed by the governor. The comptroller has had regulatory power over banks since at least 1895, while the commissioner has ruled on insurance matters since at least 1915.

Historically, the banking and insurance industries have resisted reforming the Florida system. With the two increasingly locked in combat for investors' money, there is less interest than ever in combining the two regulatory functions. Further complicating reform these days is the partisan division in Tallahassee: a Republican Senate and comptroller, a Democratic House and insurance commissioner (Bill Nelson).

To make matters still worse, the governor's office would be the most logical place to deposit the combined regulatory functions of the insurance commissioner and comptroller. At least 41 other states govern state banks through direct gubernatorial appointees or governor-approved designees. But Florida's current governor is Democratic. It's perhaps not surprising then that Republican Milligan and his task force have steered clear of the proposals - once commonly heard among Florida Republicans - for placing bank regulation in the hands of a governor-controlled agency. (Milligan cites the high cost of creating a new agency for financial services regulation.)

An example of the gridlock created by having two elected regulators can be seen in the dickering last summer between the comptroller's and commissioner's offices over a joint rule for allowing banks to sell annuities. The rule was necessitated by a landmark U.S. Supreme Court ruling in January that further blurred the traditional legal distinctions between bank and insurance investment products.

As for how Milligan's task force plans to reform the comptroller's office, the most significant proposal would create a "fire wall" between himself and the regulators in his office who oversee banking, securities and general finance companies. The principal component of the fire wall would be an independent commission of perhaps seven unpaid members chosen by the governor from a list of candidates forwarded by the comptroller. The members would have two-year terms that would be staggered. Commission members would be subject to Senate confirmation, to further reduce the influence of politics.

"The regulatory function will be totally out of [the comptroller's] hands," Milligan explained in a recent interview. "Final agency authority will not rest in his hands. He won't even be involved in the final agency authority."

The reforms would mean that the elected comptroller would be largely insulated from the chartering and examination of banks, licensing and regulation of brokers, and other key regulatory actions, although the comptroller would continue to play a role in handling consumer complaints about the financial industry.

That's a fairly radical change, at least for Florida. It's not likely to sit well with everyone in the state's financial community, or with many legislators. Perhaps as a result, Milligan also is considering accomplishing much of his reforms through executive order. That would avoid a nasty legislative fight in the 1996 session, something that the no-nonsense former general apparently isn't eager for.

Milligan, whose last campaign before the 1994 election was as commander of Fleet Marine Forces, Pacific, during Operation Desert Storm, reportedly considered running for Congress instead of comptroller but couldn't bear the thought of being one of 435 members. He apparently doesn't relish the idea of subjecting his reform ideas to the chaos of the Florida Legislature either.

"Sometimes I think [an executive order] might not be a bad way to do it for a year," Milligan says, "to see how it works before you really start ripping something asunder [through] big statutory changes. We may do that."

In fact, Milligan says he might propose to the 1996 Legislature only a ban on financial industry contributions to the comptroller, as a way of further insulating the office from improper influence. However, such a measure might be subject to constitutional attack.

In any case, Milligan says he won't take contributions when he runs for re-election in 1998. Milligan received no contributions from the industry during his low-budget campaign against 20-year incumbent Gerald Lewis in 1994, but not out of principle; they were never offered. All the money went to incumbent Lewis.

Such a stand on campaign finances would only add to the widespread perception of Milligan as a man of integrity. Unfortunately, however, it won't guarantee the long-term independence of the office. It's worth remembering that Lewis during his first two terms also refused contributions from the financial services industry, succumbing to campaign necessity in a tough 1982 race against a candidate who was relying on money from bankers and brokers. Against an industry-funded candidate in 1998, Milligan will have to rely on the public's memory, which unfortunately isn't always that good.

As for the widespread expectation of sweeping reform following Milligan's election, it may have to wait until the 1998 Constitution Revision Commission again tries to pass a Cabinet reform referendum.

Tallahassee Talk

* Insurance Commissioner Bill Nelson reportedly has been working such long hours at the Capitol lately that he's been sleeping "a few" nights on the couch in his office. Nelson blames the demands of the hurricane season. He says he's not living at the office and maintains an apartment in Tallahassee to satisfy the constitutional requirement that Cabinet officers live in the capital city.

* After some delay, state environmental officials have come up with proposals that could make Florida a leader in a popular new style of regulation known as "ecosystem management." But people familiar with the proposals say they may sink under the weight of bureaucratic verbiage. Too bad, they say, because the idea is promising. Ecosystem management is designed to keep the agency focused on the big picture and prevent it from wasting resources on by-the-book battles that cost developers millions of dollars yet produce modest results. The proposals could permit regulators to extract a more valuable tradeoff from a developer, like preservation of a pristine wetland unrelated to the project. The advantage for business: It's quicker and more certain.

Tags: Florida Small Business, Politics & Law, Business Florida

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