Legislature(2021 - 2022)BARNES 124
04/07/2021 03:15 PM House LABOR & COMMERCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| HB85 | |
| Confirmation Hearing(s)|| Confirmation Hearing(s)|| Board of Social Work Examiners | |
| Alcoholic Beverage Control Board | |
| Alaska Labor Relations Agency | |
| Alaska State Board of Public Accountancy | |
| Alaska Workers' Compensation Board | |
| Board of Chiropractic Examiners | |
| Board of Massage Therapists | |
| Board of Nursing | |
| Board of Pharmacy | |
| Board of Veterinary Examiners | |
| Occupational Safety & Health Review Board | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 85 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
HB 85-FINANCIAL INSTITUTIONS; LIABILITY
3:18:51 PM
CO-CHAIR FIELDS announced that the first order of business would
be HOUSE BILL NO. 85, "An Act relating to the Alaska Banking
Code; relating to mutual savings banks; relating to interstate
state banks and international banks; relating to the pledging of
bank assets as collateral security to tribal organizations;
relating to the pledging of bank assets for interest swap
agreements; relating to state business licenses; relating to
persons who make loans secured by interests in vessels or
facilities; relating to liability for the release or threatened
release of hazardous substances; relating to the Model Foreign
Bank Loan Act; and providing for an effective date."
3:19:18 PM
REPRESENTATIVE BART LEBON, Alaska State Legislature, explained
that during his 42-year banking career he worked for federally-
chartered and state-chartered banks. He described observing an
"unlevel playing field" between the large national banks and the
smaller state banks. His goal with HB 85, he said, is to level
the playing field and to establish parity within Alaska's
banking community. He noted that the Alaska Bankers
Association, comprising all seven banks in Alaska, supports the
proposed legislation.
3:20:57 PM
JOSEPH BYRNES, Staff, Representative Bart LeBon, presented the
sectional analysis on behalf of Representative LeBon, prime
sponsor, which read as follows [original punctuation provided]:
Sec. 1. AS 06.05.005(a)
Conforming language to changes made under Section 10
to provide Alaska chartered banks parity with credit
unions when establishing a bank branch.
Sec. 2. AS 06.05.005
Prohibits the Department from placing a regulatory
limitation on a credit card that a state bank issues
to an officer of a state bank, the statutory authority
for which is amended in Section 5 and the regulation
(3 AAC 02.121) annulled in Section 24. Prohibits the
Department from adopting regulations relating to the
setting of time limits on the disposal of real and
personal property, the statutory authority for which
is amended in Section 6 and the regulation (3 AAC
02.135) annulled in Section 24.
Sec. 3. AS 06.05.050
Publication of reports: Adds the option for posting
notices of publication of bank reports on a bank's
internet website vs. physical posting in the bank
lobby.
Sec. 4. AS 06.05.166(c)
Defines the timeframe not later than 15 days for
which a bank must notify the Department after an
emergency nonopening or closing of the bank.
Sec. 5. AS 06.05.210(a)
Increases the amount a director or executive officer
of a state bank may borrow to $500,000 (from $100K or
$250K for a primary residence).
Sec. 6. AS 06.05.245
Disposition of property not needed in the conduct of a
banking business: Removes the Department's authority
to set a time limit on the disposal of real and
personal property. Instead, the carrying value and
write-down will be dictated by Generally Accepted
Accounting Principles (GAAP).
Sec. 7. AS 06.05.260
Allows a state bank to pledge bank assets as
collateral security to secure funds deposited by
consortiums of federally recognized tribes.
Sec. 8. AS 06.05.260
Adds a new subsection to replace the Division of
Banking's Parity Orders 12-B (3- 6) regarding the
pledging of assets for interest rate swaps. Adds a new
subsection to define: ? "federally recognized tribe"
as an Indian tribe under the Federally Recognized
Indian Tribe List Act of 1994; and ? "interest rate
swap agreement" as a stream of future interest
payments that are exchanged for another stream of
future interest payments.
Sec. 9. AS 06.05.355(a)
Requires all banks to become a member of the FDIC as a
condition for receiving a Certificate of Authority;
Intended to maintain trust and level the playing field
for the banking industry.
