PA 09-100—sSB 617

Banks Committee

Finance, Revenue and Bonding Committee

AN ACT CONCERNING BRANCHING AND AUTHORITY TO IMPLEMENT THE NATIONAL DEFENSE AUTHORIZATION ACT

SUMMARY: This act allows the banking commissioner, between October 1, 2009 and September 30, 2011, to accept applications for “expedited” Connecticut banks. These are banks organized primarily for the purpose of assuming liabilities and purchasing assets from the Federal Deposit Insurance Corporation (FDIC) when it is acting as receiