Legislature(2003 - 2004)
04/22/2003 10:06 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 159
"An Act relating to the frequency of examinations of certain
persons licensed to engage in the business of making loans of
money, credit, goods, or things in action; repealing the
requirement for a state examination and evaluation of the
Alaska Commercial Fishing and Agriculture Bank; and providing
for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken announced that the House Rules Committee, at the
request of the Governor, sponsors this bill. He stated that this
legislation would "decrease the frequency of State examinations of
Small Loan Companies from twelve months to eighteen months," and
eliminate the annual examination of the Alaska Commercial Fishing
and Agriculture Bank (C-FAB).
MARK DAVIS, Director, Division of Banking, Securities &
Corporations, Department of Community and Economic Development
testified via teleconference from an offnet site in Anchorage and
stated that this legislation would change State statute to extend
the required Small Loan Company (SLC) examination from twelve
months to eighteen months. He informed that this action would align
SLC codes with the examination requirement timeline for State
chartered banks. He assured the Committee that the eighteen-month
timeline would be sufficient, and he stressed that, were the need
to arise, the Department would retain the authority to examine the
eight operating SLCs more frequently.
Mr. Davis explained that C-FAB does not receive State funding and,
unlike banks and credit unions, does not accept public deposits.
Instead, he continued, it is "a cooperative which operates to the
benefit of its members and is required by statute" to undergo an
annual audit by independent, outside auditors. Additionally, he
noted that State banking auditors are also required to conduct a
"qualitative examination" of C-FAB, which, he asserted, is the only
qualitative examination conducted on a non-chartered bank or
lending institution in the State. Therefore, he stated, this
legislation would allow the qualitative examination to be
eliminated due to the fact that C-FAB "has paid back all of its
State funding; additionally, it is not a bank lending to the
public, is subject to an independent audit, and is subject to a
legislative audit." He furthered that, under Title 44, the
Department's banking section has no authority in regard to C-FAB,
"meaning that were problems detected with C-FAB, there is nothing
the Department could do."
Mr. Davis detailed that the independent audit conducted on C-FAB
examines types of loans, such as whether loans were awarded to
seafood harvesters, tourism entities, or fish processors, and
identifies loans that are "paid in full; loans for which interest
has been paid in full but are not paying the principle; and
identifies loans that are not performing either with interest or
payment." He stated that State bank examiners also examine the
latter, which are referred to as "non-accruing loans." He attested
that "much of the work performed by the outside auditors is
duplicated" by State bank examiners, "and in essence, C-FAB has two
exams." In consideration of Department budget restraints, he
contended that this duplication of efforts is the reason the
Department is requesting that the requirement for the State-
conducted C-FAB examination be eliminated.
Senator Taylor asked C-FAB's position on the legislation.
Mr. Davis voiced that C-FAB opposes the legislation as specified in
a letter [copy on file] C-FAB sent to Governor Frank Murkowski,
dated March 19, 2003.
Senator Taylor inquired as to the savings the State would incur by
eliminating the C-FAB audit.
Mr. Davis responded that were the SLC audits conducted on an
eighteen-month cycle and the C-FAB audit eliminated, the Department
could eliminate a currently unfilled senior bank examiner position.
He disclosed that, while the Division has been unable to conduct
the entirety of its bank examinations in previous years, it is
anticipated that these changes would allow the Division, "with
present personnel?to complete all bank examinations required by
statute."
Senator Taylor surmised therefore that the elimination of this
position's salary and benefits would save the Division
approximately $100,000.
Mr. Davis concurred.
Co-Chair Wilken asked whether C-FAB funds, as opposed to general
funds, support the cost of the audit.
Mr. Davis explained that the $5,300 audit fee charged to financial
entities is deposited into the general fund. He noted that C-FAB is
charged the same examination fee as banks. He shared that in
contrast to the Securities and Corporations sections of the
Division "which both report profits," these audit fees equate to
approximately half of the Division's banking section's operating
expenses.
Co-Chair Wilken understood that C-FAB pays for the total cost of
the audit.
