AB299: Bill Text

Universal banks

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 of universal banks

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; 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; and 6) the most recent report received by the financial institution evaluating the financial institution's compliance with certain federal laws relating to customer privacy must indicate that the financial institution is in substantial compliance with these federal laws. 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 may also 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 of universal banks

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 is 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 of universal banks

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:

1) Federal powers: Under the bill, with the approval of the division of banking, a universal bank may exercise all powers that may be exercised directly 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 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.

2) 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. However, 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.

3) 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 limitation 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 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.

4) 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 for its safekeeping charges on the contents of property accepted for safekeeping. 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.

5) 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.

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 may also 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.

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:

AB299, s. 1 Section 1. 93.01 (1m) of the statutes is amended to read:

AB299,9,4 93.01 (1m) "Business" includes any business, except that of banks, savings banks, credit unions, savings and loan associations , and insurance companies. "Business" includes public utilities and telecommunications carriers to the extent that their activities, beyond registration, notice, and reporting activities, are not regulated by the public service commission and includes public utility and telecommunications carrier methods of competition or trade and advertising practices that are exempt from regulation by the public service commission under s. 196.195, 196.196, 196.202, 196.203, 196.219, or 196.499 or by other action of the commission.

AB299, s. 2 Section 2. 186.01 (2) of the statutes is amended to read:

AB299,10,12 186.01 (2) "Credit union" means, except as specifically provided under ss. 186.41 (1) and 186.45 (1), a cooperative, nonprofit corporation, incorporated under this chapter to encourage thrift among its members, create a source of credit at a fair and reasonable cost, and provide an opportunity for its members to improve their economic and social conditions.

AB299, s. 3 Section 3. 186.02 (2) (a) 1. of the statutes is amended to read:

AB299,10,15 186.02 (2) (a) 1. The conditions of residence or occupation which qualify persons that determine eligibility for membership.

AB299, s. 4 Section 4. 186.02 (2) (b) 2. of the statutes is amended to read:

AB299,10,24 186.02 (2) (b) 2. Residents Except as otherwise provided in this subdivision, individuals who reside or are employed within a well-defined neighborhood, community or rural district and contiguous neighborhoods and communities. If the office of credit unions, subsequent to a credit union merger, determines that it would be inappropriate under the circumstances to require members of the credit union that results from the merger to reside or be employed in contiguous neighborhoods and communities, the requirement that these neighborhoods and communities be contiguous does not apply.

AB299, s. 5 Section 5. 186.02 (2) (b) 2m. of the statutes is created to read:

AB299,11,2 186.02 (2) (b) 2m. Individuals who reside or are employed within well-defined and contiguous rural districts or multicounty regions.

AB299, s. 6 Section 6. 186.02 (2) (c) of the statutes is amended to read:

AB299,11,8 186.02 (2) (c) Members of the immediate family of all qualified persons are eligible for membership. In this paragraph, "members of the immediate family" include the wife, husband, parents, stepchildren and children of a member whether living together in the same household or not and any other relatives of the member or spouse of a member living together in the same household as the member.

AB299, s. 7 Section 7. 186.02 (2) (d) of the statutes is renumbered 186.02 (2) (d) 1. and amended to read:

AB299,11,14 186.02 (2) (d) 1. Organizations and associations An organization or association of individuals, the majority of whom the directors, owners, or members of which are eligible for membership, may be admitted to membership in the same manner and under the same conditions as individuals.

AB299, s. 8 Section 8. 186.02 (2) (d) 2. of the statutes is created to read:

AB299,11,18 186.02 (2) (d) 2. An organization or association that has its principal business location within any geographic limits of the credit union's field of membership may be admitted to membership.

AB299, s. 9 Section 9. 186.11 (4) (title) of the statutes is amended to read:

AB299,11,21 186.11 (4) (title) Investment in credit union service corporations organizations.

AB299, s. 10 Section 10. 186.11 (4) (a) of the statutes is renumbered 186.11 (4) (a) (intro.) and amended to read:

AB299,12,2 186.11 (4) (a) (intro.) A Unless the office of credit unions approves a higher percentage, a credit union may invest not more than 1.5% of its total assets in the capital shares or obligations of a credit union service corporation organizations that satisfy all of the following:

AB299,12,4 2. Are organized primarily to provide goods and services to credit unions, credit union organizations, and credit union members.

AB299, s. 11 Section 11. 186.11 (4) (a) 1. of the statutes is created to read:

AB299,12,8 186.11 (4) (a) 1. Are corporations, limited partnerships, limited liability companies, or other entities that are permitted under the laws of this state and that are approved by the office of credit unions.

AB299, s. 12 Section 12. 186.11 (4) (b) (intro.) and 1. of the statutes are amended to read:

AB299,12,11 186.11 (4) (b) (intro.) A credit union service corporation organization under par. (a) may provide goods and services including any of the following:

AB299,12,17 1. Credit union operations services, including service centers, credit and debit card services, automated teller and remote terminal services, electronic transaction services, accounting systems, data processing, management training and support, payment item processing, record retention and storage, locator services, research, debt collection, credit analysis and loan servicing, coin and currency services, and marketing and advertising services.

AB299, s. 13 Section 13. 186.11 (4) (c) of the statutes is amended to read:

AB299,12,20 186.11 (4) (c) A credit union service corporation organization may be subject to audit by the office of credit unions.

