AB563: Bill Text

LRB-3452/1

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1999 - 2000 LEGISLATURE

1999 Assembly BILL 563

October 27, 1999 - Introduced by Representatives Jeskewitz, Rhoades, Kelso, Ward, Riley, F. Lasee, Huebsch, Plale, Jensen, Kestell, Ladwig, Staskunas, Montgomery, Hahn, Spillner, Owens, Ziegelbauer, Vrakas, Gronemus, Stone, Duff, Kedzie, Miller, Hoven, Leibham, Olsen, Hundertmark, Reynolds, Suder, Pettis, Walker, Klusman, Sykora, Grothman, Kreibich and Lassa, cosponsored by Senators Moore, Fitzgerald, Welch, Darling, Rosenzweig, Lazich, Rude, Drzewiecki, Farrow and Zien. Referred to Committee on Financial Institutions.

AB563,1,5 An Act to amend 220.04 (9) (a) 2.; and to create chapter 222 of the statutes; relating to: the creation of a new type of financial institution; the powers of and requirements applicable to these financial institutions; providing an exemption from emergency rule procedures; and granting rule-making authority.

Analysis by the Legislative Reference Bureau

Under current law, the division of savings and loan regulates savings banks and savings and loan associations and the division of banking regulates state banks. This bill allows savings banks, savings and loan associations and state banks (financial institutions) to apply to the division of banking to become certified as a universal bank. If certified as a universal bank, the financial institution may exercise certain powers, in addition to those that are granted under the statutes under which they are organized. Universal banks retain their status as savings and loan associations, savings banks or state banks and remain 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 conditions: 1) the financial institution is chartered or organized, and regulated, as a Wisconsin financial institution and has been in existence and continuous operation for at least three years; 2) the financial institution must be "well-capitalized" or "adequately capitalized"; 3) the financial institution must not exhibit moderately severe or unsatisfactory financial, managerial, operational and compliance weaknesses; and 4) the financial institution must not have been the subject of any enforcement action within the 12 months preceding the application. If these requirements are met, the division of banking must certify the financial institution as a universal bank. The financial institution may be decertified only if it elects to terminate its certification and the election is approved by the division. As a precondition to 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 powers and duties of universal banks. After a financial institution becomes certified as a universal bank, the division of banking becomes solely responsible for establishing the capital requirements applicable to the universal bank.

A universal bank continues to operate under the articles of incorporation and bylaws in effect prior to the certification 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 savings banks and savings and loan associations from using use the term "bank" in their corporate name, without also using the term "savings". Notwithstanding these provisions, the bill allows all financial institutions that become certified as a universal bank to use the term "bank" in their 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 and loan is responsible for regulating the 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 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 financial institutions that become certified as universal banks. Currently, savings banks, savings and loan associations and banks have differing powers. 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 on the first day of the third month beginning after the bill's publication. In addition, the bill specifically provides that universal banks may exercise the following powers:

Federal powers: The bill grants all universal banks the authority to exercise all powers that may be exercised, directly or indirectly through a subsidiary, by certain federally chartered financial institutions, such as a national bank or a federally chartered savings and loan association, or by an affiliate of such an institution. The division of banking may require that a federal power be exercised by a subsidiary of the universal bank in order to limit the risk exposure of the universal bank.

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 are most similar to the 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 capital of the universal bank. These 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 amount to all borrowers from the universal bank and all of its subsidiaries, an aggregate amount not to exceed 20% of the bank's capital, provided that the loans to any one borrower may not exceed 20% of the 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 three 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.

Investment powers: To the extent consistent with safe and sound banking powers, a universal bank may purchase, sell, underwrite and hold investment securities 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 bank may purchase, sell, underwrite and hold equity securities, consistent with safe and sound banking principles, in an amount up to 20% of the capital of the universal bank, unless the division of banking approves a greater percentage. Universal banks 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 capital. The division of banking may suspend the authority to invest in profit-participation projects.

The bill provides that the universal banks may 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 a universal bank; 7) advances of federal funds; 8) risk management instruments, including financial futures transactions, financial operations transactions and forward commitments, 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. Universal banks may invest in other financial institutions. The investment powers of universal banks 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 grants universal banks the authority to establish the types and terms of deposits that the universal banks 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. Universal banks may exercise safe deposit powers, and universal banks have a lien on the contents of property accepted for safekeeping for their safekeeping charges. If these charges remain unpaid for two years or property accepted for safekeeping is not called for within two years, the bank may sell the property at public auction. The bill authorizes universal banks to exercise trust powers that are permitted to trust company banks.

