AB898: Bill Text

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 3 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 association. 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 3rd 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 a federally chartered financial institution, such as a national bank or a federal credit union, or by an affiliate of such an institution. In order to exercise a federal power, the universal bank is required to give the division of banking written notice of the bank's intention to exercise the power at least 60 days in advance of exercising the power. The division of banking is required to approve the exercise of the power if it determines that the power is exercisable by federally chartered financial institutions and must periodically publish a list in the Wisconsin administrative register of federal powers that it has approved. A universal bank is not required to provide the 60-day advance written notice in order to exercise a power contained in one of these published lists. 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 3 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, assets, management, liquidity ratio and capital ratio.

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 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 2 years or property accepted for safekeeping is not called for within 2 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, or that the financial institution is not well-capitalized or adequately capitalized or is the subject of an enforcement action. 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.

OTHER CHANGES

In addition to creating universal banks, this bill changes the name of the division of savings and loan in the department of financial institutions to the division of savings institutions. The bill further provides that any action taken by the division of savings and loan under the name of the division of savings institutions has the same effect as if the action had been taken under the name of the division of savings and loan.

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:

AB898, s. 1 Section 1. 15.183 (2) of the statutes is amended to read:

AB898,6,7 15.183 (2) (title) Division of savings and loan institutions. There is created a division of savings and loan institutions. Prior to July 1, 2000, the division is attached to the department of financial institutions under s. 15.03. After June 30, 2000, the division is created in the department of financial institutions. The administrator of the division shall be appointed outside the classified service by the secretary of financial institutions and shall serve at the pleasure of the secretary.

AB898, s. 2 Section 2. 20.144 (1) (g) of the statutes is amended to read:

AB898,6,19 20.144 (1) (g) General program operations. The amounts in the schedule for the general program operations of the department of financial institutions. Except as provided in pars. (a), (h), (i) and (u), all moneys received by the department, other than by the office of credit unions, the division of banking and the division of savings and loan institutions, and 88% of all moneys received by the department's division of banking and the department's division of savings and loan institutions shall be credited to this appropriation, but any balance at the close of a fiscal year exceeding 10% of the previous fiscal year's expenditures under this appropriation shall lapse to the general fund. Annually, $200,000 of the amounts received under this appropriation account shall be transferred to the appropriation account under s. 20.575 (1) (g).

AB898, s. 3 Section 3. 20.912 (4) of the statutes is amended to read:

AB898,7,11 20.912 (4) Insolvent depositories. When the bank, savings and loan association, savings bank or credit union on which any check, share draft or other draft is drawn by the state treasurer before payment of such check, share draft or other draft becomes insolvent or is taken over by the division of banking, division of savings and loan institutions, the federal home loan bank board, the U.S. office of thrift supervision, the federal deposit insurance corporation, the resolution trust corporation, the office of credit unions, the administrator of federal credit unions or the U.S. comptroller of the currency, the state treasurer shall on the demand of the person in whose favor such check, share draft or other draft was drawn and upon the return to the treasurer of such check, share draft or other draft issue a replacement for the same amount.

AB898, s. 4 Section 4. 34.01 (2) (a) of the statutes is amended to read:

AB898,8,6 34.01 (2) (a) Any loss of public moneys, which have been deposited in a designated public depository in accordance with this chapter, resulting from the failure of any public depository to repay to any public depositor the full amount of its deposit because the office of credit unions, administrator of federal credit unions, U.S. comptroller of the currency, federal home loan bank board, U.S. office of thrift supervision, federal deposit insurance corporation, resolution trust corporation, division of banking or division of savings and loan institutions has taken possession of the public depository or because the public depository has, with the consent and approval of the office of credit unions, administrator of federal credit unions, U.S. office of thrift supervision, federal deposit insurance corporation, resolution trust corporation, division of banking or division of savings and loan institutions, adopted a stabilization and readjustment plan or has sold a part or all of its assets to another credit union, bank, savings bank or savings and loan association which has agreed to pay a part or all of the deposit liability on a deferred payment basis or because the depository is prevented from paying out old deposits because of rules of the office of credit unions, administrator of federal credit unions, U.S. comptroller of the currency, federal home loan bank board, U.S. office of thrift supervision, federal deposit insurance corporation, resolution trust corporation, division of banking or division of savings and loan institutions.

