Legislature(1993 - 1994)
02/25/1993 01:35 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
February 25, 1993
1:35 p.m.
MEMBERS PRESENT
Senator Tim Kelly, Chairman
Senator Steve Rieger, Vice-Chairman
Senator Drue Pearce
Senator Georgianna Lincoln
Senator Judy Salo
OTHERS PRESENT
Senator Robin Taylor
COMMITTEE CALENDAR
SENATE BILL NO. 76
"An Act preventing persons with felony convictions from
being involved in charitable gaming activities as a
permittee, licensee, or employee in a managerial or
supervisory capacity; and relating to `political uses' and
`political organizations' as those terms are used in the
charitable gaming statutes."
SCHEDULED BUT NOT HEARD THIS DAY.
SENATE BILL NO. 105
"An Act relating to motor vehicle dealers and to agents for
motor vehicle buyers; and providing for an effective date."
BANKING CODE REVISION
PREVIOUS SENATE COMMITTEE ACTION
SB 76 - See Labor & Commerce minutes dated 2/11/93, 2/25/93,
and 3/4/93.
SB 105 - See Labor and Commerce minutes dated 2/25/93.
See Judiciary minutes dated 3/10/93.
BANKING CODE REVISION - previously heard on 2/23/93.
WITNESS REGISTER
Joe Ambrose
Senator Robin Taylor
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Testified on SB 105.
Steven Allwine
Alaska Auto Dealers
8725 Mallard Street
Juneau, Alaska 99801
POSITION STATEMENT: Supported SB 105.
Willis Kirkpatrick, Director
Division of Banking, Securities, & Corporations
Dept. of Commerce & Economic Development
P.O. Box 1100807
Juneau, Alaska 99811-0807
POSITION STATEMENT: Banking Code Revision.
Marc Langdon, CEO
NorthRim Bank
9620 Spring Hill Drive
Anchorage, Alaska 99508
POSITION STATEMENT: Banking Code Revision.
Jeff Bush, Attorney
175 S. Franklin Street, #318
Juneau, Alaska 99801
POSITION STATEMENT: Banking Code Revision.
William Moran, President
First Bank
Box 7920
Ketchikan, Alaska 99901
POSITION STATEMENT: Banking Code Revision.
Craig Ingrim
Mt. McKinley Bank
Box 73880
Fairbanks, Alaska 99707
POSITION STATEMENT: Banking Code Revision.
Charles McKee
7800 DeBarr Rd. E. #63
Anchorage, Alaska 99504
POSITION STATEMENT: Banking Code Revision.
ACTION NARRATIVE
TAPE 93-15, SIDE A
Number 001
CHAIRMAN TIM KELLY called the Labor and Commerce Committee
meeting to order at 1:35 p.m.
SENATOR KELLY introduced SB 105 (MOTOR VEHICLE DEALERS &
BUYERS' AGENTS) and invited the prime sponsor, SENATOR ROBIN
TAYLOR, to testify.
SENATOR TAYLOR gave some background information on SB 105
dealing with an automobile broker, who was working in
Alaska, going out of business without notice. He explained
it left at least 30 people in Southern Southeast Alaska
either without the car they thought they had purchased, or
without legal title to a vehicle which had been delivered to
them. He further explained that many were out dollars, and
others were stuck in a nightmare that began with a dream of
owning their first new car.
SENATOR TAYLOR said the legislation was an attempt to see
that problem would never be repeated by the establishment of
a new definition in state law for a buyer's agent. It would
regulate the activities of such an agent and define the
difference between a buyer's agent and a licensed dealer.
SENATOR TAYLOR said the bill would offer real protection by
requiring any fees collected by the agent be held in escrow
until the vehicle was delivered. The buyer's agent would be
required to maintain a fleet record on each sale, including
evidence of delivery. SENATOR TAYLOR reviewed the criminal
penalties, asked for support for SB 105, and gave an example
from Ketchikan to support his testimony.
SENATOR KELLY asked how many car brokers there were in
Alaska, and there was some discussion with SENATOR TAYLOR
over possible numbers.
Number 061
In a series of questions and answers, SENATOR RIEGER
discussed with SENATOR TAYLOR the role of the agent and the
delivery of the car.
