Z-385                 _______________________________________________

 

                                                   HOUSE BILL NO. 1730

                        _______________________________________________

 

State of Washington                               51st Legislature                              1989 Regular Session

 

By Representatives Dellwo, Chandler and Crane; by request of Department of General Administration

 

 

Read first time 2/3/89 and referred to Committee on Financial Institutions & Insurance.

 

 


AN ACT Relating to financial institutions; amending RCW 30.04.060, 30.04.075, 30.04.410, 32.04.220, and 32.32.228; adding a new section to chapter 30.12 RCW; adding a new section to chapter 32.04 RCW; adding a new section to chapter 32.16 RCW; adding a new section to chapter 32.20 RCW; and declaring an emergency.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

 

        Sec. 1.  Section 30.04.060, chapter 33, Laws of 1955 as last amended by section 3, chapter 305, Laws of 1985 and RCW 30.04.060 are each amended to read as follows:

          (1) The supervisor, the deputy supervisor, or a bank examiner((, without previous notice,)) shall visit each bank and each trust company at least once every eighteen months, and oftener if necessary, for the purpose of making a full investigation into the condition of such corporation, and for that purpose they are hereby empowered to administer oaths and to examine under oath any director, officer, employee, or agent of such corporation.  The supervisor may make such other full or partial examinations as deemed necessary and may examine any bank holding company that owns any portion of a bank or trust company chartered by the state of Washington and obtain reports of condition for any bank holding company that owns any portion of a bank or trust company chartered by the state of Washington.  The supervisor may visit and examine into the affairs of any nonpublicly held corporation in which the bank, trust company, or bank holding company has an investment or any publicly held corporation the capital stock of which is controlled by the bank, trust company, or bank holding company; may appraise and revalue such corporations' investments and securities; and shall have full access to all the books, records, papers, securities, correspondence, bank accounts, and other papers of such corporations for such purposes.  The supervisor may, in his or her discretion, accept in lieu of the examinations required in this section the examinations conducted at the direction of the federal reserve board or the Federal Deposit Insurance Corporation.  Any willful false swearing in any examination is perjury in the second degree.

          (2) The supervisor may enter into cooperative and reciprocal agreements with the bank regulatory authorities of the United States, any state, the District of Columbia, or any trust territory of the United States for the periodic examination of domestic bank holding companies owning banking institutions in other states, the District of Columbia, or trust territories, and subsidiaries of such domestic bank holding companies, or of out-of-state bank holding companies owning a bank or trust company the principal operations of which are conducted in this state.  The supervisor may accept reports of examination and other records from such authorities in lieu of conducting his or her own examinations.  The supervisor may enter into joint actions with other regulatory bodies having concurrent jurisdiction or may enter into such actions independently to carry out his or her responsibilities under this title and assure compliance with the laws of this state.

 

        Sec. 2.  Section 1, chapter 245, Laws of 1977 ex. sess. as amended by section 2, chapter 279, Laws of 1986 and RCW 30.04.075 are each amended to read as follows:

          (1) All examination reports and all information obtained by the supervisor and the supervisor's staff in conducting examinations of banks, trust companies, or alien banks, and information obtained by the supervisor and the supervisor's staff from other state or federal bank regulatory authorities with whom the supervisor has entered into agreements pursuant to RCW 30.04.060(2), and information obtained by the supervisor and the supervisor's staff relating to examination and supervision of bank holding companies owning a bank in this state or subsidiaries of such holding companies, is confidential and privileged information and shall not be made public or otherwise disclosed to any person, firm, corporation, agency, association, governmental body, or other entity.

