Legislature(1993 - 1994)

03/19/1993 01:40 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
                                                                               
                                                                               
                   SENATE JUDICIARY COMMITTEE                                  
                         March 19, 1993                                        
                            1:40 p.m.                                          
                                                                               
  MEMBERS PRESENT                                                              
                                                                               
  Senator Robin Taylor, Chairman                                               
  Senator Rick Halford, Vice-Chairman                                          
  Senator George Jacko                                                         
  Senator Suzanne Little                                                       
                                                                               
  MEMBERS ABSENT                                                               
                                                                               
  Senator Dave Donley                                                          
                                                                               
  OTHERS PRESENT                                                               
                                                                               
  Senator Jay Kerttula                                                         
                                                                               
  COMMITTEE CALENDAR                                                           
                                                                               
  SENATE BILL NO. 86                                                           
  "An  Act  relating  to  funds  transfers under  the  Uniform                 
  Commercial Code; changing Alaska Rule of Civil Procedure 82;                 
  and providing for an effective date."                                        
                                                                               
  CS FOR SENATE BILL NO. 112(L&C)                                              
  "An Act relating  to the  Uniform Commercial Code;  amending                 
  Alaska Rules of Civil Procedure 8 and 82, and Alaska Rule of                 
  Evidence 402; and providing for an effective date."                          
                                                                               
  SENATE BILL NO. 149                                                          
  "An Act  revising the laws governing  financial institutions                 
  and relating to trust companies, the Alaska Small Loans Act,                 
  and  the  Premium  Financing Act;  amending  Alaska  Rule of                 
  Criminal Procedure  17 and  Alaska Rule  of Civil  Procedure                 
  45(b); and providing for an effective date."                                 
                                                                               
  PREVIOUS SENATE COMMITTEE ACTION                                             
                                                                               
  SB 86 -  See Labor and Commerce minutes dated 3/2/93.                        
                                                                               
  SB 112 - See Labor and Commerce minutes dated 3/2/93 and                     
           3/4/93.                                                             
                                                                               
  SB 149 - NONE                                                                
                                                                               
  WITNESS REGISTER                                                             
                                                                               
  Bill Kelder, Aide                                                            
  Senator Jay Kerttula                                                         
  State Capitol                                                                
  Juneau, AK 99801-1182                                                        
    POSITION STATEMENT: Testified on SB 86 & SB 112.                           
                                                                               
                                                                               
  Art Peterson, Attorney                                                       
  Uniform Law Commissioner for Alaska                                          
  Dillon & Finley                                                              
  One Sealaska Plaza #202                                                      
  Juneau, Alaska 99801                                                         
    POSITION STATEMENT: Testified on SB 86 & SB 112.                           
                                                                               
  John Beard, Attorney                                                         
  Beard & Lawer                                                                
  425 G Street #630                                                            
  Anchorage, Alaska 99501                                                      
    POSITION STATEMENT: Testified on SB 112.                                   
                                                                               
  Josh Fink, Aide                                                              
  Senator Tim Kelly                                                            
  State Capitol                                                                
  Juneau, AK 99801-1182                                                        
    POSITION STATEMENT: Testified on SB 149.                                   
                                                                               
  Willis Kirkpatrick, Director                                                 
  Division of Banking, Securities & Corporations                               
  Dept. of Commerce & Economic Development                                     
  P.O. Box 110807                                                              
  Juneau, Alaska 99811-0807                                                    
    POSITION STATEMENT: Testified on SB 149.                                   
                                                                               
  Jeff Bush, Attorney                                                          
  175 South Franklin St. #318                                                  
  Juneau, Alaska 99801                                                         
    POSITION STATEMENT: Contracted to Div. of Banking.                         
                                                                               
  ACTION NARRATIVE                                                             
                                                                               
  TAPE 93-27, SIDE A                                                           
  Number 001                                                                   
                                                                               
  Chairman Robin Taylor called the Judiciary Committee meeting                 
  to order at 1:40 p.m.                                                        
                                                                               
  SENATOR TAYLOR introduced  SB 86  (FUND TRANSFERS UNDER  THE                 
  UNIFORM COMMERCIAL CODE) and SB 112 (UNIFORM COMMERCIAL CODE                 
  REVISIONS)  both  sponsored  by SENATOR  JAY  KERTTULA,  and                 
  announced they would be on teleconference.                                   
                                                                               
