LRB-4545/1
RJM:kmg:ch
1999 - 2000 LEGISLATURE
February 10, 2000 - Printed by direction of Senate Chief Clerk.
AB563-engrossed,1,5
1An Act to amend 220.04 (9) (a) 2.; and
to create 220.14 (5), chapter 222 and
2227.245 of the statutes;
relating to: the creation of a new type of financial
3institution; the powers of and requirements applicable to these financial
4institutions; providing an exemption from emergency rule procedures; and
5granting rule-making authority.
Analysis by the Legislative Reference Bureau
Engrossment information:
The text of Engrossed 1999 Assembly Bill 563 consists of the bill, as adopted in
the assembly on February 9, 2000, as affected by the following Assembly
Amendments adopted in the assembly on February 8, 2000: Assembly Amendments
1 and 2.
Content of Engrossed 1999 Assembly Bill 563:
Under current law, the division of savings institutions regulates state savings
banks and state savings and loan associations, and the division of banking regulates
state banks. This bill allows a state savings bank, state savings and loan association
or state bank (financial institution) to apply to the division of banking to become
certified as a universal bank. If certified as a universal bank, a financial institution
may exercise certain powers, in addition to those that are granted under the statutes
under which the financial institution is organized. A universal bank retains its
status as a savings and loan association, savings bank or state bank and remains
subject to existing regulatory and supervisory requirements, except to the extent
that these requirements are inconsistent with the requirements applicable to
universal banks. Universal banks are subject to the following provisions:
Certification
A financial institution may apply to become certified as a universal bank by
filing a written application with the division of banking. In order to be certified as
a universal bank, the financial institution must meet all of the following
requirements: 1) the financial institution must be chartered or organized, and
regulated, as a Wisconsin financial institution and must have been in existence and
continuous operation for at least three years; 2) the financial institution must be
"well-capitalized", as defined in federal law; 3) the financial institution must not
exhibit moderately severe or unsatisfactory financial, managerial, operational and
compliance weaknesses; 4) the financial institution must not have been the subject
of any enforcement action within the 12 months preceding the application; and 5) the
most recent evaluation of the financial institution under the federal Community
Reinvestment Act must rate the financial institution as "outstanding" or
"satisfactory" at helping to meet the credit needs of its entire community. If these
requirements are met, the division of banking must certify the financial institution
as a universal bank. If a universal bank fails to maintain compliance with these
requirements, the division of banking must limit the universal bank's exercise of
universal banking powers. In addition, a universal bank may be decertified if it fails
to maintain compliance with these requirements. With the approval of the division
of banking, a universal bank also may elect to terminate its certification. As a
precondition to elective decertification, the universal bank must terminate the
exercise of all universal banking powers.
Organization and regulation
A financial institution that is certified as a universal bank remains subject to
all of the requirements and duties, and remains able to exercise all of the powers, that
applied to the financial institution prior to its certification as a universal bank,
except to the extent that such requirements, duties and powers are inconsistent with
the requirements, powers and duties of universal banks. After a financial institution
becomes certified as a universal bank, the division of banking becomes responsible
for establishing the capital requirements applicable to the universal bank.
A universal bank continues to operate under the articles of incorporation and
bylaws that were in effect prior to its certification as a universal bank, and these
articles and bylaws may be amended in accordance with the law governing savings
banks, savings and loan associations or state banks, whichever is applicable to the
financial institution. Current law generally prohibits a savings bank or a savings
and loan association from using the term "bank" in its corporate name, without also
using the term "savings". Notwithstanding these provisions, the bill allows any
financial institution that becomes certified as a universal bank to use the term
"bank" in its corporate name without using the word "savings", subject to certain
limitations relating to the distinguishability of the name.
Under current law, the division of banking regulates mergers and acquisitions
of state banks, and the division of savings institutions regulates mergers and
acquisitions of savings banks and savings and loan associations. Under the bill, the
division of banking assumes responsibility for reviewing and approving the mergers
and acquisitions of all financial institutions that have been certified as universal
banks, including savings banks and savings and loan associations. The standards
to be used by the division of banking in reviewing a merger or acquisition of a
universal bank generally track the standards currently applicable to the various
financial institutions that may become certified as universal banks, except that
universal banks may generally acquire or merge with any type of financial
institution.
Powers
The bill expands the powers of a financial institution that becomes certified as
a universal bank. Currently, savings banks, savings and loan associations and banks
have differing powers under both state and federal law. Under the bill, a universal
bank is authorized to engage in any activity authorized for any savings bank, savings
and loan association or state bank beginning on the first day of the third month
beginning after the bill's publication. In addition, the bill specifically permits a
universal bank to exercise all of the following powers:
Federal powers: Under the bill, with the approval of the division of banking, a
universal bank may exercise all powers that may be directly exercised by a national
bank, a federally chartered savings and loan association or a federally chartered
savings bank. The division of banking may, however, require a universal bank to
exercise a federal power through a subsidiary of the universal bank in order to limit
the risk exposure of the universal bank.
