Legislature(1995 - 1996)
03/27/1996 03:11 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 branching. 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 statewide. 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 flexible. 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 prioritizing. 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.