3:25:49 PM
CO-CHAIR FIELDS commented that the change detailed in Section 9
would be positive for consumers.
REPRESENTATIVE LEBON agreed, and noted that every depositor
wants Federal Deposit Insurance Corporation (FDIC) insurance.
He said that this section would formalize the requirement for
what is currently standard practice.
3:26:22 PM
CO-CHAIR SPOHNHOLZ, referring to Section 6, said that she
doesn't see anything specific that references using GAAP.
REPRESENTATIVE LEBON explained the concept of "write-down" using
the example of a bank foreclosing on a piece of property. The
bank would hold it as "other real estate owned" and assign a
value to the asset. The current statute specifies that the
write-down practice decreases the value of the asset by 20
percent per year for five years, until the calculated value of
the asset reaches zero, regardless of what it's actual value
might be. He noted that this practice is required whether or
not the actual value of the asset increases. Section 6, he
said, would allow valuation of the asset according to GAAP, with
the holding period reflecting the value of the asset.
CO-CHAIR SPOHNHOLZ asked him to clarify what requires a bank to
adhere to GAAP.
REPRESENTATIVE LEBON said that GAAP defines the accepted
accounting principles and provides a standard basis for
valuation of an asset.
3:28:22 PM
MR. BYRNES resumed his presentation of the sectional analysis,
which read as follows [original punctuation provided]:
Sec. 10. AS 06.05.399
Changes of location; branch banks. Provides Alaska
chartered banks parity with credit unions when
establishing a bank branch. Banks are currently
subject to stricter bank branch application
requirements under 3 AAC 02.215. The Division would
establish in regulations similar requirements of
credit unions as in 3 AAC 03.260. [Same as section 19
for Mutual Banks]
Sec. 11. AS 06.05.438(a)
Reduces the number of required meetings of a bank's
board from 10 to 4 per calendar year.
Sec. 12. AS 06.05.555(a)
Conforming language to changes made under Section 10
to provide Alaska chartered banks parity with credit
unions when establishing a bank branch.
Sec. 13. AS 06.05.990(4)
Removes "remote service unit" (ATM, etc.) from the
definition of "branch bank" and defines "remote
service unit" directly under this section.
Sec. 14. AS 06.15.180
Allowing mutual banks to have similar borrowing
options as state banks.
Sec. 15. AS 06.15.190
Expands the deposits that mutual banks can accept.
Sec. 16. AS 06.15.220
Allows trustees to delegate their authority to approve
interest on deposits.
Sec. 17. AS 06.15.240
Provides mutual banks with the same investment
opportunities as state banks under AS 06.05.270.
3:31:27 PM
CO-CHAIR FIELDS asked Mr. Byrnes to explain the difference
between a mutual bank and another type of bank.
REPRESENTATIVE LEBON explained that a mutual bank is a non-stock
institution. He compared Denali State Bank, a stock-owned
institution, with Mt. McKinley Bank, a mutual institution. He
said that the depositors at Mt. McKinley Bank are the "owners"
of the bank, whereas at Denali State Bank the owners are
traditional shareholders.
CO-CHAIR FIELDS asked whether it would fair to say that, under
HB 85, the consumer protections would be the same regardless of
ownership structure.
REPRESENTATIVE LEBON replied, "Yes, absolutely."
3:32:17 PM
MR. BYRNES resumed his presentation of the sectional analysis,
which read as follows [original punctuation provided]:
Sec. 18. AS 06.15.250
Providing mutual banks with the same lending
opportunities as state banks.
Sec. 19. AS 06.15.290
Changes of location; branch banks. Provides mutual
banks parity with state banks and credit unions when
establishing a bank branch. Alaska chartered banks are
currently subject to stricter bank branch application
requirements under 3 AAC 02.215. The Division would
establish in regulations similar requirements of
credit unions as in 3 AAC 03.260. [Same as section 10
for state banks]
Sec. 20. AS 43.70.105(a)
Exempts depository institutions (banks and credit
unions) from the requirement to obtain business
licenses for all headquarter and branch locations.
