BILL ANALYSIS
AB 706
Date of Hearing: April 17, 1995
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
TED WEGGELAND, Chair
AB 706 (Caldera) - As Amended: April 17, 1995
SUBJECT
Interstate Banking and Branching.
DIGEST
Interstate Banking.
Existing law:
1) For close to forty years Section 3(d) of the federal Bank
Holding Company Act of 1956 prohibited a holding company from
acquiring a bank outside its home state unless the acquisition
was specifically permitted by the statutes of the home state of
the bank to be acquired. In 1994 Congress passed the
Riegle-Neal Interstate Banking and Branching Efficiency Act
which repealed and rewrote Section 3(d) of the Holding Company
Act to take effect on September 29, 1995.
This provision will:
(a) Specifically allow a bank holding company to acquire a
bank located in another state irrespective of any laws in the
acquired bank's home state which prevent acquisitions by
out-of-state holding companies.
(b) Pre-empt and make obsolete certain of California's laws
regulating interstate banking.
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2) Chapter 21.5 of the California Financial Code (the "Code")
titled "Foreign (National) Bank Holding Companies" is
California's current statute regulating interstate banking.
It permits:
(a) A bank holding company headquartered in another state to
acquire a California bank if that holding company obtains the
prior approval of the California Superintendent of Banks (the
"Superintendent").
(b) Such acquisitions so long as the state in which the
acquiring bank holding company is headquartered has a
reciprocal provision.
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3) Bars an out-of-state bank holding company from entering the
California market by establishing a de novo California bank,
except in a case where an out-of-state bank holding company
establishes a de novo California bank to take over the deposits
of a closed bank. Thus, the only way an out-of-state holding
company can currently enter the California market is to acquire
control of a bank already doing business here. However,
existing law does not specify how long the bank must have been
in business.
This bill:
1) Repeals Chapter 21.5 in its entirety. In doing so this bill
eliminates the restrictions on de novo entry into California by
an out-of-state holding company in that Chapter. However, this
bill imposes a five year minimum age requirement for interstate
bank acquisitions in newly created Chapter 22.
2) Adds Chapter 22 of the Code (Sections 3800-3809). Section 3801
provides that interstate acquisitions that exceed the federal
30% deposit concentration limit must receive prior approval of
the Superintendent. Section 3802 provides for a five year
minimum age requirement for interstate bank acquisitions.
3) Adds Section 783 of Chapter 6 to Division 1 of the Code to
specifically authorize agency activities of a California state
bank acting on behalf of a bank holding company which is a %100
owner of such bank and any California state bank may appoint a
%100 owned bank or institution to act as its agent. Such
activities would include receiving deposits, renewing time
deposits, closing loans, servicing loans, receiving payments on
loans and other obligations, the underwriting, approval and
denial of applications for loans and other extensions of credit
and the receipt and acceptance of applications for loans and
other extensions of credit.
Interstate Branching.
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Existing law:
Prohibits any person or institution which has not received a
certificate of authorization from the Superintendent to engage in
banking business in California (Sections 3390-3392 of the Code).
With the enactment of the Reigle-Neal Act the individual states
are given the option to determine at what level they wish to
participate in interstate branching. States that do not expressly
prohibit or permit interstate branching before June 1, 1997 will
be open to interstate branching by foreign (other state) national
and state banks.
This bill:
Enacts new Sections 570 and 571 of Chapter 4, Division 1 of the
Code to allow interstate branching activities.
With respect to interstate branching, this bill specifically
would:
(a) Provide that California opt in early, allowing foreign
(other state) banks to branch into California before June 1,
1997.
(b) Prohibit de novo establishment of branches in California.
Thus, a foreign (other state) bank which does not already
have a California branch office must enter the California
market by either merger or purchase.
(c) Require that for a California bank or branch of a
California bank to be eligible to be acquired by a foreign
(other state) bank, the California bank must have been in
business for at least five years.
(d) Require that a California bank obtain the prior approval of
the Superintendent to establish an out of state branch.
(e) Require that a foreign (other state) bank obtain the prior
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approval of the Superintendent to establish an out of state
branch.
Supervision and Examinations.
Existing law:
As set forth in Section 1900 of the Code, requires the
Superintendent to examine every California state bank every two
years. Often the Superintendent will make concurrent or joint
examinations with federal regulators.
This bill:
1) Provides that the Superintendent shall enter into cooperative
agreements with banking regulators from other states and shall
share information with such regulators and provide advanced
notice and an opportunity for them to jointly participate in
the course of its examinations.
2) Provides that the Superintendent shall give fifteen days notice
to the banking regulators of other states of violations of
California law by out-of-state banks and a request that that
state take enforcement action prior to the Superintendent
taking enforcement action against banks located in those
states.
FISCAL EFFECT
The State Banking Department anticipates changes in expenses in
the event of the enactment of this bill. However, the full fiscal
impact of this bill will not be known until the regulated banks
make clear their choices with respect to the multiple options for
interstate activity presented in this bill.
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COMMENTS
The members of the committee may wish to seriously consider that
this bill does not make changes to the state's regulatory
structure necessary to provide the State Banking Department with
the powers and authority to ensure the safety and soundness of
deposits in California with the advent of interstate banking and
branching. In short, what powers will California's regulators
have to regulate out-of-state banks' branches here in California?
Although the bill briefly addresses regulatory issues in several
of its sections, it does not contain a comprehensive review of or
changes to the many different areas of the Code related to the
regulation of banks and deposits in California. The bill's
sponsor, the California Bankers Association, is primarily
interested in the enactment of the provisions enabling banks in
this state to enter into the interstate banking business, not in
the regulatory changes that may be needed to adapt to this new era
in banking. Specific examples of important subjects not addressed
in this bill include:
1) The practical aspects and procedures of the regulation of
interstate mergers, including filing and proxy requirements.
2) The identification of California laws applicable to California
branches of foreign (other state) state banks.
3) The requirements for California branches of foreign (other
state) banks to file notices and reports.
4) Provisions for revenues for the State Banking Department.
5) Interactions and mergers with foreign (other nation) banks.
6) A specific framework for the Superintendent to enter into
agreements with banking regulators of other states to
coordinate regulations, examinations and reports for
out-of-state banks and their branches here in California, and
vice-versa.
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7) The Superintendent's ability to require prior approval or
notice for such things as opening, closing or relocating
branches.
8) The Superintendent's authority to share information about
out-of-state banks who branch in California gained from
examinations, reports etc. with other federal and state
regulators.
9) The establishment of a reporting or licensing system for
out-of-state banks which do not open full branches in
California but which engage in certain "non-core" banking and
other agency functions.
10)The establishment of a system of taxing the in-state activities
of out-of-state banks and a system of licensing fees and/or
assessments associated with examinations, etc.
Finally, the Conference of State Banking Supervisors (CSBS), the
national association of individual state regulators, has studied
many of the issues expressed above and has drafted a CSBS
Interstate Task Force Interstate Banking and Branching Supervision
Project which contains guiding principles for states to follow
when enacting interstate banking statutes. A copy of the February
7, 1995 draft was enclosed with the members' binders for the April
3, 1995 informational hearing and has been included again in the
materials provided to members for the April 17, 1995 hearing.
The opposition to this bill by the Independent Bankers Association
of America (IBAA) seems to be predicated only on the "early
opt-in" aspects of the bill.
This bill contains an urgency measure.
SPONSOR: California Bankers Association
SUPPORT:First Interstate Bank
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OPPOSE: Independent Bankers Association of America
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