          (2) Subsection (1) of this section notwithstanding, the supervisor may furnish all or any part of examination reports prepared by the supervisor's office to:

          (a) Federal agencies empowered to examine state banks, trust companies, or alien banks;

          (b) Bank regulatory authorities with whom the supervisor has entered into agreements pursuant to RCW 30.04.060(2), and other bank regulatory authorities who are the primary regulatory authority or insurer of accounts for a bank holding company owning a bank, trust company, or national banking association the principal operations of which are conducted in this state or a subsidiary of such holding company; provided that the supervisor shall first find that the reports of examination to be furnished shall receive protection from disclosure comparable to that accorded by this section;

          (c) Officials empowered to investigate criminal charges subject to legal process, valid search warrant, or subpoena.  If the supervisor furnishes any examination report to officials empowered to investigate criminal charges, the supervisor may only furnish that part of the report which is necessary and pertinent to the investigation, and the supervisor may do this only after notifying the affected bank, trust company, or alien bank and any customer of the bank, trust company, or alien bank who is named in that part of the examination or report ordered to be furnished unless the officials requesting the report first obtain a waiver of the notice requirement from a court of competent jurisdiction for good cause;

          (((c))) (d) The examined bank, trust company, or alien bank, or holding company thereof;

          (((d))) (e) The attorney general in his or her role as legal advisor to the supervisor;

          (((e))) (f) Liquidating agents of a distressed bank, trust company, or alien bank;

          (((f))) (g) A person or organization officially connected with the bank as officer, director, attorney, auditor, or independent attorney or independent auditor;

          (((g))) (h) The Washington public deposit protection commission as provided by RCW 39.58.105.

          (3) All examination reports furnished under subsections (2) and (4) of this section shall remain the property of the division of banking, and be confidential and no person, agency, or authority to whom reports are furnished or any officer, director, or employee thereof shall disclose or make public any of the reports or any information contained therein except in published statistical material that does not disclose the affairs of any individual or corporation:  PROVIDED, That nothing herein shall prevent the use in a criminal prosecution of reports furnished under subsection (2) of this section.

          (4) The examination report made by the division of banking is designed for use in the supervision of the bank, trust company, or alien bank.  The report shall remain the property of the supervisor and will be furnished to the bank, trust company, or alien bank solely for its confidential use.  Under no circumstances shall the bank, trust company, or alien bank or any of its directors, officers, or employees disclose or make public in any manner the report or any portion thereof, to any person or organization not connected with the bank as officer, director, employee, attorney, auditor, or candidate for executive office with the bank.  The bank may also, after execution of an agreement not to disclose information in the report, disclose the report or relevant portions thereof to a party proposing to acquire or merge with the bank.

          (5) Examination reports and information obtained by the supervisor and the supervisor's staff in conducting examinations , or obtained from other state and federal bank regulatory authorities with whom the supervisor has entered into agreements pursuant to RCW 30.04.060(2), or relating to examination and supervision of bank holding companies owning a bank, trust company, or national banking association the principal operations of which are conducted in this state or a subsidiary of such holding company, or information obtained as a result of applications or investigations pursuant to RCW 30.04.230, shall not be subject to public disclosure under chapter 42.17 RCW.

          (6) In any civil action in which the reports are sought to be discovered or used as evidence, any party may, upon notice to the supervisor, petition the court for an in camera review of the report.  The court may permit discovery and introduction of only those portions of the report which are relevant and otherwise unobtainable by the requesting party.  This subsection shall not apply to an action brought or defended by the supervisor.

          (7) This section shall not apply to investigation reports prepared by the supervisor and the supervisor's staff concerning an application for a new bank or trust company or an application for a branch of a bank, trust company, or alien bank:  PROVIDED, That the supervisor may adopt rules making confidential portions of the reports if in the supervisor's opinion the public disclosure of the portions of the report would impair the ability to obtain the information which the supervisor considers necessary to fully evaluate the application.

          (8) Every person who violates any provision of this section shall be guilty of a gross misdemeanor.

 

        Sec. 3.  Section 3, chapter 246, Laws of 1977 ex. sess. and RCW 30.04.410 are each amended to read as follows:

          (1) The supervisor may ((file an action in the superior court of the county in which the bank is located to restrain the pending acquisition or control of a bank if he finds after considering the application and within thirty days after its filing any of the following)) disapprove the acquisition of a bank or trust company within thirty days after the filing of a complete application pursuant to RCW 30.04.405 or an extended period not exceeding an additional fifteen days if:

          (((1))) (a) The poor financial condition of any acquiring party might jeopardize the financial stability of the bank or might prejudice the interests of the bank depositors, borrowers, or shareholders;

