SENATE BILL NO. 168 An Act relating to financial institutions. Co-chairman Halford directed that SB 168 be brought on for discussion. SHERMAN ERNOUF, aide to Senator Kelly, came before committee. He advised that the legislation was introduced at the request of the Division of Banking, Securities, and Corporations. As background information, Mr. Ernouf explained that congressional passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 overrides state law in a number of areas. It also allows states to address provisions in the Act and effect remedies before the 1996 deadline. Alaska anticipated most of the federal changes in recent recodification of Alaska banking law. SB 168 contains provisions needed to correct state law before the congressional act goes into effect. Changes relate to: 1. Agency activities between Alaska banks and banks in other states. 2. Examination sharing agreements between state bank regulators. 3. Deposit concentration limits on mergers and purchases of Alaska banks by outside banks. The Alaska Bankers' Association endorses the legislation. All banks within the state have "passed" on the language and the intent of the bill. WILLIS KIRKPATRICK, Director, Division of Banking, Securities, and Corporations, Dept. of Commerce and Economic Development, came before committee. He explained that 1994 recodification of state banking law showed that "state barriers/boundaries were falling down." There was a massive push by large national and international banks for congressional action on interstate branching. The large banks wanted branches across state lines. The congressional act allows states until 1997 to decide whether or not they wish to opt in or out of interstate branching. Alaska's recodification provides for that type of branching. A bank from another state could buy an existing bank or existing branch. Alaska opted in before Congress made specific determinations. However, federal law contains other optional provisions upon which the state must act by 1997. One of those provisions relates to agency powers. The Division of Banking, Securities, and Corporations has determined that full agency powers would be appropriate in Alaska. That means that if a large international or interstate bank locates in Alaska and imports many of its services and becomes aggressive in the marketplace, the local community bank may enter an agreement with a bank outside the state to serve as an agent for the outside bank and thus compete with the large national or international bank. Federal law also allows states to address the question of concentration (the outside purchase of deposits in Alaska). A limit of 50% is proposed. Mr. Kirkpatrick cited, as an example, the fact that National Bank of Alaska has insured deposits of 24 to 30%. Federal law also allows states to share agreements and examinations across state lines. Under that provision, the Division of Banking, Securities, and Corporations would cooperate with other states and jurisdictions in sharing bank examination information. Senator Randy Phillips asked if consumers would experience any side effects as a result of proposed law. Mr. Kirkpatrick responded, "Not that I know of." Senator Rieger directed attention to page 3, line 7, and inquired regarding a definition for "financial institution." Mr. Kirkpatrick explained that "depository institution" is defined in Title 6, Chapter 1. Financial institutions are included within that definition. It refers to financial institutions whose deposits are insured by an agency of the federal government. Senator Rieger next referenced page 1, Section 1, and noted that subsections (a) through (f) speak to state banks acting as agents for other entities. Subsection (g) appears to reverse the process and allow state banks to contract with other entities to render services. The Senator pointed specifically to language at page 2, line 19, and asked for an explanation of "by itself through an agent." Mr. Kirkpatrick said that wording prevents a state bank, acting as an agent for an outside bank, from conducting activities prohibited by applicable state or federal laws. Senator Rieger expressed continuing concern that language might impact situations where a state bank might be using an agent rather than serving as an agent. Co-chairman Halford acknowledged a teleconference connection to Anchorage and asked if individuals wished to testify. RON KUKIS, First Interstate Bank of Alaska, advised that he and Jerry Weaver, National Bank of Alaska, were available to answer questions. Co-chairman Frank asked if federal law establishes a limit on concentration. Willis Kirkpatrick said that under the Riegle-Neal Act, Congress would set the limit at 37% if the state does not take alternative action. Most states presently rely on antitrust provisions. Co-chairman Frank voiced his understanding that the state would preempt imposition of 37% by enacting 50%. Mr. Kirkpatrick concurred. Senator Rieger MOVED that SB 168 pass from committee with individual recommendations. No objection having been raised, SB 168 was REPORTED OUT of committee with a zero fiscal note from the Dept. of Commerce and Economic Development. Co-chairmen Halford and Frank and Senators Rieger and Phillips signed the committee report with a "do pass" recommendation. Senators Donley and Zharoff signed "no recommendation."