Legislature(2003 - 2004)
03/27/2003 01:37 PM House 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."
MARK DAVIS, DIRECTOR, DIVISION OF BANKING AND SECURITIES,
DEPARTMENT OF REVENUE, testified in support of the bill. He
spoke to the two statutory changes contained in the bill.
The first change alters the Banking Code, Title Six. The
second change pertains to the State Code, Title 44.
Mr. Davis explained that the change to the Bank Code
lengthens the exam time for small loan companies from twelve
to eighteen months. He noted that this was the only
provision of the Banking Code that required an annual
examination. He emphasized that, even with the change, the
Division would perform more frequent examinations if needed.
Mr. Davis explained the change to Title 44 eliminating the
provision for a qualitative examination for the Alaska
Commercial Fishing and Agricultural Bank (CFAB). He noted
that since CFAB is a cooperative, it is required by statute
to prepare an annual audit that is provided to the
legislature. He also stated that when Title 44 was enacted,
CFAB operated using state funds, which it was required to
repay. He pointed out that CFAB currently operates with no
state funds. He also noted that the deleted provision would
still make CFAB subject to a full legislative audit, as well
as the annual audit by outside auditors.
Mr. Davis further noted that the fees charged by the banking
section of the Division do not cover the costs of the
examination. Mr. Davis pointed out that the fees leave a
deficit of $350 thousand. He noted that by statute the
banking fees could not discriminate between state and
federal institutions, and must be charged equally. He
maintained that a shortfall would exist as long as the
legislature required fee equanimity.
Mr. Davis clarified the difference between the audited
report and the banking exam. He noted that the outside audit
report would inform the legislature on the loan portfolio by
major category, specifying loan performance and payment
history.
Mr. Davis summarized that the Division was requesting an
exemption from examination under Title 44. He expressed
his belief that with the statutory audits required, adequate
fiscal provisions were already in place.
Mr. Davis also noted that the Division had no enforcement
powers with regard to the examination, since it was included
under Title 44. He explained that if a problem arose in the
examination, the Division could not address it.
Representative Croft asked how much of the fiscal note was
attributed to each section of the bill. Mr. Davis responded
that the CFAB examination required ten days, and that
savings were realized by freeing up the bank for other
business during that time.
Representative Croft questioned whether the change to
eighteen months represented the greatest cost savings. Mr.
Davis noted that the savings came essentially from
eliminating one position. He speculated that the new
schedule enabled an efficiency of service.
In response to a question by Representative Croft, Mr. Davis
stated that examination fees were charged to CFAB of $2.6
thousand. He also noted that the additional ten days in the
current cycle created a loss of $6 thousand, as well as the
loss of potential paid service to a state bank or credit
union. He stressed that as a cooperative, CFAB did not
receive money from the public, and focused on other
cooperatives.
Representative Hawker asked for a distinction in
organization between CFAB and commercial banks or credit
unions, and whether that difference was part of the
justification for the requested exemption.
Mr. Davis noted that CFAB was created by the legislature,
set up as a cooperative in AS 44.81.014, and required to
follow a set structure. He referred to 44.81.200, which
requires the bank to provide an audited financial statement
to the legislature each year, including discussion of bank
circumstances, operating, and "any other information that
the Board believes to be of interest to the Governor, the
legislature and to the public". He summarized that the bank
was required to self regulate.
Mr. Davis noted that in 1985, problems occurred with the
bank and examiners were asked to complete a report. He
suggested that the statute set forth for this purpose in
1987 should have contained a sunset provision. He proposed
that the structure of the bank, along with special reporting
requirements, made the bill appropriate.
Representative Croft MOVED to Adopt Amendment #1:
Page 1, Line 13, DELETE:
"*Sec.2. AS 44.81.270(d) is repealed."
"This amendment keeps the requirement for the [Alaska
Commercial Fishing and Agricultural Bank] CFAB to
submit to annual bank examinations. The argument for
not holding CFAB to this standard is the perception
that the requirement is overly redundant, that CFAB is
subject to independent audit or legislative audit,
should one be requested.
CFAB puts forth that the requirement is not overly
redundant; that the independent audit only looks at
their financial situation, and the bank examiners make
sure CFAB is adhering to statute. CFAB argues the bank
examinations help them with their accountability to
their board (two members of which are appointed by the
Governor) and their members and CFAB pays for the
examination.
Although the Legislature could request Legislative
Budget on a regular basis. This last one occurred in
1995."
Representative Croft observed that Section 1 of the bill was
an appropriate cost savings. He maintained that Section 2
pertained to the CFAB examination, and referred to a letter
from CFAB, which expressed a desire for this service. He
suggested that the entity should continue to receive a
service that they valued. He pointed out that by retaining
Section 1, the majority of the savings was still available.
Co-Chair Williams asked if CFAB could pay for its own
outside examiner. Mr. Davis reiterated that CFAB was
required by statute to have an outside auditor. He
suggested that CFAB could expand the scope of the audit to
include their loan portfolios. He suggested that such an
audit could help evaluate the potential of these portfolios.
He noted that bank examiners did not traditionally perform
such an evaluation. He stated that he did not support the
Amendment.
Representative Stoltze asked if a sunset might be an
alternative to deleting the requirement. He suggested
giving two years for the requirement to lapse if a problem
arose that necessitated an examination.
Mr. Davis emphasized the legislative audit as a mechanism
for effectively addressing any potential problems.
In response to questions by Co-Chair Harris, Mr. Davis
clarified that the CFAB examination period would not be
extended to eighteen months, but that the cycle pertained
only to small loan companies. He stated that for CFAB the
bill addressed their annual examination requirement, which
is separate from the annual legislative audit.
Representative Hawker recalled a circumstance in the early
1980's during the time when CFAB was subject to an outside
audit only, and asked if the outside audit identified
circumstances that resulted in the addition of a bank
examination by the legislature.
Mr. Davis stated that the Division was invited in 1985 to
report on the viability of the bank. He observed that the
outside auditors identified problems. He explained that the
Division turned to bank examiners to help address the
potential crisis for the State and for the other investors.
Representative Hawker recalled that the examiners were
viewed as an effective tool of the state, even though the
examiners did not traditionally involve themselves in a
cooperative with a limited loan portfolio such as CFAB. He
observed that the examination was voluntary and limited. He
echoed previous concern that the legislation was not
sunsetted, and expressed confusion as to why the bank
desired additional regulation.
Representative Croft contended that CFAB was requesting the
oversight. He suggested that it was unwise to wait until a
serious problem arose to engage an outside examiner. He
pointed out that CFAB desired the service and was willing to
pay for a portion of it.
Co-Chair Williams concurred with the Sponsor that Section 2
was a viable cost savings.
A roll call vote was taken on the motion to ADOPT Amendment
#1.
IN FAVOR: Joule, Croft, Harris
OPPOSED: Meyer, Stoltze, Whitaker, Foster, Hawker, Williams
The MOTION FAILED (3-6).
Representative Foster MOVED to report HB159 out of Committee
with individual recommendations and the accompanying fiscal
note.
HB 159 was REPORTED out of Committee with a "do pass"
recommendation and a new fiscal impact note from the
Department of Community and Economic Development.
| Document Name | Date/Time | Subjects |
|---|