Senate Bill No. 381
(By Senators Minard, Jenkins, McCabe, Oliverio and Plymale)
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[Introduced January 28, 2010; referred to the Committee on
Banking and Insurance.]
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A BILL to amend and reenact §31A-4-26 of the Code of West Virginia,
1931, as amended, relating to prohibiting employees of the
Division of Banking from borrowing money from a depository or
nondepository institution chartered or licensed by the
division if the employee takes regulatory action involving the
institution; and prohibiting the commissioner, deputy
commissioner and in-house counsel of the division from
borrowing money from any entity that is under the jurisdiction
of the division.
Be it enacted by the Legislature of West Virginia:
That §31A-4-26 of the Code of West Virginia, 1931, as amended,
be amended and reenacted to read as follows:
ARTICLE 4. BANKING INSTITUTIONS AND SERVICES GENERALLY.
§31A-4-26. Limitation on loans and extensions of credit;
limitation on investments; loans to executive
officers and directors of banks and employees of the banking department; exceptions; valuation of
securities.
(a) (1) The total loans and extensions of credit made by a
state-chartered banking institution to any one person or common
enterprise and not fully secured, as determined in a manner
consistent with subdivision (2) of this subsection, shall may not
exceed fifteen percent of the unimpaired capital and unimpaired
surplus of that state-chartered banking institution initially
determined for the period such loan or extension of credit is made.
(2) Where the total loans and extensions of credit by a state-
chartered banking institution to any one person or common
enterprise are fully secured by readily marketable collateral
having a market value, as determined by reliable and continuously
available price quotations, at least equal to the outstanding
amount of such loans and extensions, then the bank may provide such
loans or extensions of up to ten percent of the unimpaired capital
and unimpaired surplus of that state-chartered banking institution
initially determined for the period such loan or extension is made.
This limitation shall be separate from and in addition to the
limitation contained in subdivision (1) of this subsection.
(3) For the purposes of this subsection:
(A) The term "loans and extensions of credit" shall includes
all direct or indirect advances of funds to a person made on the
basis of any obligation of that person to repay the funds or
repayable from specific property pledged by or on behalf of the person and to the extent specified by the Commissioner of Banking,
such the terms
shall also include any liability of a
state-chartered banking institution to advance funds to or on
behalf of a person pursuant to a contractual commitment;
(B) The term "person"
shall includes an individual,
partnership, sole proprietorship, society, association, firm,
institution, company, public or private corporation, not-for-profit
corporation, state, governmental agency, bureau, department,
division or instrumentality, political subdivision, county
commission, municipality, trust, syndicate, estate or any other
legal entity whatsoever, formed, created or existing under the laws
of this state or any other jurisdiction;
(C) The term "unimpaired capital and unimpaired surplus" means
the amount of total equity capital outstanding as indicated in the
bank's most recent quarterly report of condition and income as
filed with the Commissioner of Banking pursuant to section nineteen
of this article, plus the amount of the allowance for loan losses,
minus the amount of goodwill or other nonmarketable intangible
assets included in
such the quarterly report pursuant to generally
accepted accounting principles. Unrealized gains and losses on the
bank's securities and loan portfolios shall be included in the
calculation of total equity capital to the extent required by
generally accepted accounting principles and applicable federal or
state law, rule or regulation; and
(D) The term "common enterprise" includes, but is not limited to, persons and entities who are so related by business or
otherwise that the expected source of repayment on the loan or
extension of credit is substantially the same for each person or entity.
