Legislature(1995 - 1996)

03/27/1996 03:11 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
 SB 168 - FINANCIAL INSTITUTIONS                                             
 CHAIRMAN KOTT brought SB 168 before the committee and noted it was            
 a banking issue resulting from the Riegle-Neal Interstate Banking             
 and Branching Efficiency Act passed by the federal government.                
 Number 0847                                                                   
 WILLIS F. KIRKPATRICK, Director, Division of Banking, Securities              
 and Corporations, Department of Commerce and Economic Development             
 (DCED), provided a brief history.  Some major national and                    
 international banks had, for the past ten years, pushed for                   
 breaking down the barrier of state boundaries.  In 1994, they were            
 successful in getting the U.S. Congress to pass the Riegle-Neal               
 Act, which gave states until 1997 to opt into or out of interstate            
 MR. KIRKPATRICK explained SB 168 had nothing to do with whether or            
 not there would be interstate banking or branching in Alaska.                 
 "That was taken care of when we recodified the banking code," he              
 said.  "But we were advised that the Riegle-Neal had some other               
 aspects about it that Alaska should address.  And that is what is             
 before us now.  They're part of the Riegle-Neal bill that will                
 become effective January of 1997, unless the state of Alaska does             
 something about it."                                                          
 Number 0955                                                                   
 MR. KIRKPATRICK referred to the first of three sections, which                
 addressed agency powers.  He explained, "And what this means is               
 that ... if a national bank put a branch across the street from a             
 state-chartered bank and offered all the powers that that national            
 bank had through its national organization across the continental             
 United States, the state-chartered bank, the small independent bank           
 across the street, could become an agent for another bank someplace           
 in the continental United States to provide the same services as              
 that particular branch of the national in-state branch coming into            
 the state of Alaska.  So, ... it provides for the ability of the              
 state-chartered banks existing in the state of Alaska to be                   
 competitive with any out-of-state branch bank coming in the state."           
 Number 1011                                                                   
 MR. KIRKPATRICK referred to Section 1(g) and said although a bank             
 could ask and get permission to perform agency powers, it could not           
 do anything illegal under state or national law.   "If the bank is            
 a part of a bank holding company system, you would have the Federal           
 Reserve limitations, you would have FDIC limitations and state                
 limitations, but at least the competitor across the street would              
 have the same limitations," Mr. Kirkpatrick explained.  "So, it               
 provides for an even playing field as far as the state-chartered              
 banks being competitive with the interstate branches in their                 
 business community."                                                          
 Number 1068                                                                   
 MR. KIRKPATRICK referred to the limitation on concentration found             
 in Section 2.  "To give you an example, Wells Fargo is in the                 
 process of purchasing First Interstate Bank of Alaska," he said.              
 "If Wells Fargo purchased Interstate Bank of Alaska and NBA and               
 First Bank of Anchorage, there would be a high concentration of               
 insured deposits under the control of one financial institution."             
 MR. KIRKPATRICK cited an example from Washington state where Bank             
 of America, Seafirst and Rainier had 73 percent of the state's                
 deposits under one controller.  The Washington attorney general's             
 office introduced an anti-trust bill as a result.  "So, what                  
 Riegle-Neal did was said that the states have until January of 1997           
 to make a determination as to what that level would be," Mr.                  
 Kirkpatrick said.  "If the states did not make a decision, that               
 level would be set by, and preempted by, Congress at 37 percent."             
 MR. KIRKPATRICK recounted that he asked the Alaska Bankers                    
 Association whether it should be left at 37 percent.  "It was the             
 bankers that came up and said that 50 percent would be a good                 
 figure," he said, indicating anything that would result in an                 
 acquisition of over 50 percent of insured deposits by an outside              
 entity would be prohibited.  "To give you an example of where we              
 are now, I think NBA itself has probably between 25 and 30 percent            
 of insured deposits in the state of Alaska," he said.  "So, it was            
 decided that we would put a level of concentration at 50 percent.             
 Everybody seems to agree.  I have no problem with that.  We find              
 that other states would generally not have problems with that."               
 Number 1245                                                                   
 MR. KIRKPATRICK referred to Section 3 and said a "depository                  
 institution" in the Alaska Banking Code or Title 6 was generally              
 defined as an institution whose deposits are insured by an agency             
 of the federal government.                                                    
 MR. KIRKPATRICK referred to Section 4 and said it was needed by the           
 state to communicate with other states on confidential information            
 concerning banks and branches across state lines.  "This is not               
 foreign to the state of Alaska because Key Bank has several banks             
 throughout the continental United States, and we have a                       
 responsibility to try to make a determination as to what the                  
 condition of the holding company is that owns and controls its                
 subsidiary banks," he said.  "This section of law allows us to ...            
 exchange information to other jurisdictions where we have an                  
 interest in the safety and soundness of our institution and they              
 have an interest in the safety and soundness of their institution             
 in another jurisdiction who has branches in our state."                       
 Number 1331                                                                   
 CHAIRMAN KOTT referred to Section 1, in which a number of time                
 lines were established, whereby if DCED did not act, a request                
 would be considered approved.  He asked Mr. Kirkpatrick to comment            
 on whether 60 days was sufficient time.                                       
 MR. KIRKPATRICK replied, "On the general banking business and                 
 banking services that are within the laws of the state and the                
 federal government, we generally know about those.  Now, we would             
 be able to respond very quickly.  If somebody wanted to set up a              
 service that would be real estate owning and managing, we would be            
 able to say immediately that we would probably want to have more              
 information on that, what is your expertise, what is your risk.               
