New York banking regulator Benjamin Lawsky has spent the summer expanding his office's already weighty influence. Now he's taking a break from his rapid-fire filing of new actions. Instead, Lawsky takes stock of the potential consequences for banks and their customers of the actions he's already put in progress.

What's your overall view of the financial industry right now? Is it mostly sound with fixes needed around the edges, or does it still need a systemic overhaul?

BENJAMIN LAWSKY: [Long pause.] I think we are in an incredibly dynamic environment right now, and I think there is an incredible amount of potential upside in the years to come. But when you have incredible dynamism, if you don't have guardrails and active oversight by regulators, you can run a real risk of having new, unexpected and sometimes quite serious problems and issues.

I'm very optimistic about where things are headed, but I do think regulators need to stay on their toes. They need to be forward-looking; they need to be thinking about what's around the next corner … As we see all these new changes in financial technologies, we all need to be thinking about how do we incentivize all the positives these technologies bring, but at the same time ensure we're not creating other unexpected problems that could become very serious very fast.

It's a very interesting time in our markets, and it's a very interesting time to be a regulator. It comes with a lot of responsibility and I think we all have to be a little bit humble.

You said you're not planning to expand into more areas of regulation. Given all of the areas you're already scrutinizing — money-laundering, financial consultants, payday lending, debt collection, Bitcoin, private equity ownership of insurance companies — do you have enough resources and staff to avoid spreading the department too thin?

We absolutely do, but I'm very cognizant of that, and that's why I don't think you'll see us jumping into five more new areas in the next four months. I think we're going to work on the four or five or six big projects we have — it's a large agency. We have 1,400 people, we have five different divisions, and each division has someone that runs that division as almost a business within the business. I feel very confident that we've allocated our resources well, and we haven't bitten more than we can chew.

Some in the banking industry argue that by making it more difficult to get payday loans, regulators will push poor people into even more unsavory financial products or further out of the financial system. What do you think about those concerns?

That is a very, very fair concern and we share it. The more aggressive we are in trying to enforce New York laws — which make payday lending illegal — the more aggressive we also need to be in coming up with and incentivizing financial products that those with lesser credit can still have access to. You can't do one without the other, you must be focused on both. Otherwise you run the risk of pushing people into even worse situations.

But that doesn't mean you throw up your hands and say, "We're going to allow illegal payday lending here in New York." First of all, it's illegal, and my job is, among other things, to make sure the law is being followed. But second, if you throw up your hands, and you allow these loans, which sometimes have annual rates of 800%, 900%, 700%, that's not helping people at the end of the day. Those loans, the way they're structured, are usually not helping anyone. They're pushing them into a cycle of debt that has the real chance of ruining people's lives for decades. So I don't accept the premise that we should just do nothing because things could get worse. …

But at the same time I completely agree that we have to do a much, much better job of incentivizing and working to make sure we're creating safer financial products for those who have less credit. It may be a debit card, it may be some other kind of financial product, where people can start to build credit. One of the things we're exploring is pilot programs with some of our banks, and going to these populations where 50% are unbanked or underbanked, and encouraging people to try to use these new pilot products, and ultimately helping people build credit. That is a vital thing we need to do.

Do you think anyone can or will go to jail for the financial crisis?

We don't have criminal jurisdiction — I don't have grand jury power at DFS, so we don't work on the criminal side. We can investigate, but then we hand it off to prosecutors. Will people go to jail? Obviously we're running into time-bar issues. I don't know anything about the [JPMorgan Chase (JPM)] London Whale case other than what I read in the papers, but that's post-financial crisis by far.

I think the real question is why haven't there been more criminal prosecutions? I think that's a very, very difficult question. … There's probably six or seven smart theories, all of which are partially correct, for why you haven't seen any large-scale criminal prosecutions of senior individuals at the firms that were involved in the financial crisis. I wasn't at the Department of Justice when they were making decisions on things like AIG, Lehman, etc., and those are very difficult cases to make. Having been a former prosecutor, it's a very high bar to reach, to decide that you've got probable cause, that an intentional crime was committed. And you're talking about incredibly complex products that were being produced at the time in enormously diffuse organizations, and to be able to point the finger at the tops of those organizations and be able to prove a criminal case for the leaders of those organizations, based on incredibly complex financial dealings that were going on deep in the bowels of those organizations, is very, very difficult.

It doesn't mean it couldn't have been done. And that comes back to a different question, which is a question of, as a policy matter, how many resources does one devote to building these cases? I know there's a whole debate over, "Well, they devoted this amount to Enron, they devoted this amount to the financial crisis." And that's a fair debate to have … I think there are many, many reasons why building those criminal cases was really incredibly difficult. It doesn't mean it shouldn't have been done, but it is what it is.

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