(4) The limitations contained in this subsection
shall be are
subject to the following exceptions:
(A) Loans or extensions of credit arising from the discount of
commercial or business paper evidencing an obligation to the person
negotiating it with recourse
shall are not
be subject to any
limitation based on capital and surplus;
(B) The purchase of bankers' acceptances of the kind described
in section thirteen of the Federal Reserve Act and issued by other
banks
shall are not
be subject to any limitation based on capital
and surplus;
(C) Loans and extensions of credit having a term of ten months
or less and secured by bills of lading, warehouse receipts or
similar documents transferring or securing title to readily
marketable staples
shall be are subject to a limitation of twenty
percent of unimpaired capital and unimpaired surplus in addition to
the general limitations set forth in subdivision (1) of this
subsection, provided the market value of the staples securing each
additional loan or extension of credit at all times equals or
exceeds one hundred fifteen percent of the outstanding amount of
such loan or extension of credit. The staples shall be fully
covered by insurance whenever it is customary to insure
such the
staples. If collateral values of the staples fall below the levels required herein, to the extent that the loan is no longer in
conformance with its collateral requirements and exceeds the
general fifteen percent limitation, the loan must be brought into
conformance within five business days, except where judicial
proceedings, regulatory actions or other extraordinary occurrences
prevent the bank from taking action;
(D) Loans or extensions of credit secured by bonds, notes,
certificates of indebtedness or Treasury bills of the United States
or by other such obligations fully guaranteed as to principal and
interest by the United States or by bonds, notes, certificates of
indebtedness which are general obligations of the State of West
Virginia or by other such obligations fully guaranteed as to
principal and interest by the State of West Virginia
shall are not
be subject to any limitation based on capital and surplus;
(E) Loans or extensions of credit to or secured by
unconditional takeout commitments or guarantees of any department,
agency, bureau, board, commission or establishment of the United
States or of the State of West Virginia or any corporation wholly
owned directly or indirectly by the United States
shall are not
be
subject to any limitation based on capital and surplus;
(F) Loans or extensions of credit secured by a segregated
deposit account in the lending bank
shall are not
be subject to any
limitation based on capital and surplus;
(G) Loans or extensions of credit to any banking institution
or to any receiver, conservator or other agent in charge of the business and property of such banking institution or other
federally insured depository institution, when
such the loans or
extensions of credit are approved by the Commissioner of Banking,
shall are not
be subject to any limitation based on capital and surplus;
(H) (i) Loans and extensions of credit arising from the
discount of negotiable or nonnegotiable installment consumer paper
which carries a full recourse endorsement or unconditional
guarantee by the person or common enterprise transferring the paper
shall be are subject under this section to a maximum limitation
equal to twenty-five percent of such unimpaired capital and
unimpaired surplus, notwithstanding the collateral requirements set
forth in subdivision (2) of this subsection;
(ii) If the bank's files or the knowledge of its officers of
the financial condition of each maker of
such consumer paper is
reasonably adequate and an officer of the bank designated for that
purpose by the board of directors of the bank certifies in writing
that the bank is relying primarily upon the responsibility of each
maker for payment of such loans or extensions of credit and not
upon any full or partial recourse endorsement or guarantee by the
transferor, the limitations of this section as to the loans or
extensions of credit of each such maker
shall be are the sole
applicable loan limitations;
(I) (i) Loans and extensions of credit secured by shipping
documents or instruments transferring or securing title covering
livestock or giving a lien on livestock when the market value of the livestock securing the obligation is not at any time less than
one hundred fifteen percent of the face amount of the note covered
shall be subject under this section to a maximum limitation equal
to twenty-five percent of
such the unimpaired capital and
unimpaired surplus, notwithstanding the collateral requirements set
forth in subdivision (2) of this subsection;
(ii) Loans and extensions of credit which arise from the
discount by dealers in livestock of paper given in payment for
livestock, which paper carries a full recourse endorsement or
unconditional guarantee of the seller and which are secured by the
livestock being sold,
shall be are subject under this section to a
limitation of twenty-five percent of
such the unimpaired capital
and unimpaired surplus, notwithstanding the collateral requirements
set forth in subdivision (2) of this subsection;
(iii) If collateral values of the livestock documents,
instruments or discount paper fall below the levels required
herein, to the extent that the loan is no longer in conformance
with its collateral requirements and exceeds the general fifteen
percent limitation, the loan must be brought into conformance
within thirty business days, except where judicial proceedings,
regulatory actions or other extraordinary occurrences prevent the
bank from taking action;
(J) Loans or extensions of credit to the Student Loan
Marketing Association
shall are not
be subject to any limitation
based on capital and surplus; and(K) Loans or extensions of credit to a corporation owning the
property in which that state-chartered banking institution is
located, when that state-chartered banking institution has an
unimpaired capital and surplus of not less than one million dollars
or when approved in writing by the Commissioner of Banking,
shall
are not
be subject to any limitation based on capital and surplus.