  SENATOR KERTTULA referred  the committee  to his aide,  BILL                 
  KELDER, to read  a statement,  and he promised  a packet  of                 
  information for the committee members.                                       
                                                                               
  SENATOR KERTTULA explained he was asked  to be a facilitator                 
  for the Supreme  Court to attach  the new amendments to  the                 
  Uniform Commercial  Code, have  them drafted  by Legislative                 
                                                                               
                                                                               
  Legal Counsel, and brought before  the legislature.  SENATOR                 
  KERTTULA reviewed the packet of  information and invited MR.                 
  KELDER to read his statement.                                                
                                                                               
  MR. KELDER explained SB 86 and  SB 112 were companion pieces                 
  of   legislation  that   would  amend  the   Alaska  Uniform                 
  Commercial Code.                                                             
                                                                               
  Number 072                                                                   
                                                                               
  MR. KELDER read from SENATOR KERTTULA'S statement:                           
                                                                               
  " The UCC is a comprehensive codification of commercial law;                 
  however, until  the promulgation of  Article 4A in  1989, it                 
  did  not   deal  with  funds  transfers  between  commercial                 
  entities.    As  business practice  has  come  to rely  more                 
  heavily   on  the   speed,   efficiency,  reliability,   and                 
  comparatively  low  cost  of  electronic  technology,  it is                 
  apparent that Alaska's commercial laws need to be brought up                 
  to date.  The new Article 4A embodied in SB 86 does this and                 
  has been adopted by 45 other states.                                         
                                                                               
       In   1989,  a  record   three  trillion   dollars  were                 
  transferred on a single day - more money than the 1989 gross                 
  product of the United States - and the 1989 average was  one                 
  trillion dollars a day.                                                      
                                                                               
       Presently, unless the parties to  a transaction use the                 
  same bank, a funds transfer  involves at least four entities                 
  ... numerous problems and questions can arise.                               
                                                                               
       This  bill provides  for  a significant  improvement in                 
  Alaska Law.   It will help keep  Alaska's Uniform Commercial                 
  Code  up  to  date,  thus  tending  to  assure  a  favorable                 
  commercial climate here - one that is in line  with the rest                 
  of the country."                                                             
                                                                               
  MR. KELDER presented a zero  fiscal note from the Department                 
  of  Law, and in  addition, he said  financial regulators are                 
  encouraging  individual  states  to   enact  the  provisions                 
  included  in  Sb 86.   He expressed the concern  that unless                 
  states adopt these  regulations and provisions, the  federal                 
  government will  enact a  national UCC  - and  do their  own                 
  enforcement.                                                                 
                                                                               
  MR. KELDER added the provisions in  SB 86 have been endorsed                 
  by the National Conference of Commissioners on Uniform State                 
  Laws, which helped draft the legislation.                                    
                                                                               
  To begin the discussion of SB 112, MR KELDER read:                           
                                                                               
       "Senate Bill  112 makes amendments to  Alaska's Uniform                 
  Commercial Code ... these changes are designed to  bring the                 
  code up to date with the rest of the country.                                
                                                                               
                                                                               
       The first change adds a new  Article 2A to the existing                 
  law.    While the  existing  law covers  commercial property                 
  leases there is  no language  relating to personal  property                 
  leasing.  Article 2A deals with what is called "true" leases                 
  and "finance" leases.   The  article provides the  statutory                 
  answers  to  a broad  range of  legal issues,  covering such                 
  matters  as  offer  and  acceptance,  warranties,  mistakes,                 
  failure to perform, risk of loss  and remedies.  The current                 
  absence of these rules promotes litigation.                                  
                                                                               
       Articles 3 of SB 112  reorganizes the existing material                 
  in the state code  to make it more clear and  to account for                 
  modern  technologies.    These  revisions  fix many  of  the                 
  problems that have  arisen over the  past 40 years with  the                 
  Uniform  Commercial code with  negotiable instruments.  Some                 
  of  the changes  in Article 3  and Article  1 of SB  112 are                 
  necessary to bring  these articles into compliance  with the                 
  new language in Article 4A as it appears in SB 86.                           
                                                                               
       One important change in Article 3 is  that the revision                 
  recognizes there are  two types of  instruments - notes  and                 
  drafts  -   which  usually   perform  different   functions;                 
  therefore, merit different treatment.                                        
                                                                               
