The 3rd meeting of the Interim Joint Committee on Banking and Insurance was held on Tuesday, October 27, 2009, at 10:00 AM, at the Norton Center for the Arts, Centre College, Danville, Kentucky. Senator Tom Buford, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Tom Buford, Co-Chair; Representative Jeff Greer, Co-Chair; Senators Julie Denton, Dorsey Ridley, Dan "Malano" Seum, and Brandon Smith; Representatives James R. Comer Jr., Will Coursey, Ron Crimm, Robert R. Damron, Mike Denham, Ted Edmonds, Joseph M. Fischer, Danny Ford, Jim Gooch Jr., Mike Harmon, Dennis Horlander, Brent Housman, Dennis Keene, Brad Montell, Jody Richards, Steve Riggs, Kevin Sinnette, Wilson Stone, and John Tilley.
Guests: John Roush, President, Centre College, Jamey Gay, Danville City Commissioner, Anne Sleet, Mayor of Perryville, Harold McKinney, Boyle County Judge Executive, Jodi Lassiter, President, Boyle County Economic Development Partnership Julie Wagner, Executive Director, Heart of Danville Main Street Program, Debra Stamper, General Counsel, Kentucky Banker’s Association, John Cooper, Legislative Agent, Kentucky Banker’s Association, and Charles Vice, Commissioner, Kentucky Department of Financial Institutions.
LRC Staff: Rhonda Franklin, Emily Bottoms, Jens Fugal and Jamie Griffin.
The minutes from the September 30, 2009, meeting were approved.
President John Roush, Centre College, welcomed the committee to Danville and the Centre campus and thanked the committee for having a meeting at the Norton Center for the Arts.
Jamey Gay, Danville City Commissioner, Anne Sleet, Mayor of Perryville, Harold McKinney, Boyle County Judge Executive, Jodi Lassiter, President, Boyle County Economic Development Partnership and Julie Wagner, Executive Director, Heart of Danville Main Street Program, welcomed the committee to Danville and Boyle County.
Debra Stamper, General Counsel, Kentucky Banker’s Association (KBA), addressed the committee regarding the current state of the Kentucky Banking Industry, its role in the economic crises of the past 18 months and the effect of efforts being made in Washington to correct the economic downturn. She stated that Kentucky banks are some of the strongest in the nation and hold firm to a long history of conservative, well-managed banking practices. She stated that the banking industry in Kentucky is an integral part of every community in Kentucky. The history of banking in Kentucky is impressive, with the average age of Kentucky based banks being 116 years. She stated that the oldest Kentucky bank still in operation today was established in 1835. Kentucky banks are well capitalized and well run. Banks developed and maintained in Kentucky are the solution, not the creators of this financial crisis. Banks in Kentucky are still lending, investing in their communities, and willing to help maintain the strength of Kentucky’s economy. She stated the only things that will stop Kentucky banks from staying focused on this mission are pressures from the outside that they cannot ignore, such as pressures from examiners, regulators, and federal legislators. She stated that the proposed federal legislation H.R. 3126, the Consumer Financial Protection Agency Act (CFPA), which made its way out of the House Financial Services Committee last week and is moving to the full floor, creates a new federal regulator for financial institutions. This regulator would be given the authority to develop, implement and enforce consumer financial protection laws. This regulator and its regulations would be outside of the current regulatory structure. The regulations developed and enforced would be, in large part, without regard to the impact on the safe and sound operation of financial institutions. She stated that applying a separate, conflicting set of laws on highly regulated FDIC insured institutions is unacceptable and bad public policy not only for banks, but also for consumers and the economy. She stated that creating a new regulator with new authority does not fix the problems in the current system and does not address the problems that placed us in the position we are in today. The CFPA would have free reign to pass new laws and regulations. Despite assurances that the CFPA would work in tandem with prudential regulators, it is simply not clear. She stated that there is also a provision in H.R. 3126 that eliminates preemption as it is recognized today. She stated that H.R. 3126 takes the banking industry backwards and does not ensure the highest standard of consumer compliance. Every state would have the authority to create different consumer compliance laws. Currently, in many instances, federal laws preempt state laws in instances where the federal law encompasses an entire subject. This is positive because it allows banks that do business across state lines to be certain they know with which laws to comply, and makes the law uniform for all customers. H.R. 3126 would stop this uniformity. She stated that the loss of preemption would have the effect of making banking, and financial services as a whole, inefficient. It would lessen true competition among financial service providers under uniform application of laws, costing the consumer more as a result. These types of costs would have the greatest impact on the smallest banks, which are the cornerstone of their communities. She stated that H.R. 3126 is just one of the pieces of federal legislation that the Kentucky Banker’s Association feels could have a devasting effect on banking and potentially destroy the traditional banking states like Kentucky. She said that the potential effect is compounded by increased FDIC premium rates, additional special assessments by the FDIC, and prepayment of premium requirements.
Representative Mike Denham stated that he feels over the counter derivatives are part of the current financial crisis.
John Cooper, Legislative Agent, Kentucky Banker’s Association, stated he agreed and feels it is because there are no regulations on derivatives.
Representative Bob Damron stated that the National Conference of Insurance Legislators (NCOIL) has model legislation that he anticipates will be adopted at the conference’s November meeting which would address recent issues regarding credit defaults. He stated that he agrees that too much federal regulation can cause problems at the state level.
Representative Jeff Greer stated that he was pleased to hear that Kentucky banks are doing well. He asked if the Kentucky Banker’s Association monitors installment credit statistics and if repossessions have increased.
Debra Stamper stated that the KBA does not specifically monitor installment credit figures, but will try to get those for the committee. She stated that she believes that there has not been a significant change. She stated that based on phone calls the KBA has received it seems as though banks and customers are working together to arrange installment loan payment plans to avoid repossessions.
Charles Vice, Commissioner, Kentucky Department of Financial Institutions, gave the committee an update on economic conditions, the state of Kentucky’s banking industry, the Irwin Union Bank failure, and DeNovo activity. He stated that Kentucky banks are strong and doing well, but the national economy has had an effect on loan practices in Kentucky. He stated that Irwin Union Bank began operation in 2000 and was headquartered in Louisville. It was not chartered or regulated by the Department of Financial Institutions. Irwin Union Bank was put into receivership on September 18, 2009, and sold to First Financial Bank, Hamilton, Ohio. There was no loss to depositors and no disruption in business. He stated that in regard to DeNovo banks, the FDIC changed its statement of policy. There is a limit on competition and formation of new banks, and the DeNovo period increased from 3 years to 7 years. He stated existing DeNovo banks within their third year of operation must provide financial statement and business plan requirements. All DeNovo banks will be on a 12 month exam schedule through 7 years. DeNovo banks must provide written notice of proposed changes to business plans during the first 3 years. Business plans for years 4-7 will be reviewed for reasonableness and evaluated for prospective risk profile and management capabilities.
Senator Tom Buford asked the committee to observe a moment of silence in honor of the passing of Representative Steve Riggs father, Raymond Riggs.
Meeting adjourned.