New Jersey is defying the conventional wisdom that the banking and insurance industries require separate state regulators.

The state consolidated the departments of banking and insurance this summer to cut its payroll, reduce administrative costs, and increase the competitiveness of its financial services industry.

Officials say the move has saved New Jersey taxpayers $4 million so far - double the original annual savings estimate.

"The merger has been beneficial to everyone," said Deputy Commissioner of Banking John Traier. "The changes we've made since July have made a real difference." Mr. Traier heads banking supervision, while Deputy Commissioner Cynthia Codelia handles insurance.

The combined New Jersey Department of Banking and Insurance cut 31 full- time positions with an average salary of $52,000. The departments' administrative operations were consolidated, including duplicate functions such as personnel, budget, and computer offices.

"The savings are being returned to the industries we regulate in the form of lower fees," said Mr. Traier.

In August, New Jersey began billing banks by the hour for examinations, and the tab for a seven-hour workday is down $34, to $266.

New Jersey separated its banking and insurance regulators in 1970 to cope better with two rapidly expanding industries. But the number of banks in the state has dropped dramatically, to 199 from 249 in the late 1980s.

The fact that more banks are selling insurance is another reason the departments were brought back together, according to officials. However, the department is keeping separate teams of examiners to supervise banks and insurers.

Industry officials are taking the changes in stride.

"We were initially concerned about the concept," said Harold W. Van Sciver, president of Burlington County Bank in Burlington, N.J. "We thought it didn't make much sense to merge (regulation of) both industries.

"Fortunately, someone we were familiar with, Elizabeth Randall, was named as commissioner. This made the move more palatable for us."

"We will not have a problem so long as functional regulation remains between the two divisions," said James R. Klagholz, secretary treasurer at Clayton N. Sterling Associates, an insurance agency in Seaside Park. "Functional regulation means that the two remain regulated by industry. We don't want the banking division regulating insurance sales from banks and vice versa."

But New Jersey is not setting a trend. Though a few states have combined their banking and insurance departments, most have decided to keep them separate.

"Most states just happen to favor the systems that they already have in place," said Ellen C. Lamb, a vice president at the Conference of State Bank Supervisors.

Mr. Ketelaar is a student in the Washington Semester Program at American University.

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