AB898, s. 5 Section 5. 34.10 of the statutes is amended to read:

AB898,9,10 34.10 Reorganization and stabilization of financial institutions. Whenever the office of credit unions, administrator of federal credit unions, U.S. comptroller of the currency, federal home loan bank board, U.S. office of thrift supervision, federal deposit insurance corporation, resolution trust corporation, division of banking or division of savings and loan institutions has taken charge of a credit union, bank, savings bank or savings and loan association with a view of restoring its solvency, pursuant to law, or with a view of stabilizing and readjusting the structure of any national or state credit union, bank, savings bank or savings and loan association located in this state, and has approved a reorganization plan or a stabilization and readjustment agreement entered into between the credit union, bank, savings bank or savings and loan association and depositors and unsecured creditors, or when a credit union, bank, savings bank or savings and loan association, with the approval of the office of credit unions, administrator of federal credit unions, U.S. comptroller of the currency, federal home loan bank board, U.S. office of thrift supervision, federal deposit insurance corporation, resolution trust corporation, division of banking or division of savings and loan institutions proposes to sell its assets to another credit union, bank, savings bank or savings and loan association which agrees to assume a part or all of the deposit liability of such selling credit union, bank, savings bank or savings and loan association and to pay the same on a deferred payment basis, the governing board of the public depositor may, on the approval of the division of banking, join in the execution of any reorganization plan, or any stabilization and readjustment agreement, or any depositor's agreement relative to a proposed sale of assets if, in its judgment and that of the division of banking, the reorganization plan or stabilization and readjustment agreement or proposed sale of assets is in the best interest of all persons concerned. The joining in any reorganization plan, or any stabilization and readjustment agreement, or any proposed sale of assets which meets the approval of the division of banking does not waive any rights under this chapter.

AB898, s. 6 Section 6. 138.052 (5) (am) 2. a. of the statutes is amended to read:

AB898,9,19 138.052 (5) (am) 2. a. On January 1, 1994, and annually thereafter, the division of banking for banks, the division of savings and loan institutions for savings and loan associations and savings banks and the office of credit unions for credit unions shall determine the interest rate that is the average of the interest rates paid, rounded to the nearest one-hundredth of a percent, on regular passbook deposit accounts by institutions under the division's or office's jurisdiction at the close of the last quarterly reporting period that ended at least 30 days before the determination is made.

AB898, s. 7 Section 7. 138.052 (5) (am) 2. b. of the statutes is amended to read:

AB898,9,24 138.052 (5) (am) 2. b. The office of credit unions and the division of banking shall report the rate calculated to the division of savings and loan institutions within 5 days after the date on which the determination is made. The division of savings and loan institutions shall calculate the average, rounded to the nearest one-hundredth of a percent, of the 3 rates and report that interest rate to the revisor of statutes within 5 days after the date on which the determination is made.

AB898, s. 8 Section 8. 138.055 (4) (a) of the statutes is amended to read:

AB898,10,5 138.055 (4) (a) The division of savings and loan institutions, if the lender is a savings and loan association or savings bank;

AB898, s. 9 Section 9. 138.056 (1) (a) 4. a. of the statutes is amended to read:

AB898,10,8 138.056 (1) (a) 4. a. The division of savings and loan institutions, if the lender is a savings and loan association or savings bank;

AB898, s. 10 Section 10. 138.12 (5) (a) of the statutes is amended to read:

AB898,10,12 138.12 (5) (a) The commissioner division may revoke or suspend the license of any insurance premium finance company if the commissioner division finds that any of the following:

AB898,10,13 1. Any license issued to such company was obtained by fraud,.

AB898,10,14 2. There was any misrepresentation in the application for the license ,.

AB898,10,16 3. The holder of such license has otherwise shown himself or herself untrustworthy or incompetent to act as a premium finance company,.

AB898,10,17 4. Such The company has violated any provision of this section, or.

AB898,10,21 5. Such The company has been rebating part of the service charge as allowed and permitted herein to any insurance agent or insurance broker or any employe of an insurance agent or insurance broker or to any other person as an inducement to the financing of any insurance policy with the premium finance company.

AB898, s. 11 Section 11. 214.01 (1) (im) of the statutes is amended to read:

AB898,10,23 214.01 (1) (im) "Division" means the division of savings and loan institutions.

AB898, s. 12 Section 12. 214.592 of the statutes is amended to read:

AB898,11,4 214.592 Financially related services tie-ins. In any transaction conducted by a savings bank, a savings bank holding company or a subsidiary of either with a customer who is also a customer of any other subsidiary of any of them, the customer shall be given a notice in 12-point boldface type in substantially the following form:

AB898,11,5 NOTICE OF RELATIONSHIP

AB898,11,10 This company, .... (insert name and address of savings bank, savings bank holding company or subsidiary), is related to .... (insert name and address of savings bank, savings bank holding company or subsidiary) of which you are also a customer. You may not be compelled to buy any product or service from either of the above companies or any other related company in order to participate in this transaction.