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 universal banks to engage, directly or indirectly through a subsidiary, in activities that are reasonably related or incident to the purposes of the universal bank. The bill contains a list of activities that meet the reasonably related or incidental powers criteria. 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.

In addition, any activity permitted to be engaged in by bank holding companies under the federal Bank Holding Company Act may be engaged in by a universal bank. The division of banking is permitted to expand the list of reasonably related or incidental powers by rule. A universal bank is required to give 60 days' prior written notice, to the division of banking, of the bank's intention to engage in a necessary or convenient, reasonably related or incidental power. The division of banking may deny the authority of a universal bank to engage in a reasonably related or incidental power, other than those activities that are specifically enumerated, if the division of banking determines that the power is not a reasonably related or incidental power, that the financial institution is not well-capitalized or adequately 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 may require that any of these activities be conducted through a subsidiary with appropriate safeguards to limit the risk exposure of the universal bank. Amounts invested in a single subsidiary may not exceed 20% of the universal bank's capital, unless a higher percentage is approved by the division of banking.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB563, s. 1 Section 1. 220.04 (9) (a) 2. of the statutes is amended to read:

AB563,5,4 220.04 (9) (a) 2. "Regulated entity" means a bank, universal bank, trust company bank and any other entity which is described in s. 220.02 (2) or 221.0526 as under the supervision and control of the division.

AB563, s. 2 Section 2. Chapter 222 of the statutes is created to read:

AB563,5,7 CHAPTER 222 UNIVERSAL BANKS

AB563,5,9 Subchapter I General Provisions

AB563,5,11 222.0101 Title. This chapter may be cited as the "Wisconsin universal bank law".

AB563,6,1 222.0102 Definitions. In this chapter:

AB563,6,2 (1) "Adequately capitalized" has the meaning given in 12 USC 1831o (b) (1) (B).

AB563,6,5 (2) "Capital" of a universal bank means the sum of the following, less the amount of intangible assets that is not considered to be qualifying capital by a deposit insurance corporation or the division:

AB563,6,10 (a) For a universal bank organized as a stock organization, the universal bank's capital stock, preferred stock, undivided profits, surplus, outstanding notes and debentures approved by the division, other forms of capital designated as capital by the division and other forms of capital considered to be qualifying capital of the universal bank by a deposit insurance corporation.

AB563,6,15 (b) For a universal bank organized as a mutual organization, the universal bank's net worth, undivided profits, surplus, outstanding notes and debentures approved by the division, other forms of capital designated as capital by the division and other forms of capital considered to be qualifying capital by a deposit insurance corporation.

AB563,6,19 (3) "Deposit insurance corporation" means the Federal Deposit Insurance Corporation or other instrumentality of, or corporation chartered by, the United States that insures deposits of financial institutions and that is supported by the full faith and credit of the U.S. government as stated in a congressional resolution.

AB563,6,20 (4) "Division" means the division of banking.

AB563,6,23 (5) "Financial institution" means a state savings bank organized under ch. 214, state savings and loan association organized under ch. 215 or a state bank chartered under ch. 221.

AB563,6,25 (6) "Universal bank" means a financial institution that has been issued a certificate of authority under s. 222.0205.

AB563,7,1 (7) "Well-capitalized" has the meaning given in 12 USC 1831o (b) (1) (A).

AB563,7,6 222.0103 Applicability. (1) Savings banks. A universal bank that is a savings bank organized under ch. 214 remains subject to all of the requirements, duties and liabilities, and may exercise all of the powers, of a savings bank, except that in the event of a conflict between this chapter and those requirements, duties, liabilities or powers, this chapter shall control.

AB563,7,11 (2) Savings and loan associations. A universal bank that is a savings and loan association organized under ch. 215 remains subject to all of the requirements, duties and liabilities, and may exercise all of the powers, of a savings and loan association, except that, in the event of a conflict between this chapter and those requirements, duties, liabilities or powers, this chapter shall control.

AB563,7,15 (3) Banks. A universal bank that is a bank chartered under ch. 221 remains subject to all of the requirements, duties and liabilities, and may exercise all of the powers, of a bank, except that, in the event of a conflict between this chapter and these requirements, duties, liabilities or powers, this chapter shall control.

AB563,7,18 222.0105 Fees. The division may establish such fees as it determines are appropriate for documents filed with the division under this chapter and for services provided by the division under this chapter.

AB563,7,20 222.0107 Administration. (1) Powers of division. The division shall administer this chapter for all universal banks.