       Benefits from enacting Article 3 of SB 112 include, but                 
  are not  limited to,  the following: certainty  of the  law,                 
  speed and reliability, lower costs,  reduced litigation, and                 
  stricter standards for fiduciaries.                                          
                                                                               
  Number 163                                                                   
                                                                               
       Finally,  SB  112 seeks  to  repeal  Article 6  of  the                 
  present Uniform Commercial  Code ... deals with  bulk sales.                 
  A bulk sale  is one in which a business sells all or a large                 
  part of its inventory to a single buyer outside the ordinary                 
  course of business.   In  addition, under Article  9 of  the                 
  existing  code,   protections   for   creditors   are   more                 
  significant than in the past.                                                
                                                                               
       Because  of these  factors, the National  Conference of                 
  Commissioners  on Uniform  State  Laws, and  a  group of  16                 
  Alaska Business Law Attorneys, have recommended that Article                 
  6 be repealed.                                                               
                                                                               
       This  bill received a zero  note from the Department of                 
  Law's Division of Legal Services."                                           
                                                                               
  SENATOR TAYLOR asked  for questions  on either SB  86 or  SB
  112,  and  SENATOR  LITTLE presented  a  problem,  which she                 
  thought might be addressable under the two bills.                            
                                                                               
  SENATOR LITTLE quoted  a constituent  as not being  notified                 
  when their  note for  the mortgage  of their  house was  not                 
                                                                               
                                                                               
  transferred from buyer to seller.                                            
                                                                               
  SENATOR TAYLOR called on ART PETERSON,  in his capacity as a                 
  Uniform Law Commissioner, to answer questions.                               
                                                                               
  MR. PETERSON explained  this bill did not  include an answer                 
  to SENATOR LITTLE'S  question, but he explained  the primary                 
  benefit of  the bill is its uniformity  with the rest of the                 
  nation.    He said  if  reasonable  notice  to borrowers  is                 
  needed, it would presently be outside the Uniform Commercial                 
  Code.                                                                        
                                                                               
  Number 223                                                                   
                                                                               
  SENATOR HALFORD  asked for  the difference  in the  original                 
  bill and the  Labor & Commerce  committee substitute for  SB
  112.                                                                         
                                                                               
  MR. PETERSON began  by expressing support  for SB 86 and  SB
  112  as essential  to  keep Alaska  from  receding into  the                 
  backwater in the commercial area.   He indicated there  were                 
  about 5 or 6  very minor changes, and SENATOR  HALFORD asked                 
  to be informed.                                                              
                                                                               
       1. page 4,  lines 20  & 21  - the words  the code  were                 
       inserted  on page 20 and AS  45.12.207 inserted on line                 
       22.                                                                     
                                                                               
       2. page 48, line 16 - change (d) to (e).                                
                                                                               
       3. page 86, lines 13 through 15 - A new sentence "These                 
       sections  may  not  be construed  to  defeat  the prime                 
       opposition   of  a   municipal   tax   lien  under   AS                 
  29.45.300(b)"  had  been added, and MR. PETERSON proposed it                 
  be deleted.                                                                  
                                                                               
  SENATOR  TAYLOR  moved to  delete on  page  86 line  13, the                 
  sentence beginning with "These sections ..."                                 
                                                                               
  SENATOR JACKO asked why the sentence didn't fit in the bill.                 
  SENATOR TAYLOR explained  the sentence  would place a  super                 
  tax lien on  assets, which  would make it  a superior  lien,                 
  over and  above those  liens held  by the  banks, and  which                 
  would be devastating as far as transactions sold outside the                 
  state.                                                                       
                                                                               
  Number 290                                                                   
                                                                               
  MR. PETERSON described  how, by leaving  it in the bill,  it                 
  would affect other liens in statute, and he gave examples.                   
  He explained the  sentence in question is  a cross reference                 
  that emphasizes one lien  at the expense of all  others, and                 
  he encouraged the committee to remove it.                                    
                                                                               
                                                                               
  Upon hearing  no further  questions, SENATOR TAYLOR  renewed                 
  his  moved  to delete  the  sentence  on page  86,  lines 13                 
  through 18.  Without objections, so ordered.                                 
                                                                               
       4. page 106, lines 28 & 29 - the sentence at the end of                 
       subsection (c) -  "If the certificate of  title statute                 
  is   silent  on  the   issue  of   transfer,  this   section                 
  controls."                                                                   
                                                                               