AB898,11,15 If you feel that you have been compelled to buy any product or service from either of the above companies or any other related company in order to participate in this transaction, you should contact the management of either of the above companies at either of the above addresses or the division of savings and loan institutions at .... (insert address).

AB898, s. 13 Section 13. 215.01 (6) of the statutes is amended to read:

AB898,11,17 215.01 (6) "Division" means the division of savings and loan institutions.

AB898, s. 14 Section 14. 215.02 (title) of the statutes is amended to read:

AB898,11,19 215.02 (title) Division of savings and loan institutions.

AB898, s. 15 Section 15. 215.141 of the statutes is amended to read:

AB898,11,25 215.141 Financially related services tie-ins. In any transaction conducted by an association, a savings and loan holding company or a subsidiary of either with a customer who is also a customer of any other subsidiary of any of them, the customer shall be given a notice in 12-point boldface type in substantially the following form:

AB898,12,1 NOTICE OF RELATIONSHIP

AB898,12,7 This company, ..... (insert name and address of association, savings and loan holding company or subsidiary), is related to ..... (insert name and address of association, savings and loan holding company or subsidiary) of which you are also a customer. You may not be compelled to buy any product or service from either of the above companies or any other related company in order to participate in this transaction.

AB898,12,12 If you feel that you have been compelled to buy any product or service from either of the above companies or any other related company in order to participate in this transaction, you should contact the management of either of the above companies at either of the above addresses or the division of savings and loan institutions at .... (insert address).

AB898, s. 16 Section 16. 220.04 (9) (a) 2. of the statutes is amended to read:

AB898,12,16 220.04 (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.

AB898, s. 17 Section 17. 221.0303 (2) of the statutes, as affected by 1997 Wisconsin Act 27, is amended to read:

AB898,13,10 221.0303 (2) Operation and acquisition of customer bank communications terminals. A bank may, directly or indirectly, acquire, place and operate, or participate in the acquisition, placement and operation of, at locations other than its main or branch offices, customer bank communications terminals, in accordance with rules established by the division. The rules of the division shall provide that any such customer bank communications terminal shall be available for use, on a nondiscriminatory basis, by any state or national bank and by all customers designated by a bank using the terminal. This subsection does not authorize a bank which has its principal place of business outside this state to conduct banking business in this state. The customer bank communications terminals also shall be available for use, on a nondiscriminatory basis, by any credit union, savings and loan association or savings bank, if the credit union, savings and loan association or savings bank requests to share its use, subject to rules jointly established by the division of banking, the office of credit unions and the division of savings and loan institutions. The division by order may authorize the installation and operation of a customer bank communications terminal in a mobile facility, after notice and hearing upon the proposed service stops of the mobile facility.

AB898, s. 18 Section 18. 221.0321 (5) of the statutes, as affected by 1997 Wisconsin Act 35, is amended to read:

AB898,13,21 221.0321 (5) Certain secured loans. A bank may make loans secured by assignment or transfer of stock certificates or other evidence of the borrower's ownership interest in a corporation formed for the cooperative ownership of real estate. Sections 846.10 and 846.101, as they apply to a foreclosure of a mortgage involving a one-family residence, apply to a proceeding to enforce the lender's rights in security given for a loan under this subsection. The division shall promulgate joint rules with the office of credit unions and the division of savings and loan institutions that establish procedures for enforcing a lender's rights in security given for a loan under this subsection.

AB898, s. 19 Section 19. Chapter 222 of the statutes is created to read:

AB898,13,24 CHAPTER 222 UNIVERSAL BANKS

AB898,14,2 Subchapter I General Provisions

AB898,14,4 222.0101 Title. This chapter may be cited as the "Wisconsin universal bank law".

AB898,14,5 222.0102 Definitions. In this chapter:

AB898,14,6 (1) "Adequately capitalized" has the meaning given in 12 USC 1831o (b) (1) (B).

AB898,14,9 (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:

AB898,14,14 (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.

AB898,14,19 (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.

AB898,14,23 (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.

AB898,14,24 (4) "Division" means the division of banking.

AB898,15,3 (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.

AB898,15,5 (6) "Universal bank" means a financial institution that has been issued a certificate of authority under s. 222.0205.

AB898,15,6 (7) "Well-capitalized" has the meaning given in 12 USC 1831o (b) (1) (A).

AB898,15,11 222.0103 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.