SENATOR KELLY clarified the legislation did not apply to a
licensed dealer or a salesman for a dealer.
JOE AMBROSE, aide to SENATOR TAYLOR, expanded the
information on warranties and the role of the buyer's agent.
SENATOR RIEGER gave an example to ask when a person becomes
a dealer in Alaska.
SENATOR KELLY invited STEVE ALLWINE, representing automobile
dealers throughout the state of Alaska, to testify.
Number 124
MR. ALLWINE voiced support from all of the dealers in Alaska
on behalf of SB 105, and he commended SENATOR TAYLOR'S for
his introduction of the legislation. He added insight into
some additional problems such as buyers who received
different vehicles from those requested, buyers sold
vehicles that were not new, warranties that were different
from expected, lack of safety notifications, and
manufacturers' recalls. He explained some of the problems
did not surface until several years later, leaving consumers
and local dealers with the dilemma. He quoted automobile
manufacturers as being dissatisfied with the manner in which
the brokers handled their automobiles.
Number 161
SENATOR RIEGER asked questions about warranties of MR.
ALLWINE in connection with Section 1, and how it would work
in practice in Alaska. MR. ALLWINE thought it would work
because of the words, "reasonable distances." He gave
examples of warranty failures, and how they were handled in
the rural areas in Alaska. They discussed automatic
warranties among Chrysler vehicles, including the purchase
of vehicles from Anchorage to Southeast Alaska.
SENATOR KELLY clarified his testimony dealt with new cars
rather than used, and MR. ALLWINE agreed.
SENATOR PEARCE moved to pass SENATE BILL NO. 105 from
committee with individual recommendations. Without
objections, so ordered.
(The committee recessed until 2:00)
SENATOR KELLY returned the proposed legislation, BANKING
CODE REVISION, to committee and invited WILLIS KIRKPATRICK
to continue his testimony on the recodification of the
banking code. SENATOR KELLY noted the committee was on
teleconference to Ketchikan, Anchorage, and Fairbanks.
SENATOR KELLY said there were concerns expressed about the
proposed legislation at the last meeting, and he thought MR.
KIRKPATRICK and MR. BUSH had addressed most of them. He
asked for a review of those concerns before opening the
discussion to the teleconference and those present.
MR. KIRKPATRICK chose to begin with a response to MARC
LANGDON, CEO of the NorthRim Bank in Anchorage, who sent
down a private rough draft summarizing his previous comments
from the 2/23/93 meeting. The following is excerpts from
the report and a response from MR. KIRKPATRICK.
Number 251
MR. KIRKPATRICK quoted a problem area from MR. LANGDON in
Section 7 of AS 06.01, paragraph (d), "a director, officer,
or employee of a financial institution who receives a
deposit knowing that the institution is insolvent and
without the department's prior approval, is guilty of a
Class C felon."
MR. KIRKPATRICK explained that during the period of failing
banks, his division didn't want them to close immediately,
because they were trying to find prospective borrowers. He
said the attorneys for the failing banks were concerned
about an existing law making it a felony to receive deposits
while the bank was insolvent. He cited the addition of
"without the department's prior approval," to allay the
fears by the bank of criminal fraud action, and he explained
the control and protection of the depositors.
MR. KIRKPATRICK assured MR. LANGDON that neither he nor his
employees, in the situation as described, were going to be
adjudged felons.
In reference to (e) (f) and (g) in the same section of MR.
LANGDON'S draft, MR. KIRKPATRICK explained it dealt with the
state having the authority to assess penalties for violation
of the Alaska Banking Code. He described MR. LANGDON'S
concerns because of a new fiduciary from Congress which
gives extremely stiff penalties by the federal government to
anyone who is violating federal law. (MR. BUSH suggested it
could be a million dollars a day potential penalty.)
MR. KIRKPATRICK assured MR. LANGDON the legislation would
operate very much like a public utility penalty, and the
bank would not be assessed without an opportunity to
respond.
Number 312
MR. KIRKPATRICK, in reference to Section 17, wished there
had been more discussion with the banks on the notice for
closing on holidays. There was a discussion with SENATOR
KELLY and MR. BUSH about it being rather a non-problem.
