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said, because it was out-of-date.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