          (((2))) (b) The plan or proposal of the acquiring party to liquidate the bank, to sell its assets, to merge it with any person, or to make any other major change in its business or corporate structure or management is not fair and reasonable to the bank's depositors, borrowers, or stockholders or is not in the public interest;

          (((3))) (c) The banking and business experience and integrity of any acquiring party who would control the operation of the bank indicates that approval would not be in the interest of the bank's depositors, borrowers, or shareholders;

          (((4))) (d) The information provided by the application is insufficient for the supervisor to make a determination or there has been insufficient time to verify the information provided and conduct an examination of the qualification of the acquiring party; or

          (((5))) (e) The acquisition would not be in the public interest.

          (2) An acquisition may be made prior to expiration of the disapproval period if the supervisor issues written notice of intent not to disapprove the action.

          (3) The supervisor shall set forth the basis for disapproval of any proposed acquisition in writing and shall provide a copy of such findings and order to the applicants and to the bank involved.  Such findings and order shall not be disclosed to any other party and shall not be subject to public disclosure under chapter 42.17 RCW unless the findings and/or order are appealed pursuant to chapter 34.05 RCW.

          (4) Whenever such a change in control occurs, each party to the transaction shall report promptly to the supervisor any changes or replacement of its chief executive officer, or of any director, that occurs in the next twelve-month period, including in its report a statement of the past and present business and professional affiliations of the new chief executive officer or directors.

 

          NEW SECTION.  Sec. 4.  A new section is added to chapter 32.04 RCW to read as follows:

          (1) The supervisor, the deputy supervisor, or a bank examiner shall visit each savings bank at least once every eighteen months, and oftener if necessary, for the purpose of making a full investigation into the condition of such corporation, and for that purpose they are hereby empowered to administer oaths and to examine under oath any director, officer, employee, or agent of such corporation.  The supervisor may make such other full or partial examinations as deemed necessary and may examine any holding company that owns any portion of a savings bank chartered by the state of Washington and obtain reports of condition for any holding company that owns any portion of a savings bank chartered by the state of Washington.  The supervisor may visit and examine into the affairs of any nonpublicly held corporation in which the savings bank or holding company has an investment or any publicly held corporation the capital stock of which is controlled by the savings bank or holding company; may appraise and revalue such corporations' investments and securities; and shall have full access to all the books, records, papers, securities, correspondence, bank accounts, and other papers of such corporations for such purposes.  The supervisor may, in his or her discretion, accept in lieu of the examinations required in this section the examinations conducted at the direction of the federal reserve board or the Federal Deposit Insurance Corporation.  Any willful false swearing in any examination is perjury in the second degree.

          (2) The supervisor may enter into cooperative and reciprocal agreements with the bank regulatory authorities of the United States, any state, the District of Columbia, or any trust territory of the United States for the periodic examination of domestic savings banks or holding companies owning banking institutions in other states, the District of Columbia, or trust territories, and subsidiaries of such domestic savings banks and holding companies, or of out-of-state holding companies owning a savings bank the principal operations of which are conducted in this state.  The supervisor may accept reports of examination and other records from such authorities in lieu of conducting his or her own examinations.  The supervisor may enter into joint actions with other regulatory bodies having concurrent jurisdiction or may enter into such actions independently to carry out his or her responsibilities under this title and assure compliance with the laws of this state.

 

        Sec. 5.  Section 2, chapter 245, Laws of 1977 ex. sess. and RCW 32.04.220 are each amended to read as follows:

          (1) All examination reports and all information obtained by the supervisor and the supervisor's staff in conducting examinations of mutual savings banks, and information obtained by the supervisor and the supervisor's staff from other state or federal bank regulatory authorities with whom the supervisor has entered into agreements pursuant to section 4 of this act, and information obtained by the supervisor and the supervisor's staff relating to examination and supervision of holding companies owning a savings bank in this state or subsidiaries of such holding companies, is confidential and privileged information and shall not be made public or otherwise disclosed to any person, firm, corporation, agency, association, governmental body, or other entity.

