DOB: Administrative Report to the Governor, 2006-2007

Administrative Report to the Governor
2006-2007

Agency Mission | Statutory Responsibility | Public Service
Improvements/Achievements | Home Financing | Interstate Banking


Department At A Glance:

 Commissioner - Howard F. Pitkin
Deputy Commissioner - Alan J. Cicchetti

Established - 1837

Statutory Authority - Titles 36a and 36b,
Connecticut General Statutes, and Related Laws

Central Office -
260 Constitution Plaza
Hartford, CT 06103-1800

Average number of full-time employees - 120

Recurring operating expenses, 2006-07 - $16,836,163

Organization Structure:

  • Administration
  • Consumer Credit
  • Financial Institutions
  • Securities and Business Investments


Agency Mission

The mission of the Department of Banking is to protect users of financial services from unlawful or improper practices by requiring that regulated entities and individuals adhere to the law, assuring the safety and soundness of state chartered banks and credit unions, educating and communicating with the public and other stakeholders, and promoting cost-efficient and effective regulation.

Statutory Responsibility

The Department of Banking is responsible for the regulation and examination of financial institutions and various related entities chartered, licensed or registered by the state. The Banking Commissioner is charged with administering the banking and credit union laws of the state as well as the laws regarding securities, tender offers and business opportunities. The banking commissioner also administers the Truth-in-Lending Act and other consumer credit laws and a major portion of the law concerning rental security deposits.

Specific regulatory functions are assigned to divisions within the department.

The Consumer Credit Division is responsible for regulating the activities of first and secondary mortgage lenders, brokers, and originators; small loan companies; sales finance companies; debt adjusters; consumer collection agencies; money transmitters; issuers of money orders or travelers checks; and check cashing services.  The Division is responsible for the licensing and examination of these entities and the enforcement of related Connecticut laws.  The Division also administers Truth-in-Lending laws; retail installment sales financing laws; and a major portion of the law relating to rental security deposits. 

The Financial Institutions Division is responsible for the supervision of state-chartered bank and trust companies, savings banks, savings and loan associations and credit unions. The division also licenses foreign banking organizations that establish and maintain representative offices, agency offices or branch offices in Connecticut, and supervises bank holding companies.  It has responsibility for analyzing applications for new bank or credit union charters, acquisitions, mergers, branches, changes in corporate structure, and credit union field of membership expansions.  In addition, the division licenses business and industrial development corporations and certain non-banking corporations that exercise fiduciary powers.

The Securities and Business Investments Division is responsible for the registration of securities and business opportunity offerings for sale in Connecticut; the registration of broker-dealers and investment advisers, along with their agents and branch offices; the examination of broker-dealer, investment adviser and branch office registrants; and enforcement of the state's securities, business opportunity and tender offer laws.

The department's customers include the general public, representatives of the public, regulated entities and consultants. The public at large, including depositors, borrowers, investors, landlords and tenants, and others who use the services of regulated financial entities, benefits broadly from agency activities. Agency services protect public funds in depository institutions, offer important investor and consumer protections, assist in dispute resolution and provide helpful public information.

Representatives of the public including the Governor and the General Assembly, other elected and appointed officials and federal, state and municipal agencies receive information, advice, proposed legislation, case referrals and other important services from the department.

Financial entities are subject to regulatory oversight.  Consultants, including law firms, accounting firms, consumer advocacy groups, trade associations and others, receive information, advice, policies and guidelines from the department.


Public Service

The Department of Banking is strongly committed to maintaining a standard of excellence in meeting its regulatory responsibility, while being responsive to Governor Rell’s desire to promote a business friendly climate in Connecticut.

In order to provide the public with convenient 24-hour, 7-day access to information on department programs, licensing activity and educational resources, the department maintains a Web site on the Internet at www.ct.gov/dob.  During 2006-2007 approximately 980,000 visitors viewed over 3 million pages on the agency Web site.

As a fundamental part of its mission, the department is committed to protecting Connecticut citizens in transactions with financial institutions, as directed by state law, and in assisting with consumer complaints and dispute resolution.

Consumers are encouraged to contact the department whenever they need assistance in dealing with financial institutions. Agency employees will promptly assist consumers with issues involving banks, credit unions, mortgage lending and other consumer credit matters, rental security deposits, and matters relating to securities and business opportunity investments.  