Currently, state-chartered institutions receive a
Certificate of Authority through the Division of
Banking and Securities. Until each institution
receives this certificate, they may not transact
business. This change would eliminate duplicate
licensing, thus reducing regulatory burden.
Sec. 21. AS 46.03.822(a)
Adds reference to the new language in section 22.
Sec. 22. AS 46.03.822
Conforms state law to the Comprehensive, Environmental
Response, Compensation, and Liability Act (CERCLA)
standard for lender liability. CERCLA Section 101(20)
contains a secured creditor exemption that eliminates
owner or operator liability for lenders who hold
ownership in a CERCLA facility primarily to protect
their security interest in that facility, provided
they do not "participate in the management of the
facility." Generally, participation in the management
applies if a bank exercises decision-making control
over a property's environmental compliance, or
exercises control at a level similar to a manager of
the facility or property. Participation in management
does not include actions such as conducting property
inspections, requiring a response action to address
contamination, providing financial advice or
renegotiating or restructuring the terms of the
security interest. The secured creditor exemption also
provides that foreclosure on a property does not
result in liability for a bank, provided the bank
takes "reasonable steps" to divest itself of the
property "at the earliest practicable, commercially
reasonable time, on commercially reasonable terms."
Generally, a bank can maintain business activities and
close down operations at a property as long as the
property is listed for sale shortly after the
foreclosure date or at the earliest practicable,
commercially reasonable time.
3:34:59 PM
CO-CHAIR FIELDS asked for some examples of CERCLA properties.
REPRESENTATIVE LEBON responded that both federally-chartered and
state-chartered banks must align with the environmental laws
under which banks must operate. He explained that it's very
rare for a bank to engage in the operation of a business on
which it foreclosed. For example, he said, if a bank foreclosed
on a gas station, the bank would not then continue operation of
the gas station, taking on the associated management and
environmental risk.
CO-CHAIR FIELDS clarified his original question by asking, "What
are some other properties that might not be controlled by a
bank, but which could potentially be foreclosed on, would be
affected by this section?"
REPRESENTATIVE LEBON responded that any property that a bank
acquires through a foreclosure action must be evaluated for
environmental risk. A gas station, dry cleaners, or even a
residential property is evaluated, he said, and a bank practices
due diligence by conducting, for example, a soil test to
determine any possible environmental contamination. He said
that once a property is owned by a bank, the bank has an
obligation to know of any associated environmental risk, because
the bank will eventually sell the property to a new owner.
3:37:24 PM
MR. BYRNES resumed his presentation of the sectional analysis,
which read as follows [original punctuation provided]:
Sec. 23. Repealed Sections
? Repeals AS 06.05.265 Liability of directors for
certain loans. Overbroad and unnecessary.
? Repeals AS 06.10.010-050 Model Foreign Bank Loan
Act. The Act exempts out-of-state banks from Alaska
taxation for certain business types and became
obsolete in 1984 due to other tax measures. The Act is
an unnecessary administrative burden.
? Repeals AS 06.15.150, 160 & 170 Surplus
requirements, additions and limitations. Repealing
these statutes would provide parity and allow a mutual
savings bank to follow AS 06.05.305 for capital
requirements.
? Repeals AS 06.15.230 Withdrawal of Deposits:
Language no longer relevant after deregulation of
Thrifts and Savings and Loans.
Sec. 24. Annulled Regulations
? Annuls 3 AAC 02.121 Credit cards for officers:
Removes the regulation limiting uncollateralized
credit card balances up to $10,000 for an officer of a
state bank. See Sections 2 and 5.
? Annuls 3 AAC 02.135 Disposition of property not
needed for banking business. The carrying value and
write-down of property will instead be dictated by
Generally Accepted Accounting Principles (GAAP). See
Sections 2 and 6.
Sec. 25. Applicability
Uncodified law for sections 3, 4, 6, 9, 10, 12, 16,
18, and 19.
Cites definition locations for "branch bank",
"department", "international bank", "interstate state
bank", "mutual bank" and "state bank".