(5) (A) The Commissioner of Banking may prescribe rules to
administer and carry out the purposes of this subsection including
rules to define or further define terms used in this subsection and
to establish limits or requirements other than those specified in
this subsection for particular classes or categories of loans or
extensions of credit;
(B) The Commissioner of Banking may also prescribe rules to
deal with loans or extensions of credit, which were not in
violation of this section prior to the effective date of this
article, but which will be in violation of this section upon the
effective date of this article; and
(C) The Commissioner of Banking
may also
shall have authority
to determine when a loan putatively made to a person
shall is, for
purposes of this subsection,
be attributed to another person.
(b) (1) Except as hereinafter provided or otherwise permitted
by law, nothing herein contained
shall authorizes the purchase by
a state-chartered banking institution for its own account of any
shares of stock of any corporation
: Provided, That a state-
chartered banking institution may purchase and sell securities and stock without recourse, solely upon the order and for the account
of customers.
(2)
In no event shall The total amount of investment
securities of any one obligor or maker held by a state-chartered
banking institution for its own account
may not exceed that
percentage of the unimpaired capital and unimpaired surplus of that
state-chartered banking institution as is permitted for investment
by national banks or for any federally insured depository institution.
(3) For purposes of this subsection:
(A) The term "investment securities" means a marketable
obligation in the form of a stock, bond, note or debenture commonly
regarded as an investment security and that is salable under
ordinary circumstances with reasonable promptness at a fair value.
"Derivative security" means a type of investment security involving
a financial contract whose value depends on the values of one or
more underlying assets or indexes of asset values. The term
"derivative" refers inter alia to financial contracts such as
collateralized mortgage obligations ("CMOs"), forwards, futures,
forward rate agreements, swaps, options and caps/floors/collars
whose primary purpose is to transfer price risks associated with
fluctuations in asset values;
(B) The term "person"
shall include includes any individual,
partnership, sole proprietorship, society, association, firm,
institution, company, public or private corporation, not-for-profit
corporation, state, governmental agency, bureau, department, division or instrumentality, political subdivision, county
commission, municipality, trust, syndicate, estate or any other
legal entity whatsoever, formed, created or existing under the laws
of this state or any other jurisdiction; and
(C) The term "unimpaired capital and unimpaired surplus"
shall
have has the same meaning as set forth in subsection (a) of this section.
(4) Notwithstanding any other provision of this subsection, a
state-chartered banking institution may invest its funds in any
investment authorized for national banking associations or for any
other federally insured depository institution.
Such The
investments by state-chartered banking institutions shall be on the
same terms and conditions applicable to national banking
associations or any other federally insured depository institution
:
Provided, That: (i) The purchase of investment securities under
this subdivision
shall may be made only when in the bank's prudent
judgment, which judgment may be based in part on estimates which it
believes to be reliable, there is adequate evidence that the
obligor will be able to perform all it undertakes to perform in
connection with the securities, including all debt service
requirements, and that the securities may be sold with reasonable
promptness at a price that corresponds to their fair value; and
(ii) the purchase conforms to the requirement of subdivision (5) of
this subsection. The Commissioner of Banking may, from time to
time, provide notice to state-chartered banking institutions of
authorized investments under this paragraph.(5) The purchase of investment securities, including
derivative securities, in which the investment characteristics are
considered distinctly or predominantly speculative, or the purchase
of such securities that are in default, whether as to principal or
interest, is prohibited. The proper management of interest rate
risk through the use of derivative or other investment securities
shall may not be held a speculative purpose.
(6) The Commissioner of Banking may prescribe rules to
administer and carry out the purposes of this subsection, including
rules to define or further define terms used in this subsection and
to establish limits or requirements other than those specified in
this subsection for particular classes or categories of investment
securities.
(c)
In the event of If there is a material decline of
unimpaired capital and unimpaired surplus of a state-chartered bank
during any quarterly reporting period of more than twenty percent
from that amount reported in the bank's most recent report of
income and condition, or where there is a decrease of more than
thirty percent in any twelve-month period, the bank shall review
its outstanding loans, extensions of credit and investments and
report to the Commissioner of Banking those loans, extensions and
investments that exceed the limitations of this section using the
bank's current reevaluated unimpaired capital and unimpaired
surplus. The report shall detail the bank's position in each such
loan, extension of credit and investment. The commissioner may, within his or her discretion, require that such loans, extensions
of credit and investments be brought into conformity with the
bank's current reevaluated legal lending and investment limitation.
