WSR 12-16-055




[ Filed July 30, 2012, 12:24 p.m. ]

Subject of Possible Rule Making: Possible amendment of chapter 208-512 WAC to include, but not be limited to: (1) Complying with Section 611 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act); (2) clarifying or amending language in "lending limits" and/or "investment limits" to apply certain standards of the Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (FRB), and Federal Deposit Insurance Corporation (FDIC); (3) clarifying or amending language to conform to Section 939(a) of the Dodd-Frank Act; and (4) other technical amendments, including, without limitation, clarifying or amending "aggregation rules" and specifying "exceptions to lending limits" and treatment of "nonconforming loans" under statutory provisions permitting conditional parity with federally chartered and out-of-state state-chartered banks.

Statutes Authorizing the Agency to Adopt Rules on this Subject: RCW 43.320.040, 30.04.030, 30.04.111, 30.04.215, 30.08.140, 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 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." Section 610 of the Dodd-Frank Act imposes the same requirements upon national banks; and the OCC has implemented additional rules on credit limits for derivatives and securities financings which the FDIC and/or FRB are likely to urge or impose upon state insured banks and member state banks. Titles 30 and 32 RCW banks regularly invest in derivatives and securities financings as part of their overall investment portfolio and for purposes of liquidity and risk management instrumental in safety and soundness. Titles 30 and 32 RCW banks must continue to engage in "derivatives transactions" after January 21, 2013. Consistent with statutes permitting banks to conditionally invoke the powers of federal bank and thrift charters and out-of-state banks with branches in Washington, the department may be proposing exceptions to the "lending limit" in RCW 30.04.111 based upon special or emergency circumstances, and also make provision[s] for "nonconforming loans." In addition, the department may amend other "lending limits" provisions of existing rules concerning "aggregation rules" and other technical matters. 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.

Other Federal and State Agencies that Regulate this Subject and the Process Coordinating the Rule with These Agencies: Federal Reserve Board and the FDIC regulate this subject at the federal level in regard to member state banks and state insured banks. The OCC published just published rules on this subject (see above). 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. Many of these new OCC rules are in the best interest of Titles 30 and 32 RCW banks; but Washington rule making is necessary to clarify what will be adopted and what will not apply to Titles 30 and 32 RCW banks, while allowing for contingencies concerning prospective Federal Reserve Board and FDIC requirements. 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, phone (360) 902-0516. There has already been a stakeholder meeting with industry governmental relations representatives from which this revised CR-101 is the result. There will be additional meetings with and informal comments from these stakeholder representatives, banking attorneys and stakeholder banks prior to filing the CR-102 (which will be announced).

July 30, 2012

Joseph M. Vincent

General Counsel

Washington State Code Reviser's Office