          (2) Subsection (1) of this section notwithstanding, the supervisor may furnish all or any part of examination reports prepared by the supervisor's office to:

          (a) Federal agencies empowered to examine mutual savings banks((, to the examined mutual savings bank as provided in subsection (4) of this section, and to)) ;

          (b) Bank regulatory authorities with whom the supervisor has entered into agreements pursuant to section 4 of this 1988 act, and other bank regulatory authorities who are the primary regulatory authority or insurer of accounts for a holding company owning a savings bank the principal operations of which are conducted in this state or a subsidiary of such holding company; provided that the supervisor shall first find that the reports of examination to be furnished shall receive protection from disclosure comparable to that accorded by this section;

          (c) Officials empowered to investigate criminal charges subject to legal process, valid search warrant, or subpoena.  If the supervisor furnishes any examination report to officials empowered to investigate criminal charges, the supervisor may only furnish that part of the report which is necessary and pertinent to the investigation, and the supervisor may do this only after notifying the affected mutual savings bank and any customer of the mutual savings bank who is named in that part of the report of the order to furnish the part of the examination report unless the officials requesting the report first obtain a waiver of the notice requirement from a court of competent jurisdiction for good cause;

          (d) The examined savings bank or holding company thereof;

          (e) The attorney general in his or her role as legal advisor to the supervisor;

          (f) Liquidating agents of a distressed savings bank;

          (g) A person or organization officially connected with the savings bank as officer, director, attorney, auditor, or independent attorney or independent auditor;

          (h) The Washington public deposit protection commission as provided by RCW 39.58.105.

          (3) All examination reports furnished under subsections (2) and (4) of this section shall remain the property of the division of banking, and be confidential, and no person, agency, or authority to whom reports are furnished or any officer, director, or employee thereof shall disclose or make public any of the reports or any information contained therein except in published statistical material that does not disclose the affairs of any individual or corporation:  PROVIDED, That nothing herein shall prevent the use in a criminal prosecution of reports furnished under subsection (2) of this section.

          (4) The examination report made by the division of banking is designed for use in the supervision of the mutual savings bank, and the supervisor may furnish a copy of the report to the mutual savings bank examined.  The report shall remain the property of the supervisor and will be furnished to the mutual savings bank solely for its confidential use.  Under no circumstances shall the mutual savings bank or any of its trustees, officers, or employees disclose or make public in any manner the report or any portion thereof, to any person or organization not connected with the savings bank as officer, director, employee, attorney, auditor, or candidate for executive office with the bank.  The savings bank may also, after execution of an agreement not to disclose information in the report, disclose the report or relevant portions thereof to a party proposing to acquire or merge with the savings bank.

          (5) Examination reports and information obtained by the supervisor and the supervisor's staff in conducting examinations, or from other state and federal bank regulatory authorities with whom the supervisor has entered into agreements pursuant to section 4 of this act, or relating to examination and supervision of holding companies owning a savings bank the principal operations of which are conducted in this state or a subsidiary of such holding company, shall not be subject to public disclosure under chapter 42.17 RCW.

          (6) In any civil action in which the reports are sought to be discovered or used as evidence, any party may, upon notice to the supervisor, petition the court for an in camera review of the report.  The court may permit discovery and introduction of only those portions of the report which are relevant and otherwise unobtainable by the requesting party.  This subsection shall not apply to an action brought or defended by the supervisor.

          (7) This section shall not apply to investigation reports prepared by the supervisor and the supervisor's staff concerning an application for a new mutual savings bank or an application for a branch of a mutual savings bank:  PROVIDED, That the supervisor may adopt rules making confidential portions of the reports if in the supervisor's opinion the public disclosure of the portions of the report would impair the ability to obtain the information which the supervisor considers necessary to fully evaluate the application.

          (8) Every person who violates any provision of this section shall forfeit the person's office or employment and be guilty of a gross misdemeanor.

