Legislature(2003 - 2004)
03/25/2003 01:32 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 113-FINANCIAL INSTITUTION EXAMINATIONS/CFAB
CHAIR BUNDE announced SB 113 to be up for consideration.
MR. MARK DAVIS, Director of Banking, Securities and
Corporations, said SB 113 makes two changes; the first is to the
banking code, Title 6, which governs small loan companies (loans
of $25,000 or less). Right now, Title 6 requires that small loan
companies be examined every year; the rest of the banking
industry is on an 18-month examination schedule. SB 113 proposes
[changing Title 6 companies] to an 18-month schedule also. That
does not mean a small loan company would not be examined more
frequently if examiners felt it should be for some reason. It
would allow the division to eliminate a banking position.
The second change is to Title 44, which deals with state
government. The Alaska Commercial Fishing Agriculture Bank
(CFAB) falls under Title 44. SB 113 proposes to drop CFAB's
required annual qualitative examination by the division. By
statute, CFAB must provide the legislature with an audited
financial statement performed by outside auditors and that has
always been done and is still being done. He feels the outside
audit report is sufficient to let the members of CFAB know the
financial condition of CFAB or whether their loans are in bad
condition.
CFAB was created in 1980 and experienced some difficulties in
1985. The banking examiners were used in 1985 to examine the
bank and then about two years later the legislature passed the
current statute. He explained that the banking section of the
division does not make money. It requires more funds to run than
it generates in fees. Dropping that requirement would save an
examiner's position and the time could be used to focus on other
state banks, which he views as the department's primary mission.
CFAB no longer has state funds; it once had $32 million in state
funds but paid those back early in 1998. CFAB is not open to the
public, except for some very small loans and one must be a
member to borrow money.
CHAIR BUNDE asked if it is fair to say that the CFAB examination
isn't really so much a consumer protection effort as it is an
effort to give it the state's imprint of quality.
MR. DAVIS said he thought that was the intent when the statute
was passed as CFAB had some financial difficulties in the 80s
that it worked through. It is not a regular bank and the bank
examiners' function is to look at state charter banks and make
sure they are sound.
CHAIR BUNDE asked if it is fair to say that the external audit
that CFAB goes through every year is comprehensive and would
provide members with needed information to make judgments about
the quality of CFAB.
MR. DAVIS replied the portion of the CFAB statute in Title 44
requires that outside auditors provide financial statements - a
full audit. By statute, the financial statements must be
provided to the legislature. The division is also proposing that
legislative audit functions be removed but remain in statute.
That means if any problem should arise, the legislature has full
subpoena power and could use the banking examiners if it wanted
to. An acceptable accounting principle statement would contain
much of the same information and non-performing loan or asset
information would show up.
SENATOR STEVENS said he wanted a definition of what the
qualitative examination actually entailed and asked who reviewed
the CFAB audit if not the division. He noted, "It would be
wasted time spent with me giving me an audit."
MR. DAVIS replied that by statute, CFAB is required to provide
the legislature and the governor's office with an outside audit,
which is unique. When it's sent to the governor's office, he
assumed it would be sent to his division as it has been before.
He understood that it goes to the Division of Legislative Budget
and Audit when it's sent to the legislature.
SENATOR STEVENS asked to know more about the qualitative exam
and how much it cost.
MR. DAVIS responded that is language used in the statute and he
doesn't know what it means. It doesn't appear in any other
banking statute. The examination last year took 10 days and cost
$6,300; in FY03, it's going to cost the division about $635,000
to do bank exams. The division will accept $276,000 in fees and
therefore lose about $359,000. The division is trying not to
lose so much money.
To reduce costs, the last administration decided not to go
through every loan, but when examining an FDIC state charter
bank, the division goes through every loan.
SENATOR SEEKINS said it seems to him like the audits that are
currently done are not a consumer protection feature, but more
of a membership assurance project.
MR. DAVIS replied that's how CFAB views it.
CHAIR BUNDE said SB 113 will not balance the division's budget
and asked Mr. Davis if he would entertain the notion that the
cost of doing the examinations should be borne by the people he
examines on a break-even basis.
MR. DAVIS replied that would be a goal, but he needed to work on
it. Overall the division makes a fair profit; the Securities
section makes a greater profit. It puts $10 to $12 million into
the general fund and provides a good service; the Banking
section loses $359,000.
SENATOR FRENCH asked if the division would save about $6,000 per
year by eliminating the examination.
MR. DAVIS said yes and that right now an examiner spends 10 days
at CFAB and that time could be spent somewhere else with another
entity. He said they are working at Bidcos [ph], the relatively
new private financial groups of which there are two in the
state. They inject money into the economy.
SENATOR FRENCH asked if the division won't gain a whole
examiner's position for the entire year, but instead will get 10
days worth of work out of a person on another project.
MR. DAVIS said that is right and to put it in perspective, the
state bank, which is much larger, will take the same time as
CFAB. He would rather spend the time on the state bank and have
the examiners available to shift to the securities section, as a
lot of new securities brokers have opened for business in Alaska
within the last couple of years.
CHAIR BUNDE asked if the division anticipates saving $126,000.
MR. DAVIS replied yes and said that bank examiners are paid well
and are highly skilled.
SENATOR SEEKINS said the bill changes the examination
requirement to once every 18 months instead of once every 12
months. He asked Mr. Davis if he anticipates any unnecessary
risk in small loans.
MR. DAVIS answered that right now there are eight licensees,
seven are owned by Wells Fargo. At the present time, given that
ownership structure, he didn't think there would be any risk
from changing to 18 months. He emphasized that if the division
needs to examine someone more frequently, like a new licensee
that is having difficulty, it would do so.
CHAIR BUNDE thanked participants for their comments and said the
committee would bring SB 113 up again next week.
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