In reference to Section 28, MR. KIRKPATRICK quoted (h), "The
department may adopt regulations classifying loans based
upon the type of securities or collateral and restricting or
limiting a bank's authority to make loans to certain
classes." He didn't think MR. LANGDON realized the origin of
this statute in relation to problem loans such as real
estate development loans and the difficulty in covering
every type of loan. He quoted MR. LANGDON'S rejoinders of,
"This provision seems to indicate that the State knows more
about the economic conditions of each bank's market than do
the banks," as being correct, and he used the Alaska Mutual
Bank to make his point about questionable loans.
Number 376
SENATOR KELLY suggested the division could limit the
authority of a bank to make loans, and MR. KIRKPATRICK
replied they could by regulation, but some banks were
difficult to convince of the danger.
SENATOR LINCOLN questioned her understanding of "by
statute," and read some passages which would limit the
bank's authority to make loans to certain classes. MR.
KIRKPATRICK agreed with her as to MR. LANGDON'S concerns,
and he described his discussion with MR. LANGDON involving
the authority to address some problems not otherwise covered
in statute.
Number 411
MR. BUSH explained current existing law in relation to
lending, with some restrictive statutory limits, which will
be removed in the revision of the banking code. He said as
long as the lending situation in the state is going well,
there won't be the restrictions. MR. BUSH explained the
authority of the division will remain in case they see a
problem developing.
SENATOR KELLY discussed the authority under regulation,
rather than statute, depending on the extent of the need,
and he expressed some discomfort with that kind of authority
since he favors the statute approach.
SENATOR LINCOLN suggested placing a period right after
"collateral" on page 15, line 6, and delete the remainder of
the sentence, "... and restricting or limiting a bank's
authority to make loans to certain classes." She discussed
her opinion. SENATOR KELLY thought it might work.
Number 452
SENATOR SALO questioned limiting authority on certain
classes of loans, and she gave an example of poor economic
times where a bank is surviving by being into the condo
market heavily. She asked if this would be an area where
the loans would be restricted.
MR. KIRKPATRICK thought it was an excellent example, and he
used the Peninsula Savings and Loan in the condo market in
Anchorage to outline the division's process in dealing with
failing investments and restricting additional condo loans.
The bank protested there was nothing in the law limiting the
loans, and MR. BUSH explained how this could be handled by
redrafting the provisions.
SENATOR SALO suggested crafting in a different manner by
requiring a level of diversification in loans, but she was
not in favor of eliminating this section, since she thought
the division should be able to steer banks away from risky
markets.
MR. BUSH thought her answer would achieve the same goal, but
he had a problem with defining it in statute. There ensued
a discussion with SENATOR KELLY and MR. BUSH on where the
judgement would lie.
Number 520
In reference to Section 32, MR. KIRKPATRICK quoted (a), "a
director, officer, or employees of a state bank many not
knowingly, willfully and persistently overdraw the
director's, officer's, or employee's account or permit a
customer to do so," and said he spent considerable time with
MR. LANGDON on this area. MR. KIRKPATRICK explained he was
concerned about the huge overdrawn household accounts by
choice customers that the banks don't want to lose. He
expressed concern with accounts that were overdrawn
"knowingly, willfully and very persistently" and the abuse
in using the overdrawn account as a credit source.
SENATOR KELLY asked about existing law, and MR. BUSH
explained Section 32 was still in existing law with some
technical changes. There was some discussion on commercial
accounts with SENATOR KELLY as being a non-problem.
MR. KIRKPATRICK reviewed Section 38, AS 06.05.235, which
"relates to provisions that would require bank holdings
companies to obtain a permit and possibly post a bond before
they could acquire a bank in the state," which MR. LANGDON
declared would be an impediment to business. MR.
KIRKPATRICK used Rainier Bank in discussing the purchase of
failing banks, which eventually gave Bank of America about
75% of the banking assets of the State of Washington. It
took a threat of anti-trust legislation to make the Bank of
America more responsive to the problem.
TAPE 93-15, SIDE B
Number 001
MR. KIRKPATRICK explained it was this concern over
interstate branching which inspired one of the provisions in
the new code. The provision would require that existing
branches be purchased rather than new ones formed by Outside
banks. Otherwise, it would not be possible to prevent a
large Outside bank from gobbling up all of the banking
interests in Alaska.
