SENATE BILL REPORT

SB 5701

BYSenators von Reichbauer, Moore and Sellar; by request of Department of General Administration

Regulating financial institutions.

Senate Committee on Financial Institutions & Insurance

Senate Hearing Date(s):February 14, 1989

Majority Report:  Do pass.

      Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; McCaslin, McMullen, Moore, Rasmussen, Sellar, Smitherman, West.

Senate Staff:Benson Porter (786-7470)

                  March 6, 1989

AS PASSED SENATE, MARCH 6, 1989

BACKGROUND:

The Supervisor of Banking or certain representatives thereof are required to examine a state-chartered commercial bank or trust company without prior notification.  Critics of this requirement feel examination personnel's time may be used inefficiently waiting for an institution's personnel to prepare required documents.

State banking, trust company, or mutual savings bank statutes do not provide for agreements allowing the supervisor to give or accept examinations with other bank regulatory authorities.  The implementation of interstate banking allows the out-of-state ownership of certain domestic institutions.  It has been suggested that these agreements could equip regulatory authorities more efficiently to monitor the safety and soundness of regulated institutions.

If the criteria for disapproval are met, the supervisor must file an injunctive action to restrain a pending acquisition or change in control of a bank, trust company, or mutual savings bank.  Publicity accompanying such injunctive action could seriously harm an institution's reputation or cause a run on the institution.

Business corporations may limit or eliminate liability of their directors.  Currently, a proposal is being considered by the Legislature to extend this ability to financial institutions.  Some concern has been expressed that the interests of certain regulators and deposit insurers may not be protected under this proposal.

A current moratorium preventing withdrawal of any institutions from the Federal Savings and Loan Insurance Corporation (FSLIC) exists.  The moratorium prevents the merger of a FSLIC insured institution into a Federal Deposit Insurance Corporation (FDIC) insured institution in which the acquired institution would be a subsidiary of the acquirer.

Mutual savings bank statutes are silent concerning the examination of these institutions.  Also, the disclosure of examination contents is less specific than banking statutes.

SUMMARY:

Various modifications are made to the banking and mutual savings bank codes.

The banking and trust company provision forbidding prior examination notification is deleted.

The Supervisor of Banking is authorized to enter into cooperative agreements with other specified banking authorities to give and obtain examination reports for banks, trust companies, or mutual savings banks.  The supervisor may accept these examination reports in lieu of conducting his or her own examination.  In order to furnish examination reports, the supervisor must find that the reports will receive protection from disclosure comparable to that provided in this state.  All examinations obtained through agreements are considered privileged and confidential information, and are not public information or subject to the Public Disclosure Act.

The supervisor is authorized to disapprove any application for acquisition or control of any bank, trust company, or mutual savings bank; provided, however, that the criteria for disapproval are met.  The basis for any disapproval is to be set forth in an order, a copy of which is to be provided to the applicants and the bank involved.  The findings of such an order are not subject to public disclosure unless the findings or order are appealed.  Any change in a director or chief executive officer within the first twelve months after a change in control is to be reported to the supervisor.

A director of a state commercial bank or mutual savings bank may be held personally liable for damages sustained by the state or deposit insurer.  In order to be held liable, the director must knowingly violate or permit violation of applicable banking law, regulation or supervisory directive.

A mutual savings bank may invest in the stock of another federally insured depository institution as a controlled subsidiary.

Examination provisions for state commercial banks are added to the mutual savings bank statute.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Effective Date:The bill contains an emergency clause and takes effect immediately.

Senate Committee - Testified: Tom Oldfield, Banking - G.A. (pro); Keith Hopper, Washington Banking Association (pro); Paul Conrad, Allied Daily Newspapers