  MR. PETERSON described  the ambiguity in the  first sentence                 
  in subsection  (c), and he  explained why this  sentence was                 
  added, after some research, to the committee substitute.                     
                                                                               
       5. page 112, line  16 - to  adjust an ambiguity in  the                 
       lettering of the subsections.                                           
                                                                               
  MR. PETERSON described the first  sentence in subsection (e)                 
  as  combining  a  disjunctive  element  with  a  conjunctive                 
  elements and explained  how the problem was  corrected after                 
  consultation with PROFESSOR MILLER.                                          
                                                                               
       6. page 112,  lines 25, 28,  & 29  - line 25  & 28  had                 
  typos     - line 29 - insert lessor or before "lessee."                      
                                                                               
  SENATOR  TAYLOR,  satisfied  there  were  no  more  changes,                 
  invited JOHN BEARD to testify from Anchorage.                                
                                                                               
  MR.  PETERSON  identified  MR.  BEARD   as  a  knowledgeable                 
  commercial  law  practitioner  sitting in  for  JERRY KURTZ,                 
  another Uniform Law Commissioner for Alaska.                                 
                                                                               
  MR. BEARD explained he  had practiced commercial law for  22                 
  years, which has been heavily impacted by the two bills.  He                 
  indicated his support for  SB 112 and SB 86 and  vouched for                 
  all  the reasons covered in SENATOR  KERTTULA'S remarks.  He                 
  explained how the bills would update  the way in which money                 
  is transferred, trends in leasing, and bank collections.                     
                                                                               
  Number 405                                                                   
                                                                               
  SENATOR TAYLOR, MR.  BEARD, and MR. PETERSON  discussed some                 
  of the points as covered in the bills.                                       
                                                                               
  SENATOR JACKO moved to pass CS FOR SENATE BILL NO. 112(JUD)                  
  (UNIFORM  COMMERCIAL  CODE  REVISIONS) from  committee  with                 
  individual recommendations.  Without objections, so ordered.                 
                                                                               
  SENATOR JACKO moved to pass CS FOR SENATE BILL NO. 112(JUD)                  
  (FUND  TRANSFERS  UNDER THE  UNIFORM  COMMERCIAL  CODE) from                 
  committee   with   individual   recommendations.     Without                 
  objections, so ordered.                                                      
                                                                               
                                                                               
  SENATOR TAYLOR introduced SB 149  (REVISION OF BANKING CODE)                 
  sponsored by  SENATOR TIM KELLY,  and invite his  aide, JOSH                 
  FINK, to testify.  MR. FINK deferred  to WILLIS KIRKPATRICK,                 
  to testify.                                                                  
                                                                               
  Number 438                                                                   
                                                                               
  MR. KIRKPATRICK identified  himself as the Director  for the                 
  Division  of Banking, Securities  & Corporations and thanked                 
  the committee for  hearing the recodification of  the Alaska                 
  Banking Code.   He said  he would give  a brief  explanation                 
  before  introducing  JEFF  BUSH,   the  contractor  for  the                 
  department,   who   helped   do   the   drafting   for   the                 
  recodification.                                                              
                                                                               
  MR. KIRKPATRICK  gave  some historical  perspective  on  ten                 
  years of building up to the determination the Alaska Banking                 
  Code was becoming  obsolete.  The code originated  in Oregon                 
  before Statehood and  was adopted at  that time, and  during                 
  that time, Oregon has basically  recodified or amended their                 
  code  two  different   times,  so  there  is   presently  no                 
  similarity between our law and Oregon's law.                                 
                                                                               
  MR. KIRKPATRICK explained the changes that were occurring in                 
  the  market  place  were  happening  faster  than  could  be                 
  addressed.   He further  explained the  obsolescence in  the                 
  original   statute  fall   into  three  areas:   first;  the                 
  marketplace  has  changed  dramatically;  second,  financial                 
  institutions with multiple failings; and third, a need for a                 
  banking   law  that   could   provide  additional   economic                 
  development opportunities.                                                   
                                                                               
                                                                               
  MR. KIRKPATRICK claimed  all of these areas  of obsolescence                 
  put a bind on  financial institutions.  He wanted  to reform                 
  the new banking  code to be as liberal  as possible in order                 
  that banks might be  a better support to their  community in                 
  the  way of  subsidiaries,  interstate  branching, or  other                 
  related activities.                                                          
                                                                               