Sec. 26. Transition
Provides a transition period relating to sections 1,
10, 12, and 19; provides the Department time to
promulgate regulations for changes of bank locations
and establishing branch banks.
Sec. 27. Delayed Effective Date
Sets a delayed effective date for sections 1, 10, 12,
and 19 to provide the Department time to promulgate
regulations for changes of bank locations and
establishing branch banks.
Sec. 28. Immediate Effective Date
Sets an immediate effective date for all sections
except for sections 1, 10, 12, and 19, relating to
changes of bank locations and establishing branch
banks.
3:39:46 PM
CO-CHAIR FIELDS broached a discussion about the best regulatory
structure for environmental hazards, noting that the preference
would be the maximum remediation economically possible, while
not making any remediation laws that could inhibit development.
REPRESENTATIVE LEBON noted that Mr. Martin would be able to give
insight into that issue.
3:40:40 PM
MICHAEL MARTIN, Chief Operating Officer (COO) and General
Counsel, Northrim Bank, informed the committee that he is also
the president of the Alaska Bankers Association. He said that
Northrim Bank is a state-chartered bank serving the banking
needs of approximately 90 percent of Alaska's population. The
Alaska Bankers Association, he said, represents the seven banks
operating in Alaska: state-chartered Denali State Bank, Mr.
McKinley Bank, 1st Bank of Ketchikan, and Northrim Bank, as well
as KeyBank, Wells Fargo, and First National Bank Alaska, which
are the national banks chartered by the Office of the
Comptroller of the Currency. He described members of the Alaska
Bankers Association as job creators that build Alaska's economy
through credit to businesses and families, noting that the banks
lent over $1.4 billion in federal paycheck protection program
(PPP) money. He stated that all seven banks in Alaska support
HB 85, and that the Alaska Bankers Association, along with the
four state-chartered banks, have submitted letters of support,
which are included in the committee packet.
MR. MARTIN said that the Alaska Bankers Association has worked
in concert with the Division of Banking and Securities at the
Department of Commerce, Community, and Economic Development
(DCCED) on the proposed legislation, which, he said, would
provide meaningful updates to the banking code. He said that HB
85 is essential to: better serve bank customers in Alaska;
expand banking products and services throughout the state; keep
state-chartered banks competitive with other finance
organizations; create parity in the laws and regulations under
which banking institutions must operate; keep pace with
technological advances in banking; enable efficiency of
operations; ensure safety and soundness of banks; and protect
businesses and consumers in Alaska.
3:44:58 PM
DAVID DURHAM, Executive Vice-President and Chief Credit
Administrator, Mt. McKinley Bank, noted that he is also the
secretary-treasurer of the Alaska Bankers Association. He said
that Mt. McKinley Bank is a mutual bank owned by its depositors,
which gives it special focus on the community in the Fairbanks
North Star Borough. He said that profits are held by the bank
to benefit depositors through lower deposit rates and loan
interest rates. He stated Mt. McKinley Bank's "strong support"
for HB 85, especially the sections pertaining to mutual banks.
He said that since banking regulations in Alaska have not been
updated in some time, the deregulation of national banks by the
OCC have granted those banks increasingly broad powers which
have served to hinder the ability of state-chartered banks to
serve their customers. He offered the belief that HB 85 would
allow Mt. McKinley Bank to remain competitive and would
establish parity with the other banks.
MR. DURHAM explained CERCLA regulations by recalling when Mt.
McKinley Bank was preparing to foreclose on a gas station in
Delta Junction, and the bank was advised by its attorneys to not
touch the title due to environmental actions on the property.
He said the property had gone through remediation but, acting on
legal advice, the bank chose to not foreclose on the property,
instead finding someone to bid on the property at auction and
take title, thereby causing a substantial loss to the bank. He
said, "We had always been under the impression that the federal
law would speak if state law was silent." That was not the
case, he said, so the proposed legislation would seek to have
CERCLA protections for those who make investments in Alaskan
communities.