During the 2006-2007 fiscal year, examiners in the department’s Government Relations and Consumer Affairs Division handled 15,102 telephone inquiries and 3,097 written complaints from the public.  As a result of their efforts, the department obtained $808,984 in adjustments and reimbursements on behalf of consumers during the period.  

The public received restitution of approximately $143,066 relating to penalties imposed upon licensees by the Consumer Credit Division as part of the examination process.   The Consumer Credit Division continued its focus on enforcement activities.  During the period, the Division was involved in approximately 54 enforcement actions resulting in a variety of actions against licensees and civil penalties of $625,750.  

Intervention by the Securities and Business Investments Division during the fiscal year resulted in restitution and rescission offers to the investing public totaling $22,782,177.  The division also imposed $8,023,270 in fines for violations of the state's securities and business opportunity laws.

A portion of the fines levied came about as a result of negotiated settlements with securities brokerage firms and others resulting from a continuing multi-state and federal investigation into the formerly widespread brokerage practice of permitting investment banking considerations to undermine the objectivity of securities analysts. The Division also focused its enforcement efforts on improper market timing involving mutual fund shares and on schemes to defraud senior citizens.  The division finalized a previously negotiated settlement with a brokerage firm charged with failing to supervise the market timing activities of its agents.  The novel resolution not only fined the firm $1 million, but required that, over three years, the firm pay the State of Connecticut Department of Education $500,000 to promote financial literacy initiatives in Connecticut public schools and pay $500,000 to the National White Collar Crime Center to train Connecticut regulatory and law enforcement personnel in investigating and prosecuting violations of financial, banking, corporate and securities laws.  The division also provided assistance to state and federal prosecutors who procured the convictions of two men accused of bilking senior citizens out of approximately $4.3 million in the aggregate.  The criminal cases, which were separate, involved fraudulent sales of stock and promissory notes, and resulted in prison sentences of 170 months and 10 years, respectively.

In addition, the agency's security deposit investigator received approximately 305 telephone inquiries per month; resolved 274 landlord tenant disputes in the fiscal year; and recovered $79,204 for Connecticut residents who had complained to the department that landlords had unjustly withheld their refundable rental security deposits.

As of the end of the fiscal year, there were four state-chartered domestic banks in various stages of organization: Higher One Bank (New Haven), Quinnipiac Bank & Trust Company (Hamden), Harbor Bank & Trust (Fairfield) and The Bank of Fairfield (Fairfield).   On December 20, 2006, The Bank of Greenwich (Greenwich) opened for business as a state-chartered bank.  On September 30, 2005 the Banking Commissioner closed Circle Trust Company, a Connecticut state-chartered trust bank with operations in Connecticut and Vermont.  The Banking Commissioner was appointed Receiver and continues to liquidate the company.

The Connecticut based International Banking community continues to grow.  On December 22, 2006 Lloyds TSB Offshore Limited was issued a license for a representative office in Stamford.  On May 3, 2007 The Royal Bank of Scotland was issued a license for a branch office in Greenwich; the bank plans to move to Stamford once the construction is complete on its new Connecticut based headquarters.

During the fourth quarter of 2006, the Banking Commissioner conducted a series of CEO Roundtables held jointly with the Connecticut Bankers Association; these meetings provided an opportunity to discuss concerns and recommendations from the industry.  As a result, we implemented a number of changes related to branch approvals, streamlining data collected and improved the communications between the department and the banks with the alternative use of electronic communication for the quarterly packages.  These changes were outlined in a February 2007 letter to the bankers.  In addition, the Financial Institutions staff attended the CBA’s CIO Technology Committee to discuss industry issues and regulatory examination trends.

In July 2007, the Banking Commissioner issued industry letters to the banks and credit unions discussing his role as co-chairman of the Connecticut Subprime Lending Taskforce and encouraging the institutions within the standards of safety and soundness to work with borrowers.  The letter also referenced the April 2007 Interagency Statement on Working with Mortgage Borrowers. 
 
The Financial Institutions Division continued to produce its quarterly “DeNovo Report” for the benefit of bank executives and boards of directors; industry representatives; and consultants.  The report offers a comparative view of the financial performance of new banks in Connecticut.

During the fiscal year period, the Financial Institutions Division conducted surveys of Connecticut banks and credit unions on a variety of topics.  Most recently in June 2007, the department, through the Financial Institutions Division, contacted the various banks, credit unions and foreign banking organizations operating in Connecticut to solicit emergency contact information for the various entities.  This information is gathered and shared with the Critical Infrastructure Protection Unit of the Division of Homeland Security. 

