Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 1st Meeting

of the 2002 Interim


<MeetMDY1> September 9, 2002


The<MeetNo2> 1st meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Monday,<MeetMDY2> September 9, 2002, at<MeetTime> 2:45 PM, in the Carroll-Ford Room of the Galt House, Louisville, Kentucky, in conjunction with the Kentucky Bankers Association Annual Convention.<Room> Senator Tom Buford, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Tom Buford, Co-Chair; Representative James Bruce, Co-Chair; Senators Lindy Casebier, Julie Denton, Ray Jones II, Marshall Long, R.J. Palmer II, Albert Robinson, Richard Sanders Jr., Larry Saunders, and Dan Seum; Representatives Paul Bather, Sheldon Baugh, Brian Crall, Ron Crimm, Robert Damron, Mike Denham, Danny Ford, James Gooch, Dennis Horlander, Don Pasley, Steve Riggs,  Roger Thomas, Ken Upchurch, Susan Westrom, and Rob Wilkey.


Guests:  Scott Polakoff, Regional Director, FDIC, and Ballard Cassady, Executive Director, Kentucky Bankers Association.


LRC Staff:  Greg Freedman, Emily Bottoms, Rhonda Franklin, and Jamie Griffin.


The minutes from the October 23, 2001 meeting were approved.


Senator Tom Buford introduced Scott Polakoff, Regional Director, Federal Deposit Insurance Corporation and Ballard Cassady, Executive Director, Kentucky Bankers Association.


Mr. Polakoff addressed the committee regarding the condition of banks in Kentucky and trends in the banking industry.  Mr. Polakoff stated that in Kentucky there are field offices in Lexington, Elizabethtown, and Hopkinsville.  He stated that a total of 45 examiners are responsible for conducting both safety and soundness and compliance examinations of Kentucky institutions.  The FDIC supervises 167 Kentucky state chartered banks that are not members of the Federal Reserve System.  He stated that they work closely with the Kentucky Department of Financial Institutions in providing this supervision.  Federal supervision of national banks is performed by the Office of the Comptroller of the Currency, state member banks by the Federal Reserve System, and thrifts by the Office of  Thrift Supervision.  He stated that as the insurer of deposits for all these institutions, they work closely with the other regulators in monitoring the banking industry.  He stated that as a quasi-government agency, the FDIC derives its income from two sources: deposit insurance assessments and investment income from the Bank Insurance Fund and Savings Association Insurance Fund.  No taxpayer funds are used to maintain FDIC operations.  Mr. Polakoff reviewed the types of examinations that are done and the frequency, as well as, laws, regulations and other banking guidance.  He stated that Kentucky banks were in good condition and gave the committee charts outlining the number of institutions in Kentucky, total assets, weak institutions, new institutions, and poor management institutions.  He stated that assets were increased by $2 million as of March 2002 from March of 2001, even though the number of institutions have decreased by six.  He stated that the number of weak institutions was up 7% from 2001, and stated that a weak institution would have a CAMEL rating of 3, 4 or 5.  This rating is based on the Uniform Financial Institutions Rating System(UFIRS), 1 being the best and 5 representing significant concern.  He stated that there were 14 new institutions in 2002, which is down from 15 in 2001.  He stated that poorly managed institutions was 27 in 2002, which was up from 25 in 2001.  He stated that even though some of the areas show an increase, he feels that Kentucky banks are doing very well and feels like that they will continue to do well from their projections.


Representative Sheldon Baugh asked if he was concerned with the terrorist situation in the country and the shifting of funds to terrorist accounts.  Mr. Polakoff stated  it is a concern and it is closely monitored.  He stated that they have an extensive list of transactions not to deal with.  He stated that any cash transaction of $10,000.00 must be reported by each financial institution.


Representative Paul Bather asked how the national economy seemed to be doing, is there slow growth or no growth.  Mr. Polakoff stated that right now there seems to be a comfort level and it seems to be rebounding.  Representative Bather asked what the forecast was for mergers and acquisitions of banks.  Mr. Polakoff stated that it has slowed down nationwide.  He said he feels it will increase slowly.


Senator Ray Jones asked if there is a need for changes in the law or regulations concerning the banking industry on either a state or national level.  Mr. Polakoff stated that he would not recommend additional changes.  Ballard Cassady stated that the Kentucky Bankers Association is not pursuing any changes in the law at this time.


Representative Steve Riggs asked if there were any studies being done regarding the problem institutions.  Mr. Polakoff stated that he was not aware of any studies being done at this time.


Senator Richie Sanders asked if the FDIC monitors laws passed in all states.  Mr. Polakoff stated that, they monitor all legislation.


Representative Mike Denham stated that he feels that the Kentucky Bankers Association and the FDIC is doing an excellent job educating the banks and their staff.


Senator Tom Buford inquired if the staff of the FDIC is reduced, are there less examinations.  Mr. Polakoff stated that the exams will be done.


Senator Albert Robinson stated that a subcommittee has been approved to study the state health insurance program.  He stated that the subcommittee would be made up of members of the State Government Committee and the Banking and Insurance Committee.  He stated that the first meeting will be September 25, 2002.


With no further business, the meeting adjourned at 4:00 p.m.