An Interview with Commissioner Greg Gonzales

Greg Gonzales is the 18th commissioner of the Tennessee Department of Financial Institutions. He began serving in this role in 2005, appointed by Gov. Phil Bredesen, and has enjoyed reappointment to the position by both Governors Bill Haslam and Bill Lee. He joined the Department as this writer’s assistant general counsel and has served in a number of roles, including general counsel and assistant commissioner, prior to his appointment by Gov. Bredesen to the top job. He had served under former commissioners Billy Adams, Jeff Dyer, Dennis Phillips, Talmadge Gilley, Bill Houston, Fred Lawson and Kevin Lavender, a career that spans almost 33 years with the Department.

Gonzales serves as Tennessee’s chief regulatory officer for all state-chartered depository and licensed non-depository financial institutions. He is unique among prior commissioners because he is also an attorney.

Born in Cookeville, Tennessee, Commissioner Gonzales graduated Cum Laude in Cursu Honorum with a bachelor’s degree from Tennessee Technological University in 1980. He served as a research assistant in 1980 to Sir Patrick Cormack (now Baron Cormack), a Conservative Party member of the British Parliament (1970-2010) and earned his law degree in 1984 from the University of Tennessee. When I found him in 1986, he was an assistant to the Honorable Al Gore, and he was happy to stop traipsing all around the state after the senator.

Gonzales is a past chairman of the Conference of State Bank Supervisors, the professional organization of state banking commissioners in the United States. For a number of years, he also served as a member of the board of directors of the Money Transmitter Regulators Association, an organization of a majority of the states that regulate funds transfer companies. He is the current chairman of the State Liaison Committee that incorporates the states’ supervisory perspective into the Federal Financial Institutions Examination Council. He has served on the U.S. Treasury’s Bank Secrecy Act Advisory Group and serves in Tennessee on the board of directors of the Financial Literacy Commission.I n addition, under his leadership, the Tennessee Department of Financial Institutions is part of a pilot program called Vision2020, designed to streamline examination and licensing processes by remaking the existing Nationwide Multistate Licensing System into a common platform for non-bank regulation. Currently, Gonzales serves on a national task force studying how new technologies are affecting the U.S.
payments systems.

An avid Chicago Cubs fan since the 1960s, Gonzales believes that this devotion “has taught him great life lessons in perseverance and that loyalty is eventually rewarded.” I interviewed Commissioner Gonzales for this column on Feb. 1 and posed
questions I thought might be interesting  to lawyers.

KATHRYN REED EDGE: You have been appointed and reappointed to the commissionership by three governors and have worked in other positions under seven different commissioners before becoming commissioner in your own right.  What keeps you in this job when there are a lot of other opportunities available
to you?

GREG GONZALES: I sincerely believe that, for me, government work is a ministry.  Government is ordained by God, and ever since I was a child, I knew that I wanted to be involved in government service. It’s the job of government to represent and serve the people, and I have been blessed with that opportunity. I’m grateful to have been able to continue to do it for so long. I truly enjoy the work and the people I’ve worked beside, both in the Department and in the industry
we regulate. 

KRE: Commissioner, while you have a legal background, the commissioner’s role is not strictly a “legal position.” To my knowledge, all of your predecessors have been bankers or former bank examiners. What have been the most challenging legal issues you have faced as commissioner, as compared to banking industry-specific issues?

GG: It’s challenging to deal with some of our federal counterparts whose code word for “one size fits all” regulation is “consistency.”  It leads to lazy regulation when you fall back on this easy way to look at industry innovation and challenges.  We try to see each regulated company as an individual entity, each with its own risk profile and each with the possibility of great success if we don’t get in the way.  For example, we have changed the way we look at enforcement actions.  Instead of listing every picky policy deficiency that, in an ideal world, a bank might need to enhance, we focus on what really matters for that particular institution. Does it need capital?  Is the bank at risk for experiencing a liquidity crisis?  Are there management issues that are threatening the safety and soundness of the company?  If the big issues are satisfactorily addressed, we can fix the little problems later once the crisis is over.

KRE: Have you managed to get your federal regulatory counterparts to buy into this philosophy?

GG: Working on it!

KRE: In what ways has being trained as a lawyer helped you perform your duties as commissioner?

GG: My philosophy is that rather than asking lawyers to drive policy decisions, the program folks in the Department need to decide what the best policies are to help us ensure that the companies we regulate are functioning in a safe and sound way.  Once we establish policy, our lawyers review the processes to be sure that we are not violating any legal requirements.  My professional background allows me to work with our program people and our lawyers to make sure there is a balance between what works and what’s legal — my job is to bridge any gap there might be.  I’ve told our staff that in any precedent-setting decision, I want to be involved before the answer is “no.” 

