Legislature(1993 - 1994)
04/19/1993 01:00 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
ACTION NARRATIVE TAPE 93-64, SIDE A Number 000 The House Judiciary Standing Committee meeting was called to order at 1:31 p.m. on April 19, 1993. A quorum was not present; therefore, a work session remained in progress until a quorum was established. Chairman Porter announced that all individuals who wished to testify via teleconference wanted to address SB 149. He said that it was his intention to hold a joint hearing on SB 149, SB 86, and SB 112, Uniform Commercial Code Revisions. SB 86 FUND TRANSFERS UNDER THE UCC SB 112 UNIFORM COMMERCIAL CODE REVISIONS SB 149 REVISION OF BANKING CODE CHAIRMAN PORTER announced that when SB 149 was heard by the Labor and Commerce Committee, a provision allowing banks to enter the insurance business was removed. He noted that it was not the committee's intention to reinsert that provision. Number 067 BILL KELDER, LEGISLATIVE AIDE TO SEN. JAY KERTTULA, the PRIME SPONSOR of SB 86 and SB 112, said that the two pieces of legislation were companion bills modifying and modernizing the state's Uniform Commercial Code (UCC). He noted that 45 other states had already implemented most of the changes contained in the two bills. Alaska, he said, needed to "catch up" to those other states in order that businesses outside of Alaska would feel comfortable doing business in Alaska. MR. KELDER stated that SB 86 created a new Chapter 14 for the UCC, and pertained to the electronic transfer of funds for business purposes. He commented that, on a given day nationally, one trillion dollars changed hands in this manner. But, he said, Alaska's UCC had not been modified to take this practice into account. He noted that the governor's office, the attorney general, the Division of Banking, and the Department of Natural Resources' recorder's office supported SB 86. Additionally, he said, the banking community and the business community endorsed the legislation. He expressed his opinion that SB 86 would help to reduce litigation. MR. KELDER said that all of the changes made to the original SB 112 were merely technical in nature. He said that SB 112 represented changes to the UCC which would accommodate the changes made in SB 86 regarding electronic funds transfers, and also updated other sections of the UCC. A section pertaining to bulk sales was being deleted from the UCC, he said, because it was out-of-date. Beyond that, he added, SB 112 updated the UCC and made other technical changes. Number 165 REP. PHILLIPS asked Mr. Kelder if any attempts had been made last year to change the UCC. Number 170 MR. KELDER replied that he was not aware of any such attempts. He said that in approximately 1989, the federal government decided that the UCC needed to be updated to reflect current technology. Uniform Law commissioners from all of the states came together to develop a model law. States were given until 1994 to come into compliance with the model law, he said. If states failed to do so, he said, then the federal government could take over enforcement of the UCC. Number 187 REP. PHILLIPS asked if failure to enact SB 112 and SB 86 would mean that Alaska would be under the purview of federal banking codes and laws. She asked Mr. Kelder how many states had adopted UCC updates. MR. KELDER replied that 45 states had done so. He noted that Alaska had until 1994 to enact the UCC update. Number 207 ART PETERSON, A UNIFORM LAW COMMISSIONER FOR ALASKA, said that SB 86 and SB 112 contained the most recent proposals of the Uniform Law Conference, a national organization. He said that all states had uniform commercial codes and needed to keep them up-to-date. He commented that Alaska was getting further and further behind on the issue of electronic fund transfers, putting Alaska businesses at a serious disadvantage. He noted that SB 112 contained three basic parts: personal property leasing, negotiable instruments, and bulk sales. He said that Alaska was also falling behind with regard to these areas. He stated that the dollar amount of business done in these areas was staggering, resulting in a disadvantage to the state's businesses. (REP. DAVIDSON and REP. KOTT arrived at approximately 1:45 p.m. A quorum was obtained.) Number 307 MR. PETERSON summarized his earlier comments for the benefit of Rep. Kott and Rep. Davidson. He noted that SB 86 and SB 112 embodied current thinking of the Uniform Law Conference. He said that if the bills were not enacted, the federal government might intervene. He stated that federal law already regulated consumer electronic funds transfers. He said that both bills recognized that business was now sometimes transacted by electronic impulses. He commented that the state needed to enact laws relating to this business practice. He noted that bulk sales provisions would be repealed because changes in business practices had negated the need for those provisions. Number 370 REP. GREEN asked why some states had not yet enacted the changes proposed by the Uniform Law Conference. Number 376 MR. PETERSON replied that there had been some concerns regarding the negotiable instruments portion of the Uniform Law Conference's recommendations, but those issues had been largely resolved. He said that other issues of concern had been resolved in one manner or another. Regarding why other states had not yet enacted the Uniform Law Conference proposals, he said that most states probably did not perceive that it was urgent to do so. Number 408 REP. PHILLIPS asked Mr. Peterson to explain the difference between the Senate Labor and Commerce Committee's version of SB 112 and the Senate Judiciary