Schneiderman's shocking departure doesn't get banks off the hook

The rapid implosion of Eric Schneiderman, New York’s attorney general, is a potentially significant turn of events of the financial industry — but banks shouldn’t be breathing a sigh of relief just yet.

Schneiderman announced his resignation from office just hours after The New Yorker published a story detailing alleged violence against several women he’d dated. The AG denied the claims in a statement Monday night, but said he was stepping down because the allegations “will effectively prevent me from leading the office’s work at this critical time.” He took office in 2011.

Yet even as Schneiderman faces a public reckoning for his reported abuse, he leaves in his wake several high-profile actions against the country’s major banks, including two large settlements this spring with Royal Bank of Scotland and UBS for the sale of toxic mortgage securities in the run-up to the financial crisis.

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Eric Schneiderman’s many tangles with financial firms

Former N.Y. Attorney General Eric Schneiderman had been a thorn in the side of financial institutions, using his state’s significant clout to affect national policy debate on a host of topics ranging from dark pools to cryptocurrencies. Here’s a look back at how Schneiderman made his mark on the ways financial institutions do business.

By Christopher Wood

1 Min Read

The banking industry should now be watching closely to see who fills his shoes, given the prominence and power of the office.

“New York is not only a financial center, but it's also a media center,” said Dennis Kelleher, president and chief executive of advocacy group Better Markets. “Not only does its attorney general bring enforcement actions, but they have a bright light to shine on illegal activities going on in the markets, which alerts other state regulators around the country to get active.”

The role may take on outsize importance in coming years, as the Trump administration and its financial regulators in Washington adopt a friendlier tone toward the industry and pursue deregulation.

In Albany, the search for Schneiderman’s replacement is already on. New York Solicitor General Barbara Underwood will serve as acting attorney general in the interim, as state lawmakers consider names to fill the rest of the AG’s term through the end of the year. Schneiderman was up for reelection in November, raising questions about who might run in his place. Democrats are scheduled to nominate a candidate by May 23.

But early chatter is not necessarily shaping up well for the financial industry. Several names familiar to bankers are said to be on the shortlist, including Preet Bharara, the former U.S. attorney for the Southern District of New York, and Ben Lawsky, former head of the New York State Department of Financial Services.

I hope @PreetBharara is willing to serve as the new Attorney General of NY, and that the NY Legislature will have the wisdom to choose him.

— Laurence Tribe (@tribelaw) May 8, 2018

I wonder if @PreetBharara will run for NY Attorney General.

— Jeffrey Toobin (@JeffreyToobin) May 8, 2018

Get ready for Attorney General Lawsky

— Joe Colangelo (@Itsjoeco) May 8, 2018

Both have garnered reputations as aggressive Wall Street enforcers eager to punish bank misdeeds.

If either is appointed to the position this spring or elected in the fall, it’s likely to signify a new round of headaches for bankers — no matter what’s going on in Washington.