AB563: Bill Text Engrossed

LRB-4545/1

RJM:kmg:ch

1999 - 2000 LEGISLATURE

Engrossed 1999 Assembly BILL 563

February 10, 2000 - Printed by direction of Senate Chief Clerk.

AB563-engrossed,1,5 An Act to amend 220.04 (9) (a) 2.; and to create 220.14 (5), chapter 222 and 227.245 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

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

AB563-engrossed,6,4 220.04 (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-engrossed, s. 1e Section 1e. 220.14 (5) of the statutes is created to read:

AB563-engrossed,6,7 220.14 (5) Contain a statement of the total number of orders issued by the division during the year under s. 222.0203 (2).

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

AB563-engrossed,6,10 CHAPTER 222 UNIVERSAL BANKS

AB563-engrossed,6,12 Subchapter I General Provisions

AB563-engrossed,6,14 222.0101 Title. This chapter may be cited as the "Wisconsin universal bank law".

AB563-engrossed,6,15 222.0102 Definitions. In this chapter:

AB563-engrossed,6,18 (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-engrossed,7,5 (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-engrossed,7,10 (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-engrossed,7,14 (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-engrossed,7,15 (4) "Division" means the division of banking.

AB563-engrossed,7,18 (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-engrossed,7,20 (6) "Universal bank" means a financial institution that has been issued a certificate of authority under s. 222.0205.

AB563-engrossed,7,21 (7) "Well-capitalized" has the meaning given in 12 USC 1831o (b) (1) (A).

AB563-engrossed,8,2 222.0103 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-engrossed,8,7 (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.