During this fiscal year, the department, through the Financial Institutions Division, produced its annual Real Estate Loan Products Survey for Connecticut state-chartered banks.  The survey was produced in response to concerns of real estate lending practices, rising home prices and the potential impact of rising interest rates.  Survey data gathered related to non-traditional real estate lending products for the periods ending December 31, 2006.  In the June 2007 Industry Letter to credit unions, the Commissioner also included a Real Estate Loan Products Survey for Connecticut state-chartered credit unions requesting data for the year-ends 2005 and 2006.  Aggregate data from the surveys will be shared with the participants.

In April 2007, the department co-sponsored a conference with the Connecticut Credit Union Association on the Unrelated Business Income Tax (UBIT) issue facing state chartered credit unions.  Industry experts addressed UBIT issues as they relate to regulatory, accounting and tax reporting. 

On November 13, 2006 the Banking Commissioner issued a letter to the Connecticut banks and credit unions promoting the Department of Banking’s enrollment campaign for Go Direct sponsored by the U.S. Department of the Treasury and the Federal Reserve Banks.

Each year the department, with the coordination of the Government Relations and Consumer Affairs Division, conducts an active legislative program. During the 2007 legislative session, three department proposals were enacted into law.  Two of these bills were very extensive in their language.

Public Act 07-91 makes a number of changes to the commissioner’s authority.  The act authorizes the banking commissioner to, under certain circumstances, require a person to take or refrain from taking actions, in order to effectuate the purposes of the law.  It also consolidates statutes concerning mortgage closings, requires loan proceeds to be paid at loan consummation or when the right of rescission terminates, if one exists, and extends certain requirements to second mortgages.

In addition, Public Act 07-91 allows the commissioner to adopt regulations and make necessary findings for the conduct of small loan licensees in their association with other businesses and the conduct of those associated businesses, rather than doing so just for the licensee. The legislation makes a number of changes to the money transmitter laws to specify that certain provisions apply to monetary value, rather than just money and Connecticut payment instruments.  The act changes the duties of the advisory panel established to oversee the program that uses the interest on lawyers' clients' funds accounts (IOLTA).  The act also provides guidelines for the management, investment, and expenditure of institutional funds by establishing the Uniform Prudent Management of Institutional Funds Act.

Public Act 07-156 allows the banking commissioner to participate in the national mortgage licensing system. The act requires the banking commissioner to submit to the Banks Committee three consecutive annual reports, including financial statements of the State Regulatory Registry, LLC, on the licensing system.

A third bill, Public Act 07-72, made technical changes to statutes.

As a benefit to industry and the public, the Legal Division prepared compilations of the statutes and regulations within the department’s jurisdiction and certain other related laws.  The compilations are continually revised to reflect new legislation or changes in regulations and are available for free download on the agency Web site.

The division also posted on the Web copies of administrative actions taken by the agency against various entities, as well as indices to advisory opinions issued by the Commissioner concerning bank, credit union, consumer credit, landlord/tenant and business opportunity matters.

During the fiscal year, personnel from the Securities and Business Investments Division provided valuable input to the National Association of Securities Dealers concerning refinements to the national online system for filing branch office registrations through the Central Registration Depository.  Fiscal year 2006-07 also witnessed the electronic filing of Part II of Form ADV through the Central Registration Depository system, further facilitating the investment adviser registration process.  The Central Registration Depository is a national database administered by the NASD which allows registrants to make multiple filings electronically and promotes regulatory uniformity.

As a means to keep industry apprised of new regulatory developments, the division published its quarterly Securities Bulletin.  Listserv distribution lists and Web site e-alerts provided a way for industry members to receive information more quickly, and provided a significant cost saving to the agency as well.

The department emphasizes educational efforts to help the public understand financial services offered in the marketplace and recognize fraudulent investment offers.  A weekly News Bulletin provides information on applications before the agency and intended changes in regulations, and other publications are produced as needed.

The Government Relations and Consumer Affairs Division continued its focus on educating the public through outreach.  To facilitate the consumer financial and investor education programs, a position of Banking Education Coordinator was added to the division.   This coordinator began working with division directors to develop public outreach goals.  A marketing effort was initiated, and has resulted in various requests for agency speakers.  A process of compiling and distributing informational publications is also underway.

In the fall of 2006, a series of Identity Theft workshops was presented to University of Connecticut Professional Employee Association members at various campuses statewide.