AB563,7,25 (2) Rule-making authority. The division may promulgate rules to administer and carry out this chapter. The division may establish additional limits or requirements on universal banks, if the division determines that the limits or requirements are necessary for the protection of depositors, members, investors or the public.

AB563,8,2 SUBCHAPTER II Certification

AB563,8,7 222.0201 Procedure. (1) Application. A financial institution may apply to become certified as a universal bank by filing a written application with the division. The application shall include such information as the division may require. The application shall be on such forms and in accordance with such procedures as the division may prescribe.

AB563,8,11 (2) Review by division. An application submitted to the division shall either be approved or disapproved by the division in writing within 60 days after its submission to the division. The division and the financial institution may mutually agree to extend the application period for an additional period of 60 days.

AB563,8,14 222.0203 Eligibility. (1) Requirements. The division shall approve an application for certification as a universal bank, if the applying financial institution meets all of the following requirements:

AB563,8,17 (a) The financial institution is chartered or organized, and regulated, under ch. 214, 215 or 221 and has been in existence and continuous operation for a minimum of 3 years prior to the date of the application.

AB563,8,18 (b) The financial institution is well-capitalized or adequately capitalized.

AB563,8,23 (c) The financial institution does not exhibit a combination of financial, managerial, operational and compliance weaknesses that is moderately severe or unsatisfactory, as determined by the division based upon the division's assessment of the financial institution's capital adequacy, asset quality, management capability, earnings quantity and quality, adequacy of liquidity, and sensitivity to market risk.

AB563,9,2 (d) During the 12-month period prior to the application, the financial institution has not been the subject of an enforcement action and there is no enforcement action pending against the financial institution by any state or federal financial institution regulatory agency, including the division.

AB563,9,5 (2) Failure to maintain compliance. For any period during which a universal bank fails to meet the requirements under sub. (1), the division may by order limit or restrict the exercise of the powers of the universal bank under this chapter.

AB563,9,9 222.0205 Certificate of authority. Upon approval of the application under s. 222.0201 for certification as a universal bank, the division shall issue to the applicant a certificate of authority stating that the financial institution is certified as a universal bank under this chapter.

AB563,9,16 222.0207 Decertification. A financial institution that is certified as a universal bank under this chapter may elect to terminate its certification upon 60 days' prior written notice to the division and written approval of the division. The financial institution shall, as a condition to the termination, terminate its exercise of all powers granted under this chapter prior to the termination of the certification. Written approval of the termination by the division is void if the financial institution fails to satisfy the precondition to termination under this section.

AB563,9,18 SUBCHAPTER III ORGANIZATION

AB563,9,23 222.0301 Articles of incorporation and bylaws. A universal bank shall continue to operate under its articles of incorporation and bylaws as in effect prior to certification as a universal bank or as such articles or bylaws may be subsequently amended in accordance with the provisions of the chapter under which the universal bank was organized or chartered.

AB563,9,25 222.0303 Name. (1) Use of "bank". Notwithstanding ss. 214.035, 215.40 (1) and 215.60 (1) and subject to subs. (2) and (4), a universal bank may use the word "bank" in its name, without having to include the word "savings". Notwithstanding ss. 215.40 (1) and 215.60 (1) and subject to subs. (2) and (4), a universal bank that is organized under ch. 215 and that uses the word "bank" in its name in accordance with this section need not include the words "savings and loan association" or "savings association" in its name.

AB563,10,8 (2) Distinguishability. Except as provided in subs. (3) and (4), the name of the universal bank shall be distinguishable upon the records of the division from all of the following names:

AB563,10,10 (a) The name of any other financial institution organized under the laws of this state.

AB563,10,12 (b) The name of a national bank or foreign bank authorized to transact business in this state.

AB563,10,16 (3) Exceptions. A universal bank may apply to the division for authority to use a name that does not meet the requirement under sub. (2). The division may authorize the use of the name if any of the conditions under s. 221.0403 (2) (a) or (b) is met.

AB563,10,19 (4) Use of same name. A universal bank may use a name that is used in this state by another financial institution or by an institution authorized to transact business in this state, if the universal bank has done any of the following:

AB563,10,20 (a) Merged with the other institution.

AB563,10,21 (b) Been formed by reorganization of the other institution.

AB563,10,23 (c) Acquired all or substantially all of the assets, including the name, of the other institution.

AB563,11,3 222.0305 Capital and assets. (1) Capital requirements. Notwithstanding subch. VI of ch. 214 and ss. 215.24 and 221.0205, the division shall determine the minimum capital requirements of universal banks.