Committee's version. Number 414 MR. PETERSON mentioned that the committee members had in their bill packets a list of the changes between the two versions of SB 112. He said that all of the changes were tiny, technical changes. Number 437 REP. DAVIDSON made a motion to move SB 86 and SB 112 out of committee with individual recommendations and attached fiscal notes. There being no objection, it was so ordered. SB 149 REVISION OF BANKING CODE Number 509 JOSH FINK, LEGISLATIVE AIDE TO SEN. TIM KELLY, PRIME SPONSOR of SB 149, commented that the state's existing banking code was viewed as obsolete by those in the banking industry as well as state officials. He said that SB 149 was the result of the Division of Banking, Securities, and Corporations working with state-chartered banks and the Senate Labor and Commerce Committee to revise the state's banking code. Number 536 REP. PHILLIPS asked if the Senate Labor and Commerce Committee supported the House Labor and Commerce Committee's deletion of a provision allowing banks to enter the insurance business. Number 540 MR. FINK replied that the Senate Labor and Commerce Committee did not object to the change. Number 545 REP. DAVIDSON indicated his surprise that the Senate had not raised the insurance issue. Number 553 JEFF BUSH, an ATTORNEY under contract with the DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT (DCED) to draft SB 149 and accompanying regulations, explained that the bill did three things: (1) it revised and expanded banks' powers; (2) it made changes to DCED's regulatory powers; and (3) it amended the DCED's enforcement powers. MR. BUSH stated that the most substantive changes were made to the expansion and revision of banks' powers. He said that a new article regarding interstate and international banking was included in SB 149. He said that former DCED Commissioner Glenn Olds was very interested in trying to encourage international banks to invest in Alaska and to assist their clients in doing so. He noted that the existing banking code, drafted in the 1930s, did not address international banking. Although the existing code did not prohibit international banking, he said, it did not include any specific guidelines. MR. BUSH commented that SB 149 included similar guidelines for interstate banks. He said that the bill required that home states of interstate banks wanting to do business in Alaska also allow Alaskan banks to do business in that state. He noted that SB 149 also allowed banks to have subsidiaries, stating that in today's marketplace, banks needed ways to earn money other than just making loans. He said that the bill rewrote lending statutes, requiring banks to comply with "sound banking policies" instead of specific statutory requirements. He said that experience had shown that setting out specific lending requirements in statute did not prevent banks from failing. MR. BUSH stated that SB 149 made the Alaska Corporations Code applicable to banks. He noted that the bill repealed the Alaska Savings Association Act, as there were currently no state savings and loans in Alaska. Under the current banking code, he said, any new savings and loan would be under three regulatory agencies -- two federal and one state. He said there was a federal system for creating savings and loans, and therefore no need for the Alaska Savings Association Act. MR. BUSH stated that the banking code's penalty provisions were consolidated and made consistent in SB 149. He said the bill made major revisions to bank liquidation provisions. He commented that, although SB 149 was a long bill, it was probably shorter than the existing banking code and included a great deal more substance. Number 717 REP. GREEN asked Mr. Bush how the North American Free Trade Agreement (NAFTA) would mesh with the new banking code. Number 728 MR. BUSH replied that he did not believe that any provision of SB 149 would be detrimental to NAFTA, but added that he did not know a great deal about NAFTA. Number 735 REP. PHILLIPS asked Mr. Bush to explain for which banks Federal Deposit Insurance Corporation (FDIC) insurance would be optional. Number 751 MR. BUSH replied that a state bank could apply to the DCED to get a waiver from FDIC insurance requirements. In order to get the waiver, he said, a bank would probably have to show a sufficient asset base and also notify depositors of the lack of FDIC insurance. Number 759 REP. PHILLIPS asked if any other state currently employed a similar practice. She mentioned that currently anyone with a bank account in Alaska had his or her deposit insured by FDIC. Number 764 MR. BUSH noted that Rep. Phillips was correct with regard to current practices in Alaska. He said that, at the federal level, there appeared to be a trend toward private insurance to compete with FDIC insurance. He said the DCED wanted to allow Alaska's banks the option of using that private insurance instead of FDIC insurance, if they wished. Also, he stated that a neighborhood or village bank might not be large enough to qualify for FDIC insurance, but should still be able to do business if they could demonstrate protection to depositors. He noted that there was no intention at present to permit waivers. He commented that he was not sure if any other states allowed for a waiver of FDIC insurance, but he did not believe so. Number 781 REP. PHILLIPS expressed her opinion that tremendous problems and litigation could arise if some bank accounts were not insured. Number 784 MR. BUSH responded that the DCED shared Rep. Phillips' concerns and did not intend to permit waivers unless a bank could guarantee protection to depositors. International banks, he