KRE: What do you want lawyers to know about representing their clients in matters before the agency?

GG: I’d say that we always assess issues brought to us by counsel by asking, “What’s the right thing to do?”  We are always with the proponent if what he or she is asking us to do results in the best business outcome as long as it’s safe, sound and legal. We want to say “yes” and always strive to do that.  If we cannot, we want to work with counsel and their clients to find a way to get to an answer we can both live with.  It’s the opposite of that lazy regulation we talked about ­– getting it right is hard but always worth it. 

KRE: You have a reputation among bank lawyers and their clients of always being willing to meet with them in person.  Can you talk about why you think that’s important?

GG: Well, it’s the right thing to do.  It helps us stay fresh on issues and to embrace innovation to hear directly from bankers and their lawyers. Hearing bankers and their counsel express their concerns, pose new ideas, and challenge assumptions face-to-face is just more effective for everyone than the four corners of a page or a bullet point e-mail. I can’t recall a single instance in my now 13 years as commissioner that I have refused a meeting.  When the General Assembly is in town, it might take some scheduling, but we get it done.

KRE: Where do you think the financial services industry is headed in the next 10 years?

GG: That’s a good question. Regardless of where technology takes us, we have to be able to regulate financial services that can be delivered almost instantly and anywhere. Regulation and legal structures will necessarily change, but innovation should enhance, not cause the loss of relationship banking. There should always be a way for bank customers to sit down with bankers across the table, whether in rural Tennessee or in a Nashville urban neighborhood, and talk about their financial well-being.  Changing delivery mechanisms for financial services shouldn’t displace relationships.

KRE: I listened to the recordings of Governor Lee’s budget hearing — where you were first up because you’ve done this before ­— and your recent testimony before the Tennessee House of Representatives Banking and Investments Sub-Committee and wondered if you can sum up for our readers your essential messages.

GG: I was privileged to talk with Governor Lee and his staff and the members of the Banking sub-committee about a number of issues, so I’ll just hit the high points. We tell the financial institutions we regulate that there are three questions they should ask the agencies that regulate them:  What are you trying to achieve? What’s the plan for achieving your goals and mandates? How is that plan going to affect my business? Financial services businesses deserve answers to those questions. Our department seeks to establish a system of safe and sound financial services that allow those companies to serve their customers and put them in the best situation to succeed. There are four essential parts of that plan: applications, examinations, enforcement, and consumer protection.
We have established application processes for determining which financial services companies are permitted to do business in Tennessee or expand their businesses here.  We examine those businesses on a periodic basis, and then throw a safety net over those companies that are experiencing problems so that we help them improve without over reacting with draconian policies that affect all financial institutions. We tailor our examinations and enforcement actions based on risk and focus our pre-examination reviews on emerging risks.  In addition, we are actively engaged in handling consumer complaints to help assure that all of our regulated entities are treating consumers the way they should. 
One of the biggest challenges is maintaining a highly skilled, experienced examination staff. It takes at least five years for an examiner to gain the necessary experience to be balanced and effective. With more and more industry consolidation, it is really important that, as examiners, we are able to assess risk in larger, more complex organizations. We also know that eventually there will be another economic downturn, and having examiners who have weathered at least one bad economic cycle is key to being sure that we are providing effective regulation.

KRE: Thank you, Commissioner. It’s always a pleasure to talk with you. On behalf of lawyers who routinely practice before you and your staff, thank you for your balanced approach to regulation and the respect with which you interact with us and our clients. I also join the entirety of the industry in thanking Governor Lee for reappointing you to this important role and in thanking you for being willing to stay — just like examiners need experience through both good and bad times, we need seasoned government leadership in these key positions. 

Kathryn Reed Edge is senior counsel in the Nashville office of Butler Snow LLP with offices in  Tennessee, Mississippi, Alabama, Georgia, Colorado, New Mexico, Pennsylvania, Louisiana, New York, Texas, Massachusetts, Virginia, North Carolina, Washington, D.C., Hong Kong, Singapore and London, England.  She is a member of the firm’s Finance, Real Estate and Restructuring Practice Group and has concentrated her practice for the last 30+ years in representing regulated financial services companies. She is past president of the Tennessee Bar Association and a former member of the editorial board for the Tennessee Bar Journal.

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