  Number 480                                                                   
                                                                               
  MR.  KIRKPATRICK  quoted  former COMMISSIONER  GLEN  OLDS as                 
  being   excited   about   international    bank   branching.                 
  Presently, there  is a  branching law  in the  code, but  he                 
  explained  in 1972 the Canadian  Bank of Commerce was unable                 
  to branch into Alaska,  since the law just didn't  allow the                 
  branch.  After a few years  of history, he further explained                 
  the new act would  be clear as to  the procedures needed  to                 
  enable foreign banks  to set an  office in Alaska, with  two                 
  benefits.                                                                    
                                                                               
  MR. KIRKPATRICK  said these  benefits would  include a  time                 
  zone and  a centralized  location to  other market  centers,                 
                                                                               
                                                                               
  allow  foreign  interests  to   develop  energy  for   their                 
  countries'  customers, and might  benefit the development of                 
  our resources.                                                               
  MR. KIRKPATRICK suggested MR. BUSH  proceed with a sectional                 
  analysis.                                                                    
                                                                               
  SENATOR TAYLOR opened the meeting  to questions, and SENATOR                 
  JACKO  asked  for  an  explanation  of  the  changes in  the                 
  financial markets.                                                           
                                                                               
  MR. KIRKPATRICK explained there was no longer a Regulation Q                 
  that regulated the deposit side of the financial statements,                 
  and one of  the biggest  problems is that  the barriers,  as                 
  brought  out in  the UCC,  have been broken  with electronic                 
  funds transfer.   He  further explained  that if  the states                 
  don't  do  something,  then  Congress  is going  to  dictate                 
  interstate branching.   This would  allow any bank  in other                 
  states to  branch across the street from our banks in Alaska                 
  without any control over them.  He continued to describe the                 
  barriers that have been falling with competition such as the                 
  proliferation of credit  cards.   He explained changes  that                 
  make the 1930's law obsolete.                                                
                                                                               
  SENATOR JACKO asked  if the  bill would limit  the types  of                 
  competition he described.                                                    
                                                                               
  MR. KIRKPATRICK said  there had  been no attempt  to try  to                 
  change or limit the other market  places, but to address the                 
  ability of  the state's  financial institutions  to be  more                 
  competitive.                                                                 
                                                                               
  Number 553                                                                   
                                                                               
  SENATOR TAYLOR asked JEFF BUSH for  comments and thanked him                 
  for the  sectional analysis he  had done for  the committee.                 
  He   suggested  that  MR.  BUSH  give  an  overview  of  the                 
  legislation and take questions.                                              
                                                                               
  MR. BUSH explained  he was contracted,  not only to work  on                 
  the   Alaska  Banking   Code,   but   also  the   associated                 
  regulations, which were  in the  bill packets.   He said  he                 
  would just skim the high points of the sectional analysis.                   
                                                                               
  MR. BUSH broke  his subjects  down into three  areas -  bank                 
  powers,  bank  regulation,  and  enforcement  -  which  were                 
  changed.                                                                     
                                                                               
  Under   bank  powers,  MR.  BUSH  touched  on  international                 
  banking, which  he thought was the most  significant area of                 
  change in the  proposed act.   These banks  might move  from                 
  other states as well as other countries and could operate in                 
  Alaska, under some  specific rules and regulations  in order                 
  to set  up  their    branch  in  Alaska.    He  thought  MR.                 
  KIRKPATRICK  had  adequately  explained   the  international                 
                                                                               
                                                                               
  banking changes.                                                             
                                                                               
  MR. BUSH said  his second  area was providing  for banks  to                 
  have subsidiaries  such as separate  corporations within the                 
  banks,  and  he  gave  the  example  of the  First  Bank  in                 
  Ketchikan, which  operates a  title insurance  company.   He                 
  explained  why  these were  unique  to Alaska,  where  it is                 
  important for  a bank to be able  to operate a subsidiary to                 
  help them in their business.                                                 
                                                                               
  MR. BUSH said banks need to be able to ...                                   
                                                                               
  TAPE 93-27, SIDE B                                                           
  Number 001                                                                   
                                                                               
  ... make  a profit  because regulations  sometimes makes  it                 
  difficult, but their competitors mentioned by SENATOR JACKO,                 
  such  as  Merrill  Lynch,  do  not  have the  same  kind  of                 
  regulations as a bank does.                                                  
                                                                               