(d) Notwithstanding any other provision of this section, in
order to ensure a bank's safety and soundness, the Commissioner of
Banking retains the authority to direct any state-chartered bank to
recalculate its lending and investment limits at more frequent
intervals than otherwise provided herein and to require all
outstanding loans, extensions of credit and investments be brought
into conformance with the reevaluated limitations. In such cases,
the commissioner will provide the bank a written notice explaining
briefly the specific reasons why the determination was made to
require the more frequent calculations.
(e) Loans to directors or executive officers are subject to
the following limitations:
(1) A director or executive officer of any banking institution
may not borrow, directly or indirectly, from a banking institution
with which he or she is connected any sum of money without the
prior approval of a majority of the board of directors or discount
committee of the banking institution, or of any duly constituted
committee whose duties include those usually performed by a
discount committee.
Such The approval shall be by resolution
adopted by a majority vote of
such the board or committee,
exclusive of the director or executive officer to whom the loan is
made.(2) If any director or executive officer of any bank owns or
controls a majority of the stock of any corporation, or is a
partner in any partnership, a loan to
such the corporation or
partnership
shall constitute constitutes a loan to
such the
director or officer.
(3) For purposes of this subsection, an "executive officer" means:
(A) A person who participates or has authority to participate,
other than in the capacity of a director, in major policy-making
functions of the company or bank, regardless of any official title,
salary or other compensation. The chairman of the board, the
president, every vice president, the cashier, the secretary and the
treasurer of a company or bank are considered executive officers
unless the officer is excluded, by resolution of the board of
directors or by the bylaws of the bank or company from
participation, other than in the capacity of director, in major
policy-making functions of the bank or company and the officer does
not actually participate therein.
(B) An executive officer of a company of which the bank is a
subsidiary, and any other subsidiary of that company, unless the
executive officer of the subsidiary is excluded, by name or by
title, from participation in major policy-making functions of the
bank by resolutions of the boards of directors of both the
subsidiary and the bank and does not actually participate in such
major policy-making functions.
(f)
The Commissioner of Banking and any employee of the Department of Banking may not borrow, directly or indirectly, any
sum of money from a state-chartered banking institution which is
subject to examination by the commissioner or the department. An
employee of the Division of Banking whose regulatory activities
involve participation in an examination, audit, visitation, review,
investigation or any other particular matter involving depository
institutions chartered by the division may not borrow, directly or
indirectly, any sum of money from a state-chartered bank or
state-chartered credit union. An employee of the Division of
Banking whose regulatory activities involve participation in an
examination, audit, visitation, review, investigation or any other
particular matter involving nondepository institutions licensed by
the division may not borrow, directly or indirectly, any sum of
money from a nondepository entity that is licensed by the division.
The commissioner, deputy commissioner and in-house legal counsel of
the Division of Banking may not borrow, directly or indirectly, any
sum of money from any entity that is under the jurisdiction of the
division.
(g) Securities purchased by a state-chartered banking
institution shall be entered upon the books of the bank at actual
cost. For the purpose of calculating the undivided profits
applicable to the payment of dividends, securities
shall may not be
valued at a valuation exceeding their present cost as determined by
amortization of premiums and accretion of discounts pursuant to
generally accepted accounting principles, that is, by charging to profit and loss a sum sufficient to bring them to par at maturity
:
Provided, That securities held for trade or permissible marketable
equity securities and any other types of debt securities which
pursuant to generally accepted accounting principles are to be
carried on the bank's books at fair market value shall have the
unrealized market appreciation and depreciation included in the
income and capital as permitted by
such generally accepted
accounting principles.
(h) The market value of securities purchased and loans
extended by a state-chartered banking institution shall be reported
in all public reports and quarterly reports to the commissioner
pursuant to section nineteen of this article in accordance with
generally accepted accounting principles and any applicable state
or federal law, rule or regulation.
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