How Banking Has Evolved

The deputy general counsel of the Bank of New York Mellon has been with the bank for nearly four decades. She reflects on changes the industry has undergone in that time

When the Bank of New York (BNY) launched a tender offer on Irving Trust Company in 1987, the New York Times reported the news, which was almost unheard of in the banking industry at the time. It was one of many early signs that the industry was about to change, and dramatically, something BNY was unused to. After all, Alexander Hamilton founded the Bank of New York in 1784, and BNY operated for more than two centuries without making any bold moves.

Following the Irving acquisition, certain responsibilities were shifted to address overlaps in the banks’ legal departments. Marcia Wallace took over a newly created corporate services group, which focused on mergers and acquisitions (M&A), regulatory matters, technology, corporate governance, and disclosure for the public holding company.

In the years following, BNY became an active acquirer of businesses and companies. The practice grew quickly, and so did Wallace’s responsibilities as she oversaw hundreds of transactions. “During those years, we began building an in-house staff of M&A lawyers, saving the bank many millions of dollars in legal expenses every year in the process by handling many of these transactions in-house,” she says. “This approach also created institutional knowledge, so when questions came up regarding deals, there was someone in-house who could answer them instead of going back to outside counsel. This resulted in further savings.”

AN INDUSTRY OF CHANGE

Wallace outlines three changes in the banking industry during the last thirty years

1. Increased regulation
With the widespread failure of savings and loans and banks in the 1980s, regulators enacted rules to protect the solvency of federal deposit insurance funds for these institutions. Stricter guidelines were enacted.

2. Fluctuating lending practices
After the 2007 mortgage crisis, regulators governing banks added stricter rules.

3. Enhanced supervisory scrutiny
Since the early 2000s, scrutiny has increased to further protect banks and borrowers.

Wallace was given more flexibility to direct her practice group and developed a unique model whereby a large portion of the M&A work—and virtually all of the technology work—was done in-house.

Some of the more interesting transactions included acquisition of JPMorgan’s global custody business, interstate banking expansion through the acquisition of banks in New Jersey and Connecticut, and expansion of BNY’s corporate trust business through the acquisition of over thirty businesses from banks around the country, including a swap with JPMorgan Chase in which BNY transferred its retail business to JPMorgan Chase, and JPMorgan Chase transferred its global corporate trust business to BNY.

In 2006, BNY and Mellon Financial Corporation announced a merger. The two would form the Bank of New York Mellon Corporation, or BNY Mellon, creating the world’s largest securities servicing provider and a global top asset management firm. Despite this massive change, Wallace remains in charge of the corporate service group, which has grown from two to more than twenty-five lawyers.

Wallace joined a small bank’s legal department straight from law school. The size of the practice gave her the flexibility to move into different areas of practice and the freedom to develop her job the way she wanted, since there was little hierarchy in place at the time. “My first practice area was technology—mostly negotiating agreements to purchase software, hardware, and system development services,” Wallace says. “It was a new field, and not many law firms were doing this work at the time.”

Wallace was one of few lawyers with this skill at the time and had many opportunities to speak on the subject. Since then, Wallace has worked to stay on the cutting edge of both law and developing technology in her industry.

US banking underwent its greatest transformation  between 1979-1994 due to a decrease in the number of banking organizations, the expansion of lending by foreign banks, and the dramatic rise in off-balance-sheet activities. The widespread adoption of ATMs in the late 1980s further changed the business of banking in North America. In addition to changes to regulation, increased capital requirements, enhanced supervisory scrutiny, and contraction of the largest banks were the major shifts Wallace observed and had to keep up with during her time with BNY Mellon.

The changes Wallace has weathered during her career reflect the larger, shifting banking industry. As it continues to shift, young lawyers—and the entire legal profession—will have to keep up.