3:48:45 PM
TRACY RENO, Chief of Examinations, Division of Banking and
Securities, Department of Commerce, Community, and Economic
Development, said that the Division of Banking and Securities
serves as the primary regulator of the four state-chartered
banks in Alaska, which follow the now-outdated Alaska banking
statutes. The federally-chartered banks, she said, have the
advantage of the broader powers from updated federal laws,
thereby creating disparity between the two banking systems. She
noted the collaborative effort between the Alaska Bankers
Association and the Division of Banking and Securities to bridge
the gap between state and federal banking laws. She said, "HB
85 modernizes and streamlines Alaska's banking law to bring
parity between the state and national banks and level the
playing field." She said the proposed legislation would help
state banks be competitive with modern best practices and the
evolution of financial services. She said that while the
administration has not yet taken a position on the proposed
legislation, the provisions align with the governor's priorities
by reducing the regulatory burden and modernizing Alaska laws.
She said that the administration is planning to support HB 85
after incorporation of the proposed changes regarding the
concerns of the Department of Environmental Conservation (DEC).
3:50:25 PM
REPRESENTATIVE SNYDER asked Representative LeBon for further
explanation of the national guidelines and how HB 85 would help
achieve parity.
REPRESENTATIVE LEBON invited one of the invited experts to
participate in the response.
3:51:54 PM
MR. MARTIN, in addressing Representative Snyder's question,
referred to Representative LeBon's earlier reference to the
category of "other real estate owned (OREO)," which is added to
a bank's balance sheet when there is a foreclosure and a general
obligation to sell the property. He said that current statute
requires mutual banks to practice a layered write-down of the
asset which, he supposed, was originally intended to ensure that
banks don't hold assets. The provision is not required of
national or state banks, he said, which follow GAAP in asset
valuation.
3:53:40 PM
REPRESENTATIVE SNYDER clarified that she would like a summary of
"these specific things that we're finding parity with." She
asked whether Sections 21 and 22 are necessarily limited to
CERCLA, otherwise known as Superfund, or whether those sections
could apply to other environmentally-contaminated sites not
designated as Superfund sites.
REPRESENTATIVE LEBON deferred to one of the invited testifiers.
3:54:56 PM
MR. DURHAM explained that the site would not have to be
designated Superfund, it could simply be a property that has
undergone a state environment action. He said that the
provisions under HB 85 would allow banks to market the
properties in question without assuming the obligation and
liability for environmental remediation.
3:55:32 PM
MR. MARTIN interjected with the comment that there is a general
misunderstanding of how the current statutes work. When a
borrower provides a piece of real estate as collateral, he said,
the bank does an environmental assessment of the property to
verify the value of the collateral, which could be impacted by
environmental damage. The general premise under HB 85 is that
if a financial institution is taking a piece of real estate as
collateral for a loan, there would be no liability unless the
bank engages in operation of the business. The general notion,
he said, is that everyone on the chain of title is responsible
for cleanup of a contaminated property. It's possible for a
property to be either devalued or, if the cost of remediation is
greater than what the property could be sold for, to have no
monetary value.
3:58:01 PM
CO-CHAIR SPOHNHOLZ asked Ms. Reno what areas the Division of
Banking and Securities is working on with the sponsor of HB 85.
MS. RENO clarified that the division is satisfied with the
language of the proposed legislation and is not working with the
sponsor. She said that in her earlier reference to Sections 21
and 22 she intended to convey that the sponsor is working on
language with the Alaska Bankers Association.
3:59:04 PM
CO-CHAIR SPOHNHOLZ asked Ms. Larson for information on the issue
on which DEC is working with the sponsor.
3:59:12 PM
TIFFANY LARSON, Director, Division of Spill Prevention &
Response, Department of Environmental Conservation, said that
the Alaska Bankers Association wants to include CERCLA language
in the proposed legislation. She expressed appreciation for the
Alaska Bankers Association's openness about DEC's concerns
regarding how HB 85 and CERCLA would work together.
CO-CHAIR FIELDS asked for an estimated timeframe for arriving at
a consensus.
REPRESENTATIVE LEBON said that he doesn't have a timeframe.
4:00:27 PM
CO-CHAIR FIELDS thanked the sponsor and testifiers.
[HB 85 was held over.]