In addition, with the approval of the division of banking, a universal bank may
exercise through a subsidiary all powers that a subsidiary of these federal financial
institutions may exercise.
Lending powers: Under current law, the lending powers of a financial institution
depend on whether the financial institution is organized as a savings bank, savings
and loan association or state bank. The lending powers granted to universal banks
under the bill are most similar to the lending powers granted to state banks under
current law. Current law imposes some restrictions on the types and purposes of
loans that savings banks and savings and loan associations may make. Under the
bill, a universal bank may make, sell, purchase, arrange, participate in, invest in or
otherwise deal in loans or extensions of credit for any purpose. Like state banks, the
limitations imposed on a universal bank's lending generally focus on the total
amount of liabilities of any one lender at any one time. Although the limit varies
depending on the lender and on the type of security pledged for the loan, the general
rule is that the total liabilities of any one person to a universal bank may not exceed
20% of the universal bank's capital. The lending limits for universal banks are
generally the same as for state banks, except that universal banks are granted
additional authority to lend, through the universal bank or its subsidiaries, an
aggregate amount to all borrowers from the universal bank and all of its subsidiaries
not to exceed 20% of the universal bank's capital, but the loans to any one borrower
made under any lending authority of the universal bank may not exceed 20% of the
universal bank's capital. Loans made under this additional authority are not subject
to rules regarding bad debts or classification of losses for a period of two years from
the date of the loan. This additional authority may be suspended by the division of
banking. Among the factors that may be considered by the division of banking in
suspending this authority are a universal bank's capital adequacy, management,
earnings, liquidity and sensitivity to market risk. The bill prohibits a universal
bank, in determining whether to make a loan or extension of credit, from considering
any health information obtained from the records of an affiliate of the universal bank
that is engaged in the business of insurance, unless the person to whom the health
information relates consents.
Investment powers: A universal bank may purchase, sell, underwrite and hold
investment securities, consistent with safe and sound banking practices, in an
amount up to 100% of the universal bank's capital. Investment securities include
commercial paper; banker's acceptances; marketable securities in the form of bonds,
notes and debentures; and similar instruments. A universal bank may not invest
greater than 20% of its capital in any one obligor or issuer. A universal bank may
purchase, sell, underwrite and hold equity securities, consistent with safe and sound
banking practices, in an amount up to 20% of the universal bank's capital, unless the
division of banking approves a greater percentage. A universal bank may also invest
in certain housing properties and projects, except that the total investment in any
one project may not exceed 15% of the universal bank's capital and except that the
total amount invested in housing properties and projects may not exceed 50% of the
universal bank's capital. A universal bank may take equity positions in
profit-participation projects, including projects funded through loans from the
universal bank, in an aggregate amount not to exceed 20% of the universal bank's
capital. The division of banking may suspend a universal bank's authority to invest
in profit-participation projects.
The bill permits a universal bank to invest without limitations in certain types
of securities, including: 1) obligations of certain federal agencies or federally
chartered corporations and associations; 2) deposit accounts or insured obligations
of insured financial institutions; 3) securities of certain business development
corporations and urban renewal investment corporations; 4) certain securities of
bank insurance companies; 5) securities of certain corporations operating automated
teller machines; 6) securities of service corporation subsidiaries of the universal
bank; 7) advances of federal funds; 8) risk management instruments, including
financial futures transactions, financial operations transactions and forward
commitments, but solely for the purpose of reducing, hedging or otherwise managing
its interest rate risk exposure; 9) securities of subsidiaries exercising certain
fiduciary powers; and 10) securities of agricultural credit corporations. A universal
bank may invest in other financial institutions. The investment powers of a
universal bank may be exercised directly or indirectly through a subsidiary, unless
the division of banking requires the investment to be made through a subsidiary in
order to limit the risk exposure of the universal bank. The bill contains specific
provisions governing the purchase by a universal bank of its own stock and of stock
in banks and bank holding companies.
Deposit and trust powers: The bill permits a universal bank to establish the types
and terms of deposits that the universal bank will solicit and accept. A universal
bank may pledge its assets as security for deposits. With the approval of the division
of banking, a universal bank may securitize its assets for sale to the public, subject
to any procedures established by the division of banking. A universal bank may
exercise safe deposit powers and have a lien on the contents of property accepted for
safekeeping for its safekeeping charges. If these charges remain unpaid for two
years or if property accepted for safekeeping is not called for within two years, a
universal bank may sell the property at public auction. The bill authorizes a
universal bank to exercise the same trust powers that trust company banks are
permitted to exercise under current law.
