NY Faces Pay Gap Challenges in Bolstering Bank Examination Staff

New York’s top financial industry regulator is trying to expand bank examiner staffing, but relatively low pay and federal agencies’ competition for skilled labor are posing stiff challenges.

The New York Department of Financial Services has faced “internal staffing restraints” that hinder adequate staffing of examination teams, the DFS said in an April report on the failure of Signature Bank.

The department’s staffing shortages, which have been chronic since the agency was created in 2011, are typical of both state and federal bank regulators, particularly in high-cost states such as New York. But state regulators with limited budgets face even steeper hurdles than their federal counterparts.

The recent failures of Silicon Valley Bank, Signature Bank, and First Republic Bank have brought the shortfall of examiners to the fore, and focused attention on efforts of regulators to both attract new examiners and retain the ones they have.

Better-funded federal regulators can pay 30% to 50% more than the DFS for highly qualified examiners, according to the state regulator’s report, and private employers in the banking industry can offer even more.

“In government, there is always that question of retaining staff that have opportunities in the private sector or even in federal government jobs that may pay more. And in banking, there are some federal agencies that may pay more,” said former New York Superintendent of Financial Services Maria Vullo, who led the agency from 2016 until February 2019.

Examiner staffing woes at the DFS are critical given the size and importance of the banks it oversees, said Mayra Rodríguez Valladares, the managing partner of consultancy MRV Associates, which works with examiners from the DFS and other state regulators.

“The New York one just has such a diversity of banks as well. Every foreign bank is here,” she said.

Hiring Push

Created in 2011, the Department of Financial Services merged New York’s banking and insurance regulators into a single agency.

The DFS is charged with overseeing more than 1,200 state-chartered banks and other financial institutions, including the US branches of foreign banking giants such as Deutsche Bank AG, UBS Group AG, and Barclays Plc. Those banking entities have more than $3.3 trillion in total assets, according to the agency’s 2021 annual report.

New York’s supervisors typically work in tandem with federal examiners, particularly at large banks.

The agency also supervises more than 1,700 insurers with assets totaling over $5.5 trillion.

The 2024 New York state budget provided for a staff of 1,391 at the DFS. While the department doesn’t disclose its total number of current examiners, in past years it has faced a shortfall.

The examination unit has fluctuated between around 460 and 600 staffers since 2018, according to the Empire Group, a nonprofit that collects and posts data on New York governmental entities. The low points came during the tenure of former Superintendent Linda Lacewell, a close ally of former Gov. Andrew Cuomo (D).

Adrienne Harris, the current superintendent of financial services, has made hiring a priority since being appointed to the post by Gov. Kathy Hochul (D) in August 2021.

The agency has hired more than 200 people and promoted 199 others since January 2022, it reported last month. It’s unclear how many of those new hires were in the bank examination unit, though the DFS also said it added its first new class of examiners since 2018, the last full year of Vullo’s term.

A DFS spokesperson said the new hires and promotions were spread across the department.

“Even with DFS’s recent hiring success, however, a long-running failure to maintain adequate staffing levels, combined with ongoing attrition requires DFS to continue this important work of hiring in order to fully execute on its mission,” Harris said in prepared testimony ahead of a May 17 House Financial Services Committee hearing. She is also slated to testify Thursday before the Senate Banking Committee.

Pay Disparities

For Harris and the DFS to achieve their staffing goals, they’re going to have to overcome significant pay disparities with the private sector and federal regulators.

While the maximum entry-level salary for New York DFS bank examiners is around $73,000—similar to the top starting salaries for examiners at the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—the federal agencies also provide cost-of-living adjustments. New York-based examiners at the FDIC, for instance, can get an additional 38.8% on top of their base pay, according to the FDIC’s website.

The pay gaps grow significantly after staffers have a few years of experience.

Both the FDIC and the OCC can offer up to around $105,000 to mid-level examiners, while salary structures at the DFS mean it can take significantly longer for examiners to reach that level. The Consumer Financial Protection Bureau and the Federal Reserve can pay even more.

“You can earn more, not that you’re going to strike it rich, by going to work for the Fed and the OCC,” Rodríguez Valladares said.

But even federal regulators are stretched too thin, she added. The FDIC, in its own report on Signature’s March 12 failure, cited pay concerns among the reasons it had trouble fully staffing its New York office.

‘Such a Challenge’

There are other ways for state regulators to get examiners to stay on.

Harris has emphasized improving training and plans to revise the examination process so that examiners can more quickly address and escalate problems at banks.

Vullo added that agency leadership needs to make clear to examiners that they are respected and are “the lifeblood of a regulatory agency.”

“I knew that, and I did my best to allow them to know that,” she said.

But cash is king, and keeping people on the job will always be a challenge given potential larger earnings elsewhere, said Steven Kelly, a senior research associate at the Yale Program on Financial Stability.

“The wages and job retention thing is such a challenge,” he said.