Legislature(1993 - 1994)
03/19/1993 01:40 PM Senate JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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.
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