Incidental and related powers: Under the bill, a universal bank may exercise all
powers necessary or convenient to effect the purposes for which the universal bank
is organized or to further the businesses in which the universal bank is lawfully
engaged. Current law does not have a similar provision for savings banks, savings
and loan associations or state banks.
In addition to these necessary or convenient powers, the bill allows a universal
bank to engage in activities that are reasonably related or incident to the purposes
of the universal bank. With certain exceptions, a universal bank may engage in these
activities either directly or indirectly through a subsidiary. Under the bill, any
activity permitted under the federal Bank Holding Act satisfies the reasonably
related or incidental criterion. The bill also contains a list of specific activities that
meet the reasonably related or incidental criterion. The listed activities include: 1)
business and professional services; 2) data processing; 3) courier and messenger
services; 4) credit-related activities; 5) consumer services; 6) real estate-related
services; 7) insurance services, other than insurance underwriting; 8) securities
brokerage; 9) investment advice; 10) securities and bond underwriting; 11) mutual
fund activities; 12) financial consulting; 13) tax planning and preparation; 14)
community development and charitable activities; and 15) debt cancellation
contracts.
A universal bank may also engage in activities that the division of banking
determines by rule are reasonably related or incidental to these listed activities. In
addition, the division of banking, by rule, may determine that other activities are
reasonably related or incidental activities. In promulgating these rules, the division
of banking need not follow the standard notice, hearing and publication
requirements that generally apply to administrative rule-making.
A universal bank must give 60 days' prior written notice to the division of
banking of the universal bank's intention to exercise a necessary or convenient power
or to engage in a reasonably related or incidental activity. The division of banking
may deny a universal bank the authority to exercise a necessary or convenient power
or to engage in a reasonably related or incidental activity, other than an activity that
is contained in the specific list of reasonably related or incidental activities, if the
division of banking determines that the activity is not a reasonably related or
incidental activity, that the financial institution is not well-capitalized, that the
financial institution is the subject of an enforcement action or that the financial
institution does not have sufficient management expertise for the activity. The
division of banking also may require a universal bank to engage in certain of these
activities through a subsidiary, with appropriate safeguards to limit the risk
exposure of the universal bank. Amounts invested in a single subsidiary that
engages in these activities may not exceed 20% of the universal bank's capital, unless
a higher percentage is approved by the division of banking.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB563-engrossed,6,42
220.04
(9) (a) 2. "Regulated entity" means a bank,
universal bank, trust
3company bank and any other entity which is described in s. 220.02 (2) or 221.0526
4as under the supervision and control of the division.
AB563-engrossed,6,76
220.14
(5) Contain a statement of the total number of orders issued by the
7division during the year under s. 222.0203 (2).
AB563-engrossed,6,109
CHAPTER 222
10
UNIVERSAL BANKS
AB563-engrossed,6,1211
Subchapter I
12
General Provisions
AB563-engrossed,6,14
13222.0101 Title. This chapter may be cited as the "Wisconsin universal bank
14law".
AB563-engrossed,6,15
15222.0102 Definitions. In this chapter:
AB563-engrossed,6,18
16(2) "Capital" of a universal bank means the sum of the following, less the
17amount of intangible assets that is not considered to be qualifying capital by a deposit
18insurance corporation or the division:
AB563-engrossed,7,5
1(a) For a universal bank organized as a stock organization, the universal bank's
2capital stock, preferred stock, undivided profits, surplus, outstanding notes and
3debentures approved by the division, other forms of capital designated as capital by
4the division and other forms of capital considered to be qualifying capital of the
5universal bank by a deposit insurance corporation.
AB563-engrossed,7,106
(b) For a universal bank organized as a mutual organization, the universal
7bank's net worth, undivided profits, surplus, outstanding notes and debentures
8approved by the division, other forms of capital designated as capital by the division
9and other forms of capital considered to be qualifying capital by a deposit insurance
10corporation.
AB563-engrossed,7,14
11(3) "Deposit insurance corporation" means the Federal Deposit Insurance
12Corporation or other instrumentality of, or corporation chartered by, the United
13States that insures deposits of financial institutions and that is supported by the full
14faith and credit of the U.S. government as stated in a congressional resolution.
AB563-engrossed,7,15
15(4) "Division" means the division of banking.
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16(5) "Financial institution" means a state savings bank organized under ch. 214,
17state savings and loan association organized under ch. 215 or a state bank chartered
18under ch. 221.
AB563-engrossed,7,20
19(6) "Universal bank" means a financial institution that has been issued a
20certificate of authority under s. 222.0205.