 

        Sec. 6.  Section 25, chapter 56, Laws of 1985 and RCW 32.32.228 are each amended to read as follows:

          (1) As used in this section, the following definitions apply:

          (a) "Control" means directly or indirectly alone or in concert with others to own, control, or hold the power to vote twenty-five percent or more of the outstanding stock or voting power of the controlled entity;

          (b) "Acquiring party" means the person acquiring control of a bank through the purchase of stock;

          (c) "Person" means any individual, corporation, partnership, group acting in concert, association, business trust, or other organization.

          (2) (a) It is unlawful for any person to acquire control of a converted savings bank until thirty days after filing with the supervisor a completed application.  The application shall be under oath or affirmation, and shall contain substantially all of the following information plus any additional information that the supervisor may prescribe as necessary or appropriate in the particular instance for the protection of bank depositors, borrowers, or shareholders and the public interest:

          (i) The identity and banking and business experience of each person by whom or on whose behalf acquisition is to be made;

          (ii) The financial and managerial resources and future prospects of each person involved in the acquisition;

          (iii) The terms and conditions of any proposed acquisition and the manner in which the acquisition is to be made;

          (iv) The source and amount of the funds or other consideration used or to be used in making the acquisition, and a description of the  transaction and the names of the parties if any part of these funds or other consideration has been or is to be borrowed or otherwise obtained for the purpose of making the acquisition;

          (v) Any plan or proposal which any person making the acquisition may have to liquidate the bank, to sell its assets, to merge it with any other bank, or to make any other major change in its business or corporate structure or management;

          (vi) The identification of any person employed, retained, or to be compensated by the acquiring party, or by any person on its behalf, who makes solicitations or recommendations to shareholders for the purpose of assisting in the acquisition and a brief description of the terms of the employment, retainer, or arrangement for compensation;

          (vii) Copies of all invitations for tenders or advertisements making a tender offer to shareholders for the purchase of their stock to be used in connection with the proposed acquisition; and

          (viii) Such additional information as shall be necessary to satisfy the supervisor, in the exercise of the supervisor's discretion, that each such person and associate meets the standards of character, responsibility, and general fitness established for incorporators of a savings bank under RCW 32.08.040.

          (b) Notwithstanding any other provision of this section, a bank or bank holding company which has been in operation for at least three consecutive years or a converted mutual savings bank or the holding company of a mutual savings bank need only notify the supervisor and the savings bank to be acquired of an intent to acquire control and the date of the proposed acquisition of control at least thirty days before the date of the acquisition of control.

          (c) When a person, other than an individual or corporation, is required to file an application under this section, the supervisor may require that the information required by (a) (i), (ii), (vi), and (viii) of this subsection be given with respect to each person, as defined in subsection (1)(c) of this section, who has an interest in or controls a person filing an application under this subsection.

          (d) When a corporation is required to file an application under this section, the supervisor may require that information required by (a) (i), (ii), (vi), and (viii) of this subsection be given for the corporation, each officer and director of the corporation, and each person who is directly or indirectly the beneficial owner of twenty-five percent or more of the outstanding  voting securities of the corporation.

          (e) If any tender offer, request, or invitation for tenders or other agreements to acquire control is proposed to be made by means of a registration statement under the securities act of 1933 (48 Stat. 74, 15 U.S.C. Sec. 77(a)), as amended, or in circumstances requiring the disclosure of similar information under the securities exchange act of 1934 (48 Stat. 881, 15 U.S.C. Sec. 78(a)), as amended, the registration statement or application may be filed with the supervisor in lieu of the requirements of this section.

          (f) Any acquiring party shall also deliver a copy of any notice or application required by this section to the savings bank proposed to be acquired within two days after such notice or application is filed with the supervisor.

          (g) Any acquisition of control in violation of this section shall be ineffective and void.

          (h) Any person who wilfully or intentionally violates this section or any rule adopted under this section is guilty of a gross misdemeanor pursuant to chapter 9A.20 RCW.  Each day's violation shall be considered a separate violation, and any person shall upon conviction be fined not more than one thousand dollars for each day the violation continues.