Mr. Davis clarified that C-FAB pays the examination fee, which is
specified in statute; however, he disclosed that the total cost of
conducting an audit is approximately $13,000.
Co-chair Wilken stated, therefore, that C-FAB does not pay the
total cost of the audit.
Mr. Davis agreed, but clarified that, "nor do any of the state
banks."
Senator Hoffman asked whether audit fees could be adjusted to
offset the cost of the audit. Furthermore, he asked whether C-FAB
would support a fee change.
Mr. Davis stated that the aforementioned letter from C-FAB
indicates that C-FAB would not desire State fees to increase beyond
what is charged by federal regulatory agencies to national banks.
In other words, he qualified; they do not want state banks to be
"discriminated" against. He verified that it would be difficult "to
capture all the costs with the present structure."
Mr. Davis asserted that the majority of the Division's savings
would result from the elimination of the aforementioned "highly
paid" bank examiner position. He further affirmed the Division's
position that C-FAB is not the type of bank that requires a State
examination.
Senator Olson asked whether the audits have revealed, "any
surprises."
Mr. Davis communicated that the bank is performing well. He
reminded that C-FAB's audit, unlike a bank's examination, is
available to the public. He noted that the current C-FAB audit
requirement was mandated in 1987 to address some "perceived"
performance questions and, he opined, that upon satisfaction of
that situation, the audit requirement should have been eliminated.
Senator Olson asked whether C-FAB would agree with that
determination.
Mr. Davis stated that while the aforementioned letter contends that
the audit is considered useful and provides "an element of credit
worthiness" to C-FAB, he questioned whether the State, "as a matter
of policy," should provide State bank examiners "as a tool" to a
cooperative such as C-FAB for a credit evaluation. He argued that a
credit evaluation could be performed as a component of the
independent audit or through other mechanisms.
Senator Hoffman asked the location and projected termination date
of the examiner position that would be eliminated.
Mr. Davis specified that the position is located in Juneau and is
currently vacant.
Co-Chair Wilken asked the identity of "C-FAB's lender" as referred
th
to on page three of the March 19 letter.
Mr. Davis clarified that the lender is the Spokane Bank for
Cooperatives. He noted that the entity has recently undergone a
name change that he could not recall.
Co-Chair Wilken communicated that, during conversations with C-FAB,
it appeared "that the audit, more than anything, lent creditability
to C-FAB." He asked the testifier to comment on this.
Mr. Davis responded that while C-FAB professes that position, he
stressed, "that creditability is not the issue of an examination."
The intent of the examination, he asserted, is for State bank
examiners to review the financial "condition of an institution and
identify whether it should remain chartered, whether it is meeting
its requirements." He noted that the Division works in conjunction
with the federal Deposit Insurance Corporation in conducting these
examinations. He reiterated that the function of State examiners is
not to provide "credit worthiness," and he opined that, "this is
misuse of the State bank examination system." Again, he noted that
the Legislature requested the Division to conduct C-FAB
examinations at a time when C-FAB's financial position was in
question, and he reiterated that the examination requirement should
have been eliminated when the question was resolved.
Co-Chair Wilken asked whether C-FAB could contract with other
entities to conduct an audit similar to that conducted by the
State.
Mr. Davis responded that other entities currently conduct similar
audits with the exception being that the State investigates non-
accruing loans to discern whether a bank "has loans that are
labeled as being current which are not." He stated that independent
auditors could perform this sort of evaluation upon request.
Senator B. Stevens asked regarding the FY 03 operational costs of
$635,069 as specified in the Department's testimony [copy on file]
dated April 17, 2003.
Mr. Davis responded that this amount pertains to the total
operational expenses of the Division's banking section. He noted
that this section "loses money; however, the other two sections
make a substantial profit for the general fund."
Senator Taylor moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
There being no objection, HB 159 was REPORTED from Committee with
fiscal note #2 in the amount of ($126,000) from the Department of
Community and Economic Development.
| Document Name | Date/Time | Subjects |
|---|