AB563-engrossed,7,21
21(7) "Well-capitalized" has the meaning given in
12 USC 1831o (b) (1) (A).
AB563-engrossed,8,2
22222.0103 Applicability. (1) Savings banks. A universal bank that is a savings
23bank organized under ch. 214 remains subject to all of the requirements, duties and
24liabilities, and may exercise all of the powers, of a savings bank, except that in the
1event of a conflict between this chapter and those requirements, duties, liabilities or
2powers, this chapter shall control.
AB563-engrossed,8,7
3(2) Savings and loan associations. A universal bank that is a savings and loan
4association organized under ch. 215 remains subject to all of the requirements,
5duties and liabilities, and may exercise all of the powers, of a savings and loan
6association, except that, in the event of a conflict between this chapter and those
7requirements, duties, liabilities or powers, this chapter shall control.
AB563-engrossed,8,11
8(3) Banks. A universal bank that is a bank chartered under ch. 221 remains
9subject to all of the requirements, duties and liabilities, and may exercise all of the
10powers, of a bank, except that, in the event of a conflict between this chapter and
11these requirements, duties, liabilities or powers, this chapter shall control.
AB563-engrossed,8,14
12222.0105 Fees. The division may establish such fees as it determines are
13appropriate for documents filed with the division under this chapter and for services
14provided by the division under this chapter.
AB563-engrossed,8,16
15222.0107 Administration. (1) Powers of division. The division shall
16administer this chapter for all universal banks.
AB563-engrossed,8,21
17(2) Rule-making authority. The division may promulgate rules to administer
18and carry out this chapter. The division may establish additional limits or
19requirements on universal banks, if the division determines that the limits or
20requirements are necessary for the protection of depositors, members, investors or
21the public.
AB563-engrossed,8,2322
SUBCHAPTER II
23
Certification
AB563-engrossed,9,3
24222.0201 Procedure. (1) Application. A financial institution may apply to
25become certified as a universal bank by filing a written application with the division.
1The application shall include such information as the division may require. The
2application shall be on such forms and in accordance with such procedures as the
3division may prescribe.
AB563-engrossed,9,9
4(2) Review by division. An application submitted to the division shall either
5be approved or disapproved by the division in writing within 60 days after its
6submission to the division. The division and the financial institution may mutually
7agree to extend the application period for an additional period of 60 days. The
8division shall approve an application if all of the applicable requirements under s.
9222.0203 (1) are met.
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10222.0203 Eligibility. (1) Requirements. The division may approve an
11application from a financial institution for certification as a universal bank only if
12all of the following requirements are met:
AB563-engrossed,9,1513
(a)
The financial institution is chartered or organized, and regulated, under ch.
14214, 215 or 221 and has been in existence and continuous operation for a minimum
15of 3 years prior to the date of the application.
AB563-engrossed,9,1616
(b) The financial institution is well-capitalized.
AB563-engrossed,9,2117
(c) The financial institution does not exhibit a combination of financial,
18managerial, operational and compliance weaknesses that is moderately severe or
19unsatisfactory, as determined by the division based upon the division's assessment
20of the financial institution's capital adequacy, asset quality, management capability,
21earnings quantity and quality, adequacy of liquidity, and sensitivity to market risk.
AB563-engrossed,9,2522
(d) During the 12-month period prior to the application, the financial
23institution has not been the subject of an enforcement action and there is no
24enforcement action pending against the financial institution by any state or federal
25financial institution regulatory agency, including the division.
AB563-engrossed,10,5
1(e) The most current evaluation prepared under
12 USC 2906 that the financial
2institution has received rates the financial institution as "outstanding" or
3"satisfactory" in helping to meet the credit needs of its entire community, including
4low-income and moderate-income neighborhoods, consistent with the safe and
5sound operation of the financial institution.
AB563-engrossed,10,12
6(2) Failure to maintain eligibility; limitation of authority and
7decertification. For any period during which a universal bank fails to meet the
8requirements under sub. (1), the division shall by order limit or restrict the exercise
9of the powers of the universal bank under this chapter. In addition to or lieu of
10limiting or restricting the universal bank's authority under this subsection, the
11division may by order revoke the universal bank's certificate of authority issued
12under s. 222.0205.
AB563-engrossed,10,16
13222.0205 Certificate of authority. Upon approval of the application under
14s. 222.0201 for certification as a universal bank, the division shall issue to the
15applicant a certificate of authority stating that the financial institution is certified
16as a universal bank under this chapter.
AB563-engrossed,10,24
17222.0207 Voluntary termination of certification. A financial institution
18that is certified as a universal bank under this chapter may elect to terminate its
19certification upon 60 days' prior written notice to the division and written approval
20of the division. The financial institution shall, as a condition to the termination,
21terminate its exercise of all powers granted under this chapter prior to the
22termination of the certification. Written approval of the termination by the division
23is void if the financial institution fails to satisfy the precondition to termination
24under this section.