Call to Order and Roll Call
The 2nd meeting of the Interim Joint Committee on Banking and Insurance was held on Tuesday, September 28, 2010, at 10:00 AM, in Room 149 of the Capitol Annex. Senator Tom Buford, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Tom Buford, Co-Chair; Senators Julian M. Carroll, Julie Denton, Mike Reynolds, Dorsey Ridley, Dan "Malano" Seum, and Brandon Smith; Representatives Dwight D. Butler, James R. Comer Jr., Will Coursey, Ron Crimm, Robert R. Damron, Mike Denham, Ted Edmonds, Tim Firkins, Joseph M. Fischer, Danny Ford, Jim Gooch Jr., Mike Harmon, Dennis Horlander, Dennis Keene, Adam Koenig, Brad Montell, Sannie Overly, Steve Riggs, Arnold Simpson, Wilson Stone, Tommy Thompson, and Ken Upchurch.
Guests: Charles Vice, Commissioner, Department of Financial Institutions.
LRC Staff: Rhonda Franklin, Emily Bottoms, Jens Fugal, and Jamie Griffin.
There was a motion made by Senator Denton, seconded by Representative Crimm to approve the minutes of the August 24, 2010, meeting minutes.
Discussion regarding the Dodd-Frank Regulatory Reform Act
Charles Vice, Commissioner, Department of Financial Institutions, stated that the Dodd-Frank Regulatory Reform Act has prompted several regulatory changes such as: the development of the Bureau of Consumer Financial Protection (BCFP); mortgage provisions; Systemic Risk and Resolution Authority; and FDIC Insurance. These changes will impact consumers by permanently increasing deposit insurance limits and by allowing banks to pay interest on demand deposits. The impact on consumer choice and credit availability is undetermined at this time with the establishment of the Bureau of Consumer Financial Protection. The pass-through of regulatory costs on credit availability and prices of products is also unknown at this time. The Bureau of Consumer Financial Protection will be housed within the Federal Reserve, but will be independent and contain seven units. The Bureau Director will be appointed by the President. Entities covered by the Bureau will be individuals or entities engaged in offering or providing consumer financial products and services. It will be the primary rulemaking authority for fifteen consumer protection acts. Excluded entities include merchants, retailers, sellers of non-financial goods, realtors, manufactured and modular home retailers, tax preparers, attorneys, persons regulated by state insurance regulators, persons regulated by state securities regulators, persons regulated by the Securities Exchange Commission, Commodity Futures Trading Commission, Farm Credit Services, employee benefit plans, and auto dealers.
The Bureau will supervise banks. For banks with assets of more than $10 billion, the Bureau will have direct and primary authority to examine for compliance. The Bureau will establish an agreement with state chartered banks for joint and coordinated examination in conjunction with state regulators. The bureau will have no direct or primary examination authority of banks with assets of $10 billion or less. He stated that the Bureau will have “ride-along” authority on a sampling basis. The non-depositories subject to supervision and examination will include mortgage related businesses, payday lenders, private student loan providers, and other larger non-depository financial service providers. The Bureau will assume responsibilities for mortgage loan origination standards, minimum standards for mortgages, high-cost mortgages and mortgage servicing.
Commissioner Vice reviewed the penalties and prohibited practices. He stated that the state will be responsible for maintaining a database of appraisal management companies. States will have 36 months to comply with the final federal rule. There will be many new requirements and new costs that will impact the financial system. The Financial Stability Oversight Council was established on July 20, 2010, immediately upon enactment. Funding for the council comes through the Office of Financial Research. The Council will be responsible for monitoring and market oversight. It will promote market discipline and identify gaps in regulation.
In response to a question from Representative Bob Damron, Commissioner Vice stated the Bureau would have oversight mortgage loans that stay with the original financial institution. Commissioner Vice stated that he would provide a detailed summary of the Dodd-Frank Act to staff to distribute to committee members.
Representative Mike Denham stated he is very concerned regarding the implementation process for the community banks. Commissioner Vice stated that the Department of Financial Institutions is committed to keeping a good working relationship with the banks as well as federal regulators through this process. Senator Tom Buford stated that the Department of Financial Institutions should coordinate with the Kentucky Bankers Association to answer some of the community banks’ concerns.
With no further business, the meeting adjourned at 11:15 a.m.