On May 14, 2007 the Department of Banking, along with AARP-Connecticut and the U.S. Securities and Exchange Commission, sponsored a free “Safe Investing Seminar” for seniors.  This event was attended by nearly 150 people who were given information from experts in the industry on how to protect themselves from securities fraud and abusive sales practices.

The Department of Banking is committed to providing equal employment opportunity on the basis of merit; to assuring nondiscrimination; and to implementing affirmative action and contract compliance programs, as required by law.  The department's affirmative action plan, filed with the Commission on Human Rights and Opportunities, reflects the agency's commitment to achieving workforce balance and fairness in all terms and conditions of employment.


 Improvements/Achievements 2006-07

In order to meet the challenges associated with fulfilling its mission to protect the public, the department found it necessary to spend nearly 99% of its appropriated budget during the fiscal year. During the year, internal controls pertaining to revenue and expenditure accounting were strengthened; while the department’s financial reporting capabilities were expanded.

The Government Relations and Consumer Affairs Division continued to manage the department’s Web site and maintain its high standard of up-to-date licensing and regulatory information.  In early 2007 the division updated and re-organized the consumer information section of the Web site to promote the agency’s focus on educational outreach. 

The Consumer Credit Division’s licensing unit continued to work closely with the Department of Information Technology in developing a new browser-based licensing database system. In a related matter, legislation was passed which will enable the Consumer Credit Division to participate in the Nationwide Mortgage Licensing System. 
 
The Division developed a comprehensive examination procedure for its money transmitter and check casher licensees resulting in increased communication, oversight and regulatory awareness.  The mortgage examination area has established more stringent review of the licensee’s financial stability, and has implemented a CORE information request and review in the examination process.  The changes in the examination process will provide greater protection to Connecticut consumers.

The Consumer Credit Division has significantly increased staffing levels, resulting in additional capacity to conduct examinations of licensees.  The increased staffing has also improved the application process within the licensing area.
 
The division’s examination unit continued to work closely with the Financial Institutions Division by providing Truth-in-Lending Act compliance training to its examiners for use in the regulation of state chartered institutions.

The Financial Institutions Division remains committed to continuing its communication with industry representatives and will continue to produce various Industry Letters and sponsor meetings with CEOs, CPAs, CIOs, etc. to discuss relevant industry and regulatory issues.  We continue to solicit feedback from every bank and credit union examined by the division as they are provided a post-examination survey that may be privately returned to the Commissioner.   Institutions are given the opportunity via the survey to comment on staff performance, examination efficiency and examination time demands in an effort to improve future examinations.

The Financial Institutions Division staff are active members of both the Conference of State Bank Supervisors (CSBS) and the National Association of State Credit Union Supervisors (NASCUS).

The Business Office continued to utilize successfully the state’s new automated financial management system, CORE-CT.  Indicative of this, the Business Office made use of enhancements related to the asset management module. The enhancements improved the department’s ability to survey and report financial information pertaining to equipment acquisitions, transfers and retirements.  The new module has also served to enhance the department’s ability to report current period financial information to other state agencies.

The Human Resources Office established a new Drug and Alcohol policy, including arrangements with UCONN Health Center to conduct “for cause” fitness for duty evaluations; an EAP counselor provided training to managers and supervisors on early identification and addressing of employee substance abuse issues.  Labor relations training was also provided to managers on topics such as performance management, contract interpretation, and progressive discipline.  One member of the Human Resources staff successfully completed the Human Resources Management Certificate Program offered by the Department of Administrative Services.

The Securities and Business Investments Division is assisted by a Securities Advisory Council, comprised of industry representatives, academics and members of the bar, all of whom serve without compensation, that offers the Commissioner and staff insight on new regulatory initiatives. 

On October 26, 2006, the department held its annual Securities Forum in Cromwell, Connecticut. Presentations by department speakers, Securities Advisory Council members and others kept securities industry members abreast of critical regulatory and compliance developments.  Nearly 300 attendees from the securities industry and the private bar attended the event which featured 6 panel presentations and an opening general session on hedge funds.  Zachary J. Bagdon, Executive Director of Yale University’s International Center for Finance, delivered the keynote address.

Ralph Lambiase, director of the Securities and Business Investments Division, continued his active participation in the North American Securities Administrators Association, Inc. (NASAA).  Organized in 1919 and dedicated to investor protection, NASAA is a voluntary association whose membership consists of 67 state, provincial and territorial securities administrators in the 50 states, the District of Columbia, Canada, Mexico, Puerto Rico and the U.S. Virgin Islands.  During 2006-07, Mr. Lambiase served on NASAA’s Corporate Governance Committee, External Affairs Committee, Broker-dealer Section Committee and Continuing Education Project Group.

