Legislature(1993 - 1994)

04/19/1993 01:00 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                           
  Number 067                                                                   
  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                                                                   
  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                       
  (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                                                                   
  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                   
  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                    
  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                   
  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                    
  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                   
  Number 156                                                                   
  JOHN SWEENEY, testifying via teleconference from Kodiak,                     
  thanked the committee for allowing the hearing on SB 149 to                  
  be teleconferenced.                                                          
  Number 169                                                                   
  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.                                       

Document Name Date/Time Subjects