added, were a different situation and could not at present obtain FDIC insurance. Because of that, he said, international banks would have to maintain assets within the state equal to the total amount of deposits. Number 800 REP. GREEN asked Mr. Bush what would happen in the event of a downturn in the economy. Would an international bank have to acquire additional assets in-state if the value of existing assets decreased? MR. BUSH replied that Rep. Green was correct. Number 808 CHAIRMAN PORTER asked Mr. Bush if the removal of the language regarding banks going into the insurance business would prohibit banks from doing so. Number 813 MR. BUSH said that in his understanding, banks would be prohibited from going into the insurance business without specific statutory authority to do so. Number 814 CHAIRMAN PORTER conveyed a question on behalf of Rep. James, who was absent. He asked Mr. Bush if a bank could go into the real estate business. Number 820 MR. BUSH replied that he thought that the answer to that question was "yes," although he said he was not certain if a bank could go into the real estate broker business. He commented that the way SB 149 was worded, a bank could go into the real estate management business. He explained that in the 1980s banks suddenly found themselves with huge real estate portfolios due to foreclosures. There was no way to put the real estate into a separate management organization outside of the bank. He said that at the time, banks wanted to create separate real estate management corporations, but were prohibited from doing so. This resulted in a drain on bank assets and personnel. He said banks should have the ability to manage real estate assets owned by the bank. MR. BUSH stated that violations of current banking law existed in Alaska today. He said there was a law that banks could not own real estate, except as necessary for the banking business. He mentioned banks which owned large buildings because it was better financially to buy a large building and lease out space that the bank did not need than to lease space elsewhere. TAPE 93-64, SIDE B Number 012 CHAIRMAN PORTER asked if it would be possible, under SB 149's provisions, for a person to go to a bank seeking a loan to buy a piece of real estate, have his or her loan request denied, and then see the bank go out and purchase that same piece of real estate. Number 022 MR. BUSH replied that the answer to the Chairman's question was "no." He said SB 149 did not allow banks to own real estate; it allowed separate bank subsidiaries to own real estate. He said that in theory, under SB 149, a bank could turn down a person's loan request and then inform the subsidiary of the opportunity to purchase the real estate for which the loan request was made. He said that such a practice would violate state regulations and probably federal law as well. Number 044 REP. PHILLIPS mentioned that language on page 24 of the bill referred to real property ownership, development, or leasing. It did not mention brokerage. Number 065 KEITH SILVER, testifying via teleconference from Anchorage, stated that because the committee did not intend to reinsert language allowing banks to enter the insurance business, he had no comments to make. Number 077 DAVID STRATTON, testifying via teleconference from Anchorage, stated that he had submitted written comments regarding allowing banks to enter the insurance industry. He said that if it was the committee's intent to respect the prior committee's removal of language regarding banks entering the insurance industry, he had nothing further to add. Number 083 LINDA HALL, testifying via teleconference from Anchorage, said that she was present to testify against allowing banks to enter the insurance industry. As long as the committee did not intend to reinsert language to that effect, she said that she had no comments to make. Number 097 KAREN HOFSTAD, testifying via teleconference from Petersburg, indicated her support for SB 149, provided that banks were not allowed to enter the insurance business. Number 105 SUSAN ERICKSON, testifying via teleconference from Petersburg, thanked the committee for maintaining the removal of language allowing banks to enter the insurance industry. Number 112 ARNE IVERSEN, testifying via teleconference from Ketchikan, echoed the comments of the previous speakers. Number 118 JAMES BARRY, testifying via teleconference from Ketchikan, commented that he agreed that banks should stay out of the insurance business. Number 125 JIM SARVELA, testifying via teleconference from Ketchikan, said that he had no comments to make at this time. Number 130 RICK HARDCASTLE, testifying via teleconference from Ketchikan, said that he had no comment to make at this time. Number 139 JACK DAVIES, testifying via teleconference from Ketchikan, thanked the committee for the opportunity to testify and for the fact that he did not have to testify. Number 144 JACK BERRY, testifying via teleconference from Ketchikan, stated that he supported the comments of the previous four speakers. Number 156 JOHN SWEENEY, testifying via teleconference from Kodiak, thanked the committee for allowing the hearing on SB 149 to be teleconferenced. Number 169 BUD JAEGER, from SHATTUCK AND GRUMMETT INSURANCE COMPANY in Juneau, and PRESIDENT of the ALASKA INDEPENDENT INSURANCE AGENTS AND BROKERS, indicated his support for the removal of language allowing banks to enter the insurance business. Number 195 REP. GREEN made a motion to pass the Labor and Commerce Committee's substitute for SB 149 out of committee, with a zero fiscal note and individual recommendations. There being no objection, it was so ordered.