PREPROPOSAL STATEMENT OF INQUIRY
Subject of Possible Rule Making: Possible amendment of chapter 208-512 WAC to include, but not be limited to: (1) Clarifying the definition of "extensions of credit" to include "derivatives transactions" as that term is intended in Section 611 of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"); (2) amending or adding language in "lending limits" and/or "investment limits" provisions to require that Washington state-chartered banks take into consideration credit exposure to "derivative transactions"; (3) removing references or requirements of reliance on credit ratings and to substitute an alternative standard of creditworthiness; and (4) other technical amendments.
Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 43.320.040, 30.04.030, 30.04.111, and 32.08.157.
Reasons Why Rules on this Subject may be Needed and What They Might Accomplish: Pursuant to Section 611 of the Dodd-Frank Act, a Washington state-chartered bank under Title 30 or 32 RCW will no longer be able to engage in "derivatives transactions" on or after January 21, 2013, unless the state "lending limits" laws or rules applicable to them contain provisions addressing "credit exposure" to "derivatives transactions." Washington state-chartered banks regularly invest in derivatives as part of their overall investment portfolio and for purposes of liquidity and risk management instrumental in safety and soundness. It is important that Washington state-chartered banks be permitted to continue engaging in "derivatives transactions" after January 21, 2013. Section 939A of the Dodd-Frank Act requires federal agencies to remove references or requirements of reliance on credit ratings and to substitute an alternative standard of creditworthiness. To be consistent with the rule making of federal agencies, the department may possibly further amend chapter 208-512 WAC to remove references or requirements of reliance on credit ratings and to substitute an alternative standard of creditworthiness.
Complies with OFM Guideline 3 (a) and (e), published October 12, 2011.
Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: The Board of Governors of the Federal Reserve System (fed) and the Federal Deposit Insurance Corporation (FDIC) regulate this subject at the federal level in regard to state-chartered fed member banks and all FDIC-insured state banks. The Office of the Comptroller of the Currency (OCC) is in the process of publishing interim final rules on this subject as it applies, under Section 610 of the Dodd-Frank Act, to national banks. RCW 30.04.111(5) provides that OCC rule making concerning "lending limits" applies to Washington state-chartered banks if the department has not adopted its own rules on the subject. If the OCC adopts rules that are in the best interest of Washington state-chartered banks, the department may suspend this rule-making process. The department coordinates with the fed and the FDIC (and monitors the rule-making activities of the OCC for parity under RCW 30.04.111(5)) in order to achieve state "lending limits" requirements that are optimum for the Washington state banking charter.
Process for Developing New Rule: Negotiated rule making.
Interested parties can participate in the decision to adopt the new rule and formulation of the proposed rule before publication by contacting Joseph M. Vincent, General Counsel, Department of Financial Institutions, P.O. Box 41200, Olympia, WA 98504-1200, fax (360) 586-5068, e-mail firstname.lastname@example.org, phone (360) 902-0516. There will be pre-CR-102 stakeholder meetings with industry governmental relations representatives and banking attorneys prior to filing CR-102 (which will be announced).
June 19, 2012
Richard M. Riccobono
Director, Division of Banks