SENATOR LINCOLN wondered why MR. KIRKPATRICK changed the
"equal to" to "not more than" on page 18, line 31, and she
was concerned the wording could be construed as "less than."
MR. BUSH explained why a bond of that specific amount was
needed, but in some cases the bond could be less. In all of
the banking history of Alaska since 1970, a bond was not
needed in this case. MR. KIRKPATRICK explained how the
legislation was an attempt to say the holding company does
have a responsibility to the subsidiary.
SENATOR KELLY began the teleconference by inviting WILLIAM
MORAN, President of First Bank in Ketchikan, to testify.
MR. MORAN said he attended the first meeting on the proposed
legislation and has been involved in the process with the
state Division of Banking from the beginning. He supports
the legislation as currently written, and he explained the
part First Bank has played in being on both sides of the
charter issue in changing from being a national bank to a
state chartered bank.
MR. MORAN thought the recodification of the banking code
would allow enough flexibility to keep it current without
returning to the legislature every time there needed to be a
minor change. He reviewed the changes in subsidiaries,
which he considered kindred financial services, and the
lending statutes which he thought were difficult to
decipher.
MR. MORAN explained why he preferred the broad powers
described by the Division of Banking on loan guidelines and
employee loans. He praised the expansion and flexibility of
the proposal by the state in the revised code as similar to
those adopted by the Federal Reserve, the FDIC, and the
Office of the Comptroller of the Currency.
MR. MORAN concluded with praising the ability of the
Division of Banking to be more flexible on allowable
investments in Federal Home Loan Bank legislation passed at
the national level, which would allow commercial banks to
join the home loan bank system. He thought the current
recodification is an enlightened approach to address a
number of problems with the existing statutes and would
bring the code up to parity with the national banking
system.
Number 124
SENATOR RIEGER clarified that MR. MORAN was a state
chartered bank, and he wanted to know the advantages. MR.
MORAN listed the reasons they liked being an Alaskan bank
including going to Juneau to talk to someone who knows what
is going on v. dealing on the national level with the latest
fad in bank regulations. He praised the working
relationship with the state.
SENATOR KELLY turned to Fairbanks to hear from CRAIG INGRIM,
President of the Mt. McKinley Bank.
MR. INGRIM agreed with the proposed legislation and felt it
would benefit all of the state banks.
SENATOR RIEGER asked if he had FDIC insurance, and MR.
INGRIM said they did.
SENATOR KELLY next went to Anchorage to hear from CHARLES
MCKEE.
Number 171
MR. MCKEE said he would fax his information to SENATOR KELLY
as to why he was against the proposed legislation. SENATOR
KELLY gave him directions for sending it from the LIO.
MR. MCKEE expressed concerns about Section 6 dealing with
injunctions, notices and hearings because he wanted to bring
back a gold and silver based currency, utilizing the Legal
Tender Issue Act. He said it was all within the Cartwright
paper work being faxed to SENATOR KELLY.
MR. MCKEE concurred with MR. LANGDON since he was in
sympathy with people faced with felony charges, and he
described trying to bring criminal trespass charges against
those who hindered his project.
Number 209
MR. KIRKPATRICK, asked to continue with Section 51, AS
06.05.235, on page 25, line 24 (c), quoted "if a bank fails
to maintain its total capital accounts and loan loss
reserves in an amount equal to the assets classified as
substandard by the FDIC or the state ... the department
shall consider the failure as endangering the safety of the
depositors and may direct the bank's directors to increase
the capital accounts in an amount sufficient to cover
substandard assets."
MR. KIRKPATRICK said it was existing law and has been a
reliable tool in the closure of financial institutions. He
explained MR. LANGDON'S view as being Alaska's First Federal
Reserve Bank, and as a member, is examined by the Federal
Reserve System every six months. MR. LANGDON quoted the
federal examiners as seeing in his bank loans, substandard
loans, which was giving him problems in Southern California.
He feels he might get forced into raising more capital.
MR. KIRKPATRICK said he had discussed with MR. LANGDON the
importance of the existing law in relation to possible
deteriorating loans and possible failure by the bank. He
pointed out the key words in the legislation that could
endanger the depositors and explained the ramifications of
substandard assets, but MR. LANGDON did not think some of
the loans were substandard.
SENATOR SALO asked for the significance for deleting
"adjusted." MR. BUSH explained the definitions had been
standardized throughout the bill as listed on page 47.