During 2006 and 2007, the Securities and Business Investments Division continued to participate in quarterly meetings conducted by the Connecticut Corporate Fraud Working Group, a body comprised of the U.S. Attorney’s Office, other federal law enforcement agencies, the Chief State’s Attorney’s Office and the Department of Insurance to discuss and coordinate current and future enforcement cases of interest to each agency.


Home Financing

Since 1992, state-chartered banks have submitted Home Mortgage Disclosure Act (HMDA) information to their primary federal regulator, usually the Federal Deposit Insurance Corporation (FDIC). That agency examines banks in accordance with prescribed regulatory timeframes once every two years for compliance with HMDA and other regulations. The Department of Banking receives and reviews copies of all of these confidential compliance examination reports. Based on the department's review of recent community reinvestment act (CRA) and compliance examination summaries during 2006, no evidence of discriminatory practices by state-chartered institutions was disclosed.


Interstate Banking

As of July 1, 2007, seven banks headquartered in Connecticut operated 50 branches or limited branches that were located outside of Connecticut. Correspondingly, 19 banks chartered or headquartered out of state operated 454 branches or limited branches located within Connecticut.  In addition, seven foreign banks operated state agencies, branches or representative offices in Connecticut.

Bank Mergers and Acquisitions for Fiscal Year 2006-2007

On August 29, 2006, pursuant to Section 36a-185 of the Connecticut General Statutes, the Commissioner issued a notice of intent not to disapprove the acquisition by Webster Financial Corporation of all of the issued and outstanding voting securities of NewMil Bancorp, Inc., and indirectly NewMil Bank.  The acquisition took place on October 6, 2006 through the merger of NewMil Bancorp, Inc. with and into Webster Financial Corporation.  Immediately following the acquisition, pursuant to Sections 36a-126(b) of the Connecticut General Statutes, NewMil Bank, headquartered in New Milford, Connecticut, merged with and into Webster Bank, N.A., a national banking association and wholly-owned subsidiary of Webster Financial Corporation, headquartered in Waterbury, Connecticut.

On November 14, 2006, pursuant to Section 36a-411 of the Connecticut General Statutes, the Commissioner approved the application of Capital One Financial Corporation to acquire and retain indirect ownership and control of 10% or more of the voting stock of Superior Savings of New England, National Association, headquartered in Branford, Connecticut, and, pursuant to Section 36a-185 of the Connecticut General Statutes, issued a notice of intent not to disapprove the acquisition by Capital One Financial Corporation of 100% of the issued and outstanding voting securities of North Fork Bancorporation, Inc. and indirectly Superior Savings of New England, National Association, or under certain circumstances, of up to 19.9% of the issued and outstanding voting securities of North Fork Bancorporation, Inc.  The acquisition took place on December 1, 2006 with the merger of North Fork Bancorporation, Inc. with and into Capital One Financial Corporation.

On December 7, 2006, pursuant to Sections 36a-412(b) and 36a-125 of the Connecticut General Statutes, the Commissioner approved the merger of Westbank, a Massachusetts-chartered bank and wholly-owned subsidiary of Westbank Corporation, with and into NewAlliance Bank, a Connecticut bank and wholly-owned subsidiary of NewAlliance Bancshares, Inc., in connection with the simultaneous merger of their holding companies.  Effective January 2, 2007, Westbank merged with and into NewAlliance Bank, with NewAlliance Bank, a capital stock savings bank headquartered in New Haven, Connecticut, as the resulting entity.

On March 23, 2007, pursuant to Section 36a-185 of the Connecticut General Statutes, the Commissioner issued a notice of intent not to disapprove the acquisition by New England Bancshares, Inc. and New England Bancshares Acquisition, Inc., of 100% of the issued and outstanding voting securities of First Valley Bancorp, Inc., the holding company for Valley Bank, headquartered in Bristol, Connecticut.  New England Bancshares, Inc. is the holding company for Enfield Federal Savings and Loan Association, headquartered in Enfield, Connecticut.  The acquisition was completed July 12, 2007.  At the time of the acquisition, the separate corporate existence of First Valley Bancorp, Inc. ceased, and Valley Bank became a subsidiary of New England Bancshares, Inc.