AB299, s. 14 Section 14. 186.113 (1) of the statutes is amended to read:

AB299,13,2 186.113 (1) Branch offices. If the need and necessity exist and with With the approval of the office of credit unions, establish branch offices inside this state or no more than 25 miles or outside of this state. Permanent records may be maintained at branch offices established under this subsection. In this subsection, the term "branch office" does not include a remote terminal, a limited services office, or a service center.

AB299, s. 15 Section 15. 186.113 (1m) (a) (intro.) of the statutes is amended to read:

AB299,13,6 186.113 (1m) (a) (intro.) Establish Before the effective date of this paragraph .... [revisor inserts date], establish limited services offices outside this state to serve any member of the credit union if all of the following requirements are met:

AB299, s. 16 Section 16. 186.113 (6) (b) and (c) of the statutes are amended to read:

AB299,13,10 186.113 (6) (b) Act as trustees or custodians of member tax deferred retirement funds, individual retirement accounts, medical savings accounts, or other employee benefit accounts or funds permitted by federal law to be deposited in a credit union.

AB299,13,12 (c) Act as a depository for member-deferred member qualified and nonqualified deferred compensation funds as permitted by federal law.

AB299, s. 17 Section 17. 186.113 (24) of the statutes is created to read:

AB299,13,15 186.113 (24) Funeral trusts. Accept deposits made by members for the purpose of funding burial agreements by trusts created pursuant to s. 445.125.

AB299, s. 18 Section 18. 186.20 of the statutes is created to read:

AB299,13,19 186.20 Financial privacy. A credit union shall comply with any applicable requirements under 15 USC 6801 to 6803 and any applicable regulations prescribed by the national credit union administration under 15 USC 6804.

AB299, s. 19 Section 19. 186.235 (7) (a) (intro.) of the statutes is amended to read:

AB299,14,2 186.235 (7) (a) (intro.) Employees of the office of credit unions and members of the review board shall keep secret all the facts and information obtained in the course of examinations, except or contained in any report provided by a credit union other than any semiannual or quarterly financial report that is regularly filed with the office of credit unions. This requirement does not apply in any of the following situations:

AB299, s. 20 Section 20. 186.235 (7) (c) of the statutes is created to read:

AB299,14,9 186.235 (7) (c) If any person mentioned in par. (a) discloses any information about the private account or transactions of a credit union or any information obtained in the course of an examination of a credit union, except as provided in pars. (a) and (b), that person may be required to forfeit his or her office or position and may be fined not less than $100 nor more than $1,000, or imprisoned for not less than 6 months nor more than 3 years, or both.

AB299, s. 21 Section 21. 186.235 (7m) of the statutes is created to read:

AB299,14,13 186.235 (7m) Return of examination reports. Examination reports possessed by a credit union are confidential, remain the property of the office of credit unions, and shall be returned to the office of credit unions immediately upon request.

AB299, s. 22 Section 22. 186.235 (16) (a) of the statutes is renumbered 186.235 (16).

AB299, s. 23 Section 23. 186.235 (16) (b) of the statutes is repealed.

AB299, s. 24 Section 24. 186.235 (16m) of the statutes is created to read:

AB299,14,18 186.235 (16m) Financial privacy examination. The office of credit unions shall examine a credit union to determine the credit union's compliance with s. 186.20.

AB299, s. 25 Section 25. 186.36 of the statutes is amended to read:

AB299,14,23 186.36 Sale of insurance in credit unions. Any officer or employee of a credit union, when acting as an agent for the sale of insurance on behalf of the credit union, shall pay all commissions received from the sale of credit life insurance or credit accident and sickness insurance to the credit union.

AB299, s. 26 Section 26. 186.41 (title) of the statutes is amended to read:

AB299,15,2 186.41 (title) Interstate acquisition acquisitions and merger mergers of credit unions.

AB299, s. 27 Section 27. 186.41 (1) (a) of the statutes is renumbered 186.41 (1) (bm) and amended to read:

AB299,15,6 186.41 (1) (bm) "In-state Wisconsin credit union" means a credit union having its principal office located in this state.

AB299, s. 28 Section 28. 186.41 (1) (c) of the statutes is renumbered 186.41 (1) (am) and amended to read:

AB299,15,11 186.41 (1) (am) "Regional Out-of-state credit union" means a state or federal credit union that has its, the principal office of which is located in one of the regional states a state other than this state.

AB299, s. 29 Section 29. 186.41 (1) (d) of the statutes is repealed.

AB299, s. 30 Section 30. 186.41 (2) and (3) of the statutes are amended to read:

AB299,15,15 186.41 (2) In-state Wisconsin credit union. (a) An in-state A Wisconsin credit union may do any of the following:

AB299,15,17 1. Acquire an interest in, or some or all of the assets and liabilities of, one or more regional out-of-state credit unions.

AB299,15,18 2. Merge with one or more regional out-of-state credit unions.

AB299,15,22 (b) An in-state A Wisconsin credit union proposing any action under par. (a) shall provide the office of credit unions a copy of any original application seeking approval by a federal agency or by an agency of the regional another state and of any supplemental material or amendments filed in connection with any application.

AB299,15,24 (3) Regional Out-of-state credit unions. Except as provided in sub. (4), a regional an out-of-state credit union may do any of the following:

AB299,16,2 (a) Acquire an interest in, or some or all of the assets of, one or more in-state Wisconsin credit unions.