Number 280
MR. KIRKPATRICK discussed with SENATOR KELLY some added
information to MR. LANGDON'S concerns about Section 51.
MR. KIRKPATRICK next went to Section 71, AS 06.05.437, on
page 36, beginning on line 22, which would allow the
department to order the board to remove an officer who has
been "negligent, dishonest, reckless or incompetent."
MR. LANGDON objected to what he considered the department's
right to micro-manage the bank, rather than regulate.
SENATOR KELLY asked whether he had a discussion with MR.
LANGDON, and MR. KIRKPATRICK indicated it had been a lengthy
one. SENATOR KELLY asked for a copy of the privileged
information from MR. LANGDON.
MR. KIRKPATRICK reviewed the last section presented by MR.
LANGDON which asked that international banks be subject to
the same rules and restrictions that cover domestic banks.
He was concerned the international bank could collect
deposits from customers in the state, but not reciprocate
with proportional lending.
MR. BUSH thought the legislation would do what MR. LANGDON
wanted, which was for domestic banks to have the same
authority as international banks. He promised that all
banks, domestic and international, would play by the same
rules.
SENATOR KELLY asked about other concerns, and MR.
KIRKPATRICK discussed a letter from JIM CRAWFORD, the CEO of
City Commerce Corporation, which he has labeled a non-bank.
MR. KIRKPATRICK was perplex about a Fosby Ruling mentioned
by MR. CRAWFORD, and he thought it might be related to
trading accounts, but he had not been able to contact MR.
CRAWFORD about his concerns.
SENATOR KELLY asked how the figure of $10,000, a new limit
for loans to an employee, director or officer, was
determined, and MR. KIRKPATRICK reviewed some past history.
They concluded it was an adjustment for inflation.
Number 370
SENATOR KELLY explained he had been asked in the bill to
increase the pawn shop cap from $200 to $500, and MR.
KIRKPATRICK indicated he had no objections to its inclusion
in the bill.
MR. BUSH referred to a letter from MR. CRAWFORD with his
second concern related to Section 49, which he thought
included the prohibition of a non-bank bank. This was
discussed at the last hearing on this proposed legislation,
as well. MR. BUSH said the section was borrowed from
Montana and was not designed to deal with MR. CRAWFORD'S
operation. MR. BUSH said MR. KIRKPATRICK was going to be in
touch with the Association of State Regulators to determine
language that would not touch MR. CRAWFORD'S business or
other similar businesses. For now, MR. BUSH suggested
pulling Section 49 from the bill.
Number 410
MR. BUSH quoted MR. CRAWFORD as discussing the definition of
"banking business" at some length, and they agreed it needed
to be changed because the banking business has changed over
the years. He offered a proposed amendment to change the
definition which he hoped would be acceptable to MR.
CRAWFORD.
MR. BUSH addressed MR. CRAWFORD'S final request of placing a
time limit on the disqualification of a director based on
the director having filed for bankruptcy. He said there was
agreement that bankruptcy would not disqualify a director,
and he referred to Section 69 in which it is a factor the
department may consider relevant in removing a director.
SENATOR KELLY asked about the letter from GARY STERTON,
President/CEO of the ALPS Federal Credit Union in Sitka, and
MR. BUSH said he first objected to Section 9, AS 06.05.005
(b) (7) (G) and (H) on page 8. He thought MR. STERTON may
have misinterpreted "may" for something the department
"shall" do, or would require. He said there was no change
from existing law, which he explained as a tool for
examiners.
MR. BUSH said they had discussed some of the other concerns
of MR. STERTON, but he didn't think there was anything else
that needs discussion. MR. BUSH said he had responded in
writing, with a copy to SENATOR KELLY for distribution.
SENATOR RIEGER expressed some concerns which he preferred to
keep for the final version.
SENATOR KELLY set up an appointment with MR. KIRKPATRICK,
MR. BUSH, and JOSH FINK for the next morning to review the
final version of the bill.
MR. KIRKPATRICK gave a final review from people interested
in the legislation.
SENATOR KELLY said he planned to finalize the bill for one
more hearing - a major overview in committee.
There being no further business to come before the
committee, the meeting was adjourned at 3:25 p.m.
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