 So, we generally know what the service field is.  So, when somebody           
 makes an application for us, with the institutions that we know, we           
 think that 60 days is ample time to respond."                                 
 Number 1415                                                                   
 CHAIRMAN KOTT referred again to Section 1, which said the                     
 department shall give appropriate notice to the public.  He asked             
 what that notice contained and what parameters DCED operated under            
 relating to public notice.                                                    
 MR. KIRKPATRICK responded, "Every time we do something ... under              
 Title 6, especially the banking code and the administrative chapter           
 of Title 6, ... we try to inform the public.  To give you an                  
 example we're processing right now, a trust company is coming into            
 the Anchorage area.  Now, we're not required by statute to give               
 public notice, but we are going to put in the Anchorage paper, and            
 probably the Fairbanks paper - and I don't know about Southeast -             
 but we are going to say what's going in, who they are, and where              
 they're going to be, and where to respond if you have any comments            
 or questions.  So, we try to do that, just administratively.  And             
 we will do the same with this.  As a marketing tool, the financial            
 institution is going to do it way before us, probably.  But as the            
 process, we will place a public notice advertisement saying this is           
 the action that we're considering."                                           
 CHAIRMAN KOTT asked if it was done on a regional basis or                     
 Number 1506                                                                   
 MR. KIRKPATRICK replied it depended on the application.  "If, for             
 example, the bank is saying that they were going to offer these               
 services in Fairbanks, the Anchorage [area], part of the Interior             
 and Southeast, we would do the publications on a statewide basis,"            
 he said.                                                                      
 CHAIRMAN KOTT asked how long the public comment period was open.              
 MR. KIRKPATRICK replied, "We would hold it open for 30 days.  We              
 would always extend the 60 days if there was any question.  In                
 other words, if we ... felt that the public needed to comment, we             
 would extend the 60-day period for that period of comment."                   
 CHAIRMAN KOTT asked if that was for written comments or whether               
 there was a public hearing.                                                   
 MR. KIRKPATRICK stated, "On any protest or concern, we will offer             
 a public hearing."                                                            
 CHAIRMAN KOTT asked if it was a fair assessment that Section 1                
 offered Alaska's banks a more competitive arena for operating.                
 MR. KIRKPATRICK replied, "That's the sole purpose of this section."           
 Number 1583                                                                   
 REPRESENTATIVE ROKEBERG asked about the effect of the preemption.             
 He noted it was a federal preemption and asked if there was a                 
 specific, codified dictate in the federal statute that would have             
 to be adopted if Alaska did not preempt it.                                   
 MR. KIRKPATRICK replied, "The Riegle-Neal bill sets out what there            
 will be.  And so, if we don't take action on this preemption, there           
 will be -- not be agency powers for the ... state banks.  There               
 will be agency powers for the national banks.  There will be                  
 interstate branching for national banks and there will not be                 
 interstate branching for state banks, as far as the services are              
 concerned."  Mr. Kirkpatrick then said he had misspoke and that               
 Alaska statute provides for interstate branching now.  "If we don't           
 pass this, I'm restricted as ... to what information I can give to            
 other jurisdictions," he said.  "I can share information with the             
 FDIC and the Federal Reserve but I can't share information with               
 other state jurisdictions."                                                   
 Number 1656                                                                   
 REPRESENTATIVE PORTER referred to Section 1(g), which said a state            
 bank may not, under an agency agreement, provide by itself through            
 an agent an activity that the state bank may not conduct under                
 applicable state and federal law.  Representative Porter asked:               
 "Well, if it can't, what is it having the agreement to do?"                   
 MR. KIRKPATRICK offered an example.  Alaska Bank of Commerce had              
 decided to provide services for which is did not have expertise.              
 They cut a deal with someone from First Interstate that resulted in           
 Alaska Bank of Commerce becoming a franchise of First Interstate              
 Corporation of California.  The sole purpose was to offer services            
 in Anchorage under the name Interstate Bank of Alaska.  Mr.                   
 Kirkpatrick concluded, "And so, what this will do is give the small           
 community bank an opportunity to be an agent for expertise outside            
 the state of Alaska."                                                         
 Number 1768                                                                   
 CHAIRMAN KOTT referred to Mr. Kirkpatrick's comment regarding the             
 50-percent-or-more concentration of deposits.  He asked what other            
 states were doing and whether their limits were higher, lower, or             
 MR. KIRKPATRICK replied, "Other states have not found any                     
 particular problem with the 50 percent.  As you're a larger state,            
 and with a larger number of financial institutions, you find                  
 actually that the percentages go down.  So, it would be closer to             
 the 37 percent.  In the smaller states, it doesn't take too much to           
 build up that concentration very quickly.  We felt that 50 percent            
 would be appropriate for the state of Alaska.  We've had a great              
 deal of concentration in the last 20 years."                                  
 Number 1849                                                                   
 CHAIRMAN KOTT referred to the sectional comments, the last sentence           
 of which read, "Without action by the end of this session, the                
 preemptive provision of the Riegle-Neal Act become effective."  He            
 asked if that was accurate.                                                   
 MR. KIRKPATRICK replied he believed it was January 1, 1997.                   
 CHAIRMAN KOTT indicated that was something to think about for                 
 Number 1919                                                                   
 REPRESENTATIVE ELTON moved that SB 168 move from committee with the           
 attached zero fiscal note and individual recommendations.  There              
 being no objection, it was so ordered.                                        

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