AB563: Bill Text Engrossed

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.

AB563-engrossed,8,11 (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-engrossed,8,14 222.0105 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-engrossed,8,16 222.0107 Administration. (1) Powers of division. The division shall administer this chapter for all universal banks.

AB563-engrossed,8,21 (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-engrossed,8,23 SUBCHAPTER II Certification

AB563-engrossed,9,3 222.0201 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-engrossed,9,9 (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. The division shall approve an application if all of the applicable requirements under s. 222.0203 (1) are met.

AB563-engrossed,9,12 222.0203 Eligibility. (1) Requirements. The division may approve an application from a financial institution for certification as a universal bank only if all of the following requirements are met:

AB563-engrossed,9,15 (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-engrossed,9,16 (b) The financial institution is well-capitalized.

AB563-engrossed,9,21 (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-engrossed,9,25 (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-engrossed,10,5 (e) The most current evaluation prepared under 12 USC 2906 that the financial institution has received rates the financial institution as "outstanding" or "satisfactory" in helping to meet the credit needs of its entire community, including low-income and moderate-income neighborhoods, consistent with the safe and sound operation of the financial institution.

AB563-engrossed,10,12 (2) Failure to maintain eligibility; limitation of authority and decertification. For any period during which a universal bank fails to meet the requirements under sub. (1), the division shall by order limit or restrict the exercise of the powers of the universal bank under this chapter. In addition to or lieu of limiting or restricting the universal bank's authority under this subsection, the division may by order revoke the universal bank's certificate of authority issued under s. 222.0205.

AB563-engrossed,10,16 222.0205 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-engrossed,10,24 222.0207 Voluntary termination of certification. 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-engrossed,11,2 SUBCHAPTER III ORGANIZATION

AB563-engrossed,11,7 222.0301 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-engrossed,11,14 222.0303 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-engrossed,11,17 (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-engrossed,11,19 (a) The name of any other financial institution organized under the laws of this state.

AB563-engrossed,11,21 (b) The name of a national bank or foreign bank authorized to transact business in this state.

AB563-engrossed,11,25 (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-engrossed,12,3 (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-engrossed,12,4 (a) Merged with the other institution.

AB563-engrossed,12,5 (b) Been formed by reorganization of the other institution.

AB563-engrossed,12,7 (c) Acquired all or substantially all of the assets, including the name, of the other institution.

AB563-engrossed,12,10 222.0305 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.

AB563-engrossed,12,12 (2) Certain asset requirements. Section 214.045 does not apply to universal banks.

AB563-engrossed,12,19 222.0307 Acquisitions, mergers and asset purchases. (1) In general. A universal bank may, with the approval of the division, purchase the assets of, merge with, acquire or be acquired by any other financial institution, universal bank, national bank, federally chartered savings bank or savings and loan association, or by a holding company of any of these entities. Notwithstanding subch. III of ch. 214 and ss. 214.09 and 215.36, the approval of the division of savings and loan is not required.

AB563-engrossed,12,23 (2) Applications for approval. An application for approval under sub. (1) shall be submitted on a form prescribed by the division and accompanied by a fee determined by the division. In processing and acting on applications under this section the division shall apply the following standards:

AB563-engrossed,12,25 (a) For universal banks organized under ch. 214, ss. 214.09, 214.62 to 214.64 and 214.665 and subch. III of ch. 214.

AB563-engrossed,13,2 (b) For universal banks organized under ch. 215, ss. 215.35, 215.36, 215.53 and 215.73.

AB563-engrossed,13,3 (c) For universal banks chartered under ch. 221, subchs. VII and IX of ch. 221.

AB563-engrossed,13,5 SUBCHAPTER IV POWERS

AB563-engrossed,13,10 222.0401 Federal financial institution powers. (1) In general. (a) Powers exercised by universal bank. A universal bank, with the approval of the division, may exercise any power that may be directly exercised by a federally chartered savings bank, a federally chartered savings and loan association or a federally chartered national bank.

AB563-engrossed,13,14 (b) Powers exercised by subsidiary of universal bank. A universal bank, through a subsidiary and with the approval of the division, may exercise any power that a federally chartered savings bank, a federally chartered savings and loan association or a federally chartered national bank may exercise through a subsidiary.

AB563-engrossed,13,22 (2) Approval required for exercise of federal power. A universal bank shall file with the division a written request to exercise a power under sub. (1). The division shall determine whether the requested power is permitted under sub. (1). Within 60 days after receiving a request under this subsection, the division shall approve the request, if the power is permitted under sub. (1), or shall disapprove the request if the power is not permitted under sub. (1). The division and the universal bank may mutually agree to extend this 60-day period for an additional period of 60 days.

AB563-engrossed,14,2 (3) Exercise of federal powers through a subsidiary. The division may require that certain powers exercisable by a universal bank under sub. (1) (a) be exercised through a subsidiary of the universal bank with appropriate safeguards to limit the risk exposure of the universal bank.

AB563-engrossed,14,5 222.0403 Loan powers. (1) Permitted purposes. A universal bank may make, sell, purchase, arrange, participate in, invest in or otherwise deal in loans or extensions of credit for any purpose.

AB563-engrossed,14,11 (2) In general. Except as provided in subs. (3) to (8), the total liabilities of any person, other than a municipal corporation, to a universal bank for a loan or extension of credit may not exceed 20% of the capital of the universal bank at any time. In determining compliance with this section, liabilities of a partnership includes the liabilities of the general partners, computed individually as to each general partner on the basis of his or her direct liability.

AB563-engrossed,14,14 (3) Certain secured liabilities. The percentage limitation under sub. (2) is 50% of the universal bank's capital, if the liabilities under sub. (2) are limited to the following types of liabilities:

AB563-engrossed,14,18 (a) Warehouse receipts. A liability secured by warehouse receipts issued by warehouse keepers who are licensed and bonded in this state under ss. 99.02 and 99.03 or under the federal Bonded Warehouse Act or who hold a registration certificate under ch. 127, if all of the following requirements are met:

AB563-engrossed,14,19 1. The receipts cover readily marketable nonperishable staples.

AB563-engrossed,14,20 2. The staples are insured, if it is customary to insure the staples.

AB563-engrossed,14,22 3. The market value of the staples is not, at any time, less than 140% of the face amount of the obligation.

AB563-engrossed,14,24 (b) Certain bonds or notes. A liability in the form of a note or bond that meets any of the following qualifications:

AB563-engrossed,15,3 1. The note or bond is secured by not less than a like amount of bonds or notes of the United States issued since April 24, 1917, or certificates of indebtedness of the United States.

AB563-engrossed,15,8 2. The note or bond is secured or covered by guarantees or by commitments or agreements to take over, or to purchase, the bonds or notes, and the guarantee, commitment or agreement is made by a federal reserve bank, the federal small business administration, the federal department of defense or the federal maritime commission.

AB563-engrossed,15,10 3. The note or bond is secured by mortgages or trust deeds insured by the federal housing administration.

AB563-engrossed,15,12 (4) Obligations of local governmental units. (a) Definition. In this subsection, "local governmental unit" has the meaning given in s. 16.97 (7).

AB563-engrossed,15,15 (b) General limitation. Except as otherwise provided in this subsection, the total liabilities of a local governmental unit to a universal bank for money borrowed may not, at any time, exceed 25% of the capital of the universal bank.