  MR.  BUSH  explained   the  third  area  addressed   in  the                 
  legislation  was  lending  limits and  the  adoption  of the                 
  general lending limits  that the federal government  and the                 
  Office of  the Comptroller  of the  Currency (OCC)  has also                 
  adopted.  He   outlined problems  dealing with loans to  one                 
  borrower, where the  banks are  prohibited from lending  too                 
  much of its capital to one entity.  He reviewed a  couple of                 
  banks  that got into trouble  by lending to multiple parties                 
  to a transaction, all secured to the same project.                           
                                                                               
  MR. BUSH said there were a number of restrictions on lending                 
  on real estate  mortgages, and  he reviewed the  regulations                 
  from the 1930's  dealing with this.  He said  it now depends                 
  on  the  stability  of the  bank;  however,  the legislation                 
  eliminates the  specific restrictions  on loan-to-value  and                 
  limits, to allow  the banks more flexibility in  real estate                 
  lending.                                                                     
                                                                               
  MR.  BUSH  explained  the legislation  expands  the  type of                 
  property that a  bank can own  to include property used  for                 
  promotional purposes.   Current law  limits the property  to                 
  "what is necessary for a banking  business."  The changes in                 
  the bill would  allow the banks to own property, and he gave                 
  some examples.                                                               
                                                                               
  MR. BUSH said  the legislation  changed capital and  reserve                 
  requirements by regulation, and he  said they were currently                 
  negotiating with the banks as to what figure that should be.                 
  He  said  the   intent  was  not   to  change  the   reserve                 
  requirements, but to make it easier to tell what the reserve                 
  is for a particular bank.   He explained the present use  of                 
  varying  percentages based  on differing  types of  deposits                 
  that  must  be kept  in reserve,  and  he explained  how the                 
  legislation would affect demand deposits.                                    
                                                                               
                                                                               
  SENATOR TAYLOR presented the example of a newly formed bank,                 
  the TAYLOR, LITTLE, JACKO BANK,  with $300 in deposits,  and                 
  asked, under the current reserve  regulations, how much they                 
  could lend.  Under their of example of a $300 deposit, there                 
  was  agreement they  could  probably not  loan  any.   There                 
  ensued  a  discussion  of  percent   of  deposits,  type  of                 
  deposits,  withdrawal  of  reserves,  and  MR.   KIRKPATRICK                 
  estimating  they  could loan  about  $1.80.   The discussion                 
  continued  until they  agreed the  bank would  have  to keep                 
  $24.00 and could loan the rest.                                              
                                                                               
  Number 068                                                                   
                                                                               
  SENATOR JACKO  asked about the capital reserve requirements,                 
  and MR. BUSH said it was set  in both state and federal law.                 
  MR. BUSH described the difference  of philosophy between the                 
  federal  and  state  requirements,  and  he  explained   the                 
  differences.   There was a  discussion of the regulations by                 
  the FDIC and the OCC in relation to reserves.                                
                                                                               
  SENATOR  TAYLOR  wanted to  know  why the  state  bothers to                 
  regulate banks on  a state level  since they are under  such                 
  significant regulations by the FDIC and the OCC.                             
                                                                               
  MR.   KIRKPATRICK  said   it   was  protectionists   against                 
  federalism, and  he explained  the National  Banking Act  as                 
  being for  a specific  purpose -  to repay  the cost  of the                 
  Civil War.  He explained the relationship with the state and                 
  the banks as being  cheerleaders as well as regulators.   He                 
  described the intent of  state law was to service  the needs                 
  of a specific community, such as  a mobile branch for Greens                 
  Creek, the NOW accounts, and  being available to the state's                 
  constituency.                                                                
  MR. KIRKPATRICK explained there is a Mutual Savings Bank Act                 
  under Alaska  law, and  he praised the  Mt. McKinley  Mutual                 
  Savings Bank in Fairbanks as a great thrift institution.  He                 
  said  he  didn't want  the  federal government  managing the                 
  financial  institutions in Alaska  any more  than we  do the                 
  Fish and Game.                                                               
                                                                               
  Number 147                                                                   
                                                                               
  SENATOR TAYLOR  returned to an  answer from  MR. BUSH  about                 
  amending the reserve requirements and  asked how the changes                 
  implemented in  this law  would affect  the amount of  money                 
  their hypothetical banks could loan.                                         
                                                                               
  MR. BUSH said it was difficult to determine because in their                 
  simple bank there would be a  difference if it had a savings                 
  deposits, checking deposits, or a NOW account.  He explained                 
  the  legislation  would  propose  a  15%  across  the  board                 
  reserve, so they would have to keep $45 of the $300 in their                 
  mythical bank.                                                               
                                                                               
                                                                               
  MR. BUSH said some of the banks were upset  at this proposal                 
  as being too high an amount of money to have in their vault,                 
  and he explained changes in what  form this amount could be.                 
  Rather than being money in the vault the 15% could be in the                 
  form of  CD'S, all kinds of  bonds, or in other  assets that                 
  can be readily liquidated.                                                   
                                                                               
  SENATOR  TAYLOR  reviewed  the  provisions  of the  bill  as                 
  related to their  mythical bank  and expressed concern  over                 
  the liquid  assets as opposed  to money  in the vault.   MR.                 
  BUSH  shared some of  his concerns,  but added  the mythical                 
  bank was  still subject to examination, and  he didn't think                 
  MR. KIRKPATRICK'S division  would allow  a faulty action  to                 
  exist.  He explained the  bank depositors would remove their                 
  deposits  leaving  their  bank out  of  compliance  with the                 
  limitations.                                                                 
                                                                               
  MR. BUSH  further explained there was a  push on to make the                 
  liquid assets include  stocks that are marketed.   They have                 
  resisted that  move, but  would allow  government bonds  for                 
  reserve requirements.                                                        
                                                                               
  Number 216                                                                   
                                                                               
  SENATOR  TAYLOR  continued  in his  concerns  that  the only                 
  regulation   would   be    through   legislatively    passed                 
  regulations, and he thought there were some broad perimeters                 
  and policies set in the legislation on the reserves.                         
                                                                               
  MR. KIRKPATRICK outlined one of  the problems being problems                 
  themselves  change,  and  he  told  SENATOR  TAYLOR  he  was                 
  absolutely  correct  in  his  assessment  of  the  liquidity                 
  problem.  He described two failing  banks in California that                 
  are heavy into  correspondent banking, which means  that any                 
  bank that is relying on  that correspondent relationship for                 
  liquidity. He said  they are  both in trouble  and would  be                 
  monitored  quickly.   He outlined  the steps  that would  be                 
  taken to rectify the problem and had decided the best method                 
  was regulation.                                                              
                                                                               
  MR.  KIRKPATRICK  continued with  his recommendation  of 15%                 
  liquidity on the  formula, and he  claimed it was easier  to                 
  monitor   by  regulation  as   the  new  instruments  become                 
  available.                                                                   
                                                                               
  MR. BUSH  explained the current  law was not  being complied                 
  with  today because of  the obsolete provisions  in the law,                 
  and he  described a  wild  card statute  promulgated by  MR.                 
  KIRKPATRICK  in  the  1980's that  would  allow  the banking                 
  department to adopt  regulations that  over rule a  statute.                 
  He quoted the statute as saying if  the state banks are at a                 
  competitive   disadvantage   with   national    banks,   MR.                 
  KIRKPATRICK, by  regulation can  adopt federal  standards to                 
                                                                               
                                                                               
  equalize competition to  over rule  the state standards  for                 
  reserves; hence, there are no  state reserve requirements at                 
  the present time.                                                            
                                                                               
  Number 248                                                                   
                                                                               
  SENATOR TAYLOR reviewed his previous concerns, but expressed                 
  his  hopes the  legislation  would make  it  easier for  the                 
  Department of Banking, Securities & Corporation  to maintain                 
  some stability and insure better banking institutions.                       
                                                                               
  SENATOR TAYLOR entertained a motion to move the bill.                        
                                                                               
  SENATOR JACKO moved to pass SENATE BILL NO. 149 (REVISION OF                 
  BANKING    CODE)    from    committee     with    individual                 
  recommendations.  Without objections, so ordered.                            
                                                                               
  SENATOR TAYLOR thanked both MR. KIRKPATRICK and MR. BUSH for                 
  their efforts and dedication in working on the legislation.                  
                                                                               
  There  being  no   further  business  to  come   before  the                 
  committee, the meeting was adjourned at 2:55 p.m.                            

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