          (3) The supervisor may ((file an action in the superior court of the county in which the bank is located to restrain the pending acquisition of control of a savings bank if he finds after considering the application and within thirty days after its filing any of the following)) disapprove the acquisition of a savings bank within thirty days after the filing of a complete application pursuant to subsections (1) and (2) of this section or an extended period not exceeding an additional fifteen days if:

          (a) The poor financial condition of any acquiring party might jeopardize the financial stability of the savings bank or might prejudice the interest of depositors, borrowers, or shareholders;

          (b) The plan or proposal of the acquiring party to liquidate the savings bank, to sell its assets, to merge it with any person, or to make any  other major change in its business or corporate structure or management is not fair and reasonable to its depositors, borrowers, or stockholders or is not in public interest;

          (c) The banking and business experience and integrity of any acquiring party who would control the operation of the savings bank indicates that approval would not be in the interest of the savings bank's depositors, borrowers, or shareholders;

          (d) The information provided by the application is insufficient for the supervisor to make a determination or there has been insufficient time to verify the information provided and conduct an examination of the qualification of the acquiring party; or

          (e) The acquisition would not be in the public interest.

          An acquisition may be made prior to expiration of the disapproval period if the supervisor issues written notice of intent not to disapprove the action.

          The supervisor shall set forth the basis for disapproval of any proposed acquisition in writing and shall provide a copy of such findings and order to the applicants and to the bank involved.  Such findings and order shall not be disclosed to any other party and shall not be subject to public disclosure under chapter 42.17 RCW unless the findings and/or order are appealed pursuant to chapter 34.05 RCW.

          Whenever such a change in control occurs, each party to the transaction shall report promptly to the supervisor any changes or replacement of its chief executive officer or of any director occurring in the next twelve-month period, including in its report a statement of the past and current business and professional affiliations of the new chief executive officer or directors.

          (4) (a) For a period of ten years following the acquisition of control by any person, neither such acquiring party nor any associate shall receive any loan or the use of any of the funds of, nor purchase, lease, or otherwise receive any property from, nor receive any consideration from the sale, lease, or any other conveyance of property to, any savings bank in which the acquiring party has control except as provided in (b) of this subsection.

          (b) Upon application by any acquiring party or associate subject to (a) of this subsection, the supervisor may approve a transaction between a converted savings bank and such acquiring party, person, or associate, upon finding that the terms and conditions of the transaction are at least as advantageous to the savings bank as the savings bank would obtain in a comparable transaction with an unaffiliated person.

          (5) Except with the consent of the supervisor, no converted savings bank shall, for the purpose of enabling any person to purchase any or all shares of its capital stock, pledge or otherwise transfer any of its assets as security for a loan to such person or to any associate, or pay any dividend to any such person or associate.  Nothing in this section shall prohibit a dividend of stock among shareholders in proportion to their shareholdings.  In the event any clause of this section is declared to be unconstitutional or otherwise invalid, all remaining dependent and independent clauses of this section shall remain in full force and effect.

 

          NEW SECTION.  Sec. 7.  A new section is added to chapter 30.12 RCW to read as follows:

          If the directors of any bank shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the bank to violate any of the provisions of this title or any lawful regulation or directive of the supervisor of banking, and if the directors are aware that such facts and circumstances constitute such violations, then each director who participated in or assented to the violation is personally and individually liable for all damages which the state or any insurer of the deposits sustains due to the violation.

 

          NEW SECTION.  Sec. 8.  A new section is added to chapter 32.20 RCW to read as follows:

          A savings bank may invest its funds in the stock and other securities and obligations of a savings institution if the deposits of the savings institution are insured by the federal deposit insurance corporation, the federal savings and loan insurance corporation, or any other federal instrumentalities established to carry on substantially the same functions as such corporations:  PROVIDED, That the savings bank shall own not less than fifty-one percent of the outstanding stock having voting power.

 

          NEW SECTION.  Sec. 9.  A new section is added to chapter 32.16 RCW to read as follows:

          If the directors of any bank shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the bank to violate any of the provisions of this title or any lawful regulation or directive of the supervisor of banking, and if the directors are aware that such facts and circumstances constitute such violations, then each director who participated in or assented to the violation is personally and individually liable for all damages which the state or any insurer of the deposits sustains due to the violation.

 

          NEW SECTION.  Sec. 10.    This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and shall take effect immediately.