Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 5th Meeting

of the 2008 Interim


<MeetMDY1> November 25, 2008


The<MeetNo2> 5th meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> November 25, 2008, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Representative Tommy Thompson, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Tom Buford, Co-Chair; Representative Tommy Thompson, Co-Chair; Senators Julian M. Carroll, Julie Denton, Ernie Harris, Dorsey Ridley, Dick Roeding, and Dan Seum; Representatives Sheldon E. Baugh, Johnny Bell, James R. Comer, Jr., Will Coursey, Ron Crimm, Robert R. Damron, Mike Denham, Ted Edmonds, Tim Firkins, Danny Ford, Jim Gooch, Jr., Jeff Greer, Mike Harmon, Jimmy Higdon, Dennis Horlander, Dennis Keene, Adam Koenig, Rick Rand, Steve Riggs, Arnold Simpson, John Tilley, Ken Upchurch, Ron Weston, and Susan Westrom.


Guests:  Ballard Cassady, John Cooper and Debra Stamper of the Kentucky Bankers’ Association; Dr. Donald J. Mullineaux, University of Kentucky; Dr. Paul A. Coomes, University of Louisville.


LRC Staff:  Rhonda Franklin, Chad Collins and Jamie Griffin.


The minutes of the October 29, 2008, meeting were approved.


Ballard Cassady, Executive Director, Kentucky Bankers’ Association (KBA), reviewed the multitude of bank acquisitions and federal economic stimulus actions taken by Congress and various federal agencies, beginning with the acquisition of Bear Sterns by JP Morgan Chase on March 16th, 2008 through the November 23rd agreement by the FDIC and the U.S. Treasury to provide additional funds to Citigroup. He reported that Kentucky’s banks did not participate in many of the practices that were the downfall of other banks nationwide, including involvement in the sub-prime mortgage market, the adjustable rate mortgages or investments in mortgage-backed securities. He stressed that Kentucky’s community banks are strong and well capitalized in contrast to many national banks and banks in other states.


Dr. Donald J. Mullineaux, University of Kentucky, addressed the performance of Kentucky banks compared to banks nationwide. He stated that the federal stimulus packages enacted in recent months were unprecedented in our nation’s history. He elaborated on the KBA statement that Kentucky banks are strong, stating that Kentucky banks are more profitable than their counterparts nationwide, citing that Kentucky banks have experienced almost triple the national average of return on assets and return on investments, and the lack of bank failures in Kentucky compared to other states. Despite starting at a disadvantage by having higher expenses and lower interest, Kentucky banks did not engage in subprime or exotic mortgages, which have resulted in a lower non-performing loan ratio than most of the nation, and did not invest in mortgage backed securities which will bolster Kentucky banks as the economic climate deteriorates further nationally.


Dr. Paul A. Coomes, University of Louisville, addressed other economic factors influencing Kentucky’s relative economic stability. Regarding housing Dr. Coomes related that while some states such as California had forty percent (40%) annual housing inflation in recent years, the same states have had the greatest loss in home values in the last four (4) to five (5) quarters, while Kentucky experienced a lower rate in housing inflation and resulting lower loss in home values.  Concerning the foreclosure numbers in Kentucky, Dr. Coomes’ research sources indicate that fifty percent (50%) of the foreclosures in Jefferson County were not homeowner occupied, but investor properties. Regarding new housing, he reported a slowdown in new housing starts to one/half the number in 2005.


Regarding job growth, Dr. Coomes reported that job growth has ceased in Kentucky, with a negative one-half percent (-½%) growth in jobs through September, 2008. Kentucky’s job growth slowed to two percent (2%) during the last decade, compared to a two percent (2%) annual growth in the 1990’s. Citing a loss of 55,000 manufacturing jobs since the year 2000, Dr. Coomes stated the loss was largely due to automation. Further he stated that retail jobs in 2008 are less than in 2000 and blamed the increase in self-service at retail outlets. Dr. Coomes reported there is job growth in the following sectors: health care due to an aging and unhealthy population; professional and technical jobs with salaries averaging $70,000 or more annually; government jobs; finance jobs; and construction jobs involving remodeling, commercial and industrial construction.


Rep. Mike Harmon stated that he is very glad to hear that Kentucky banks are doing a great job.


Rep. Jamie Comer asked why examiners did not realize that some of the large banks that have failed were in trouble.


Dr. Mullineaux stated that examiners worked in many of the banks everyday and did not uncover the potential problems.


Rep. Tommy Thompson asked about the outlook for unemployment.


Dr. Coomes stated he expects the number of unemployed to increase.  He stated that there are people with marginal credit that have not hit bottom at this time.


The meeting adjourned.