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
+ teleconferenced
= bill was previously heard/scheduled
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.
| Document Name | Date/Time | Subjects |
|---|