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SACRAMENTO — At a recent hearing on how federal law pre-empts state regulation of banking, Attorney General Bill Lockyer told California legislators he had a stack of lawsuits against the federal government “5 feet high.” Lockyer might have been exaggerating — but probably not by much. As the guardian of state law, he has repeatedly bumped heads with the feds over a variety of issues. But regulation of the financial services industry isn’t merely another issue for Lockyer. The AG is using his bully pulpit to take on the feds for their limits on state banking regulation, and he’s backing legislation that would allow his office to investigate violations of the state’s corporate securities law. Lockyer is pitching the efforts as a way to give California consumers greater protection. “Unfortunately . . . what [the feds] think is best for California always seems to turn out to be what’s best for business,” said Lockyer spokesman Tom Dresslar. But it’s also a fight that carries with it potential political capital. Lockyer’s New York counterpart, Eliot Spitzer, is a rising Democratic star who has gained national press for taking on Wall Street securities firms. The securities bill would give Lockyer new Spitzer-like powers over the state securities industry and make it a crime to lie to investigators. “Do we want an Eliot Spitzer in this state? That’s an interesting question. It’s a power grab for Lockyer, but it may, in fact, not be a bad policy decision,” said Michael Halloran, a senior partner in Pillsbury Winthrop’s corporate securities practice and a former Bank of America Corp. general counsel. “It’s a fundamentally different power. Eliot Spitzer can literally put people in jail. I’m sure the securities industry would rather” Lockyer not have that power, Halloran said. Lockyer’s bill, SB 434, has raised hackles, and opponents’ arguments sound a lot like bankers’ concerns regarding federal pre-emption. Corporations, whether they’re national banks or insurance companies investing in securities, want uniform regulatory standards and, for the most part, they want those to be federal. And Lockyer is unlikely to find many friends in Washington to help him loosen federal limits on state regulations. The Democrat acknowledges that with Republican control of the federal government, a creative political solution will be required. “We have been lobbying federal legislators. [But] the political reality is that you have the same party controlling all three branches of government,” Lockyer told legislators at the recent banking hearing. He suggested state legislators pass a resolution telling federal regulators not to stick their noses in the Golden State’s banking business. That would be a symbolic gesture, but also a first step toward organizing congressional support for improving states’ rights to oversee banking. State Sen. Dean Florez, D-Shafter, and state Assemblywoman Patricia Wiggins, D-Santa Rosa, chairs of the banking committees in their respective houses, invited Lockyer to attend the banking hearing because he was at the receiving end of an adverse court decision last year by Sacramento-based U.S. District Judge Frank Damrell Jr. In American Bankers Association v. Lockyer, 02-1138, a coalition of banks and credit card companies sued over a new state law that would have required credit card statements to disclose how long it would take someone to pay their debt if they only paid the minimum balance due each month. Damrell said federal law pre-empted the state’s ability to require such a disclosure. At the banking hearing, testifying alongside Lockyer was Department of Corporations Commissioner Demetrios Boutris. Like Lockyer, Boutris recently was shot down in federal court when his office attempted enforcement action against a subsidiary mortgage lender of Wells Fargo Corp. At the hearing, Boutris warned that federal pre-emption in banking was part of a broader intrusion by the federal government into the state’s regulatory authority. Although it’s easy for a Democrat-controlled administration to point the finger at President Bush, that interpretation of recent court decisions and regulatory pushes might not be entirely fair, corporate lawyers say. Bingham McCutchen counsel Maureen Young said pre-emption has actually come up more since 1994, when the Riegel-Neal Interstate Banking and Branching Efficiency Act made it easier for banks to operate in different states. “It has become a hotter issue in recent years because of more efforts by states to impose state laws,” Young said. But one person’s regulation is another’s red tape. As states try to regulate the practices of insurance companies, banks and securities firms — all industries that are becoming less and less local — the corporations complain that it’s difficult doing business under a patchwork of regulations. No federal regulators or bank general counsel showed up to the banking hearing, but representatives from the California Bankers Association did testify, and “uniform standards” was their mantra. In an interview after the hearing, Harvey Radin, a San Francisco spokesman for North Carolina-based Bank of America, said a lack of such standards “not only adds to the cost of business, but is confusing to consumers.” Banks and federal officials aren’t the only potential foes the AG faces. Although Lockyer and Boutris sat side by side as they testified at the banking hearing, relations between their offices aren’t great, mostly because of Lockyer’s proposal in the Senate. Boutris’ office already regulates securities. In a Los Angeles Times article earlier this year, Lockyer was quoted referring to Boutris as a “mosquito” and said Boutris, a Gov. Gray Davis appointee, wasn’t doing enough to fight corporate crime. Corporations Deputy Commissioner Andre Pineda refused to enter the fray, saying it’s not appropriate for Boutris’ office to take on Lockyer in the media. But he added: “If it’s done correctly, there’s no reason why concurrent jurisdiction can’t be good for consumers and businesses.” If the bill passes, though, won’t businesses make even more noise about operating under a patchwork of regulations? Lockyer responded: “It doesn’t add a single regulation or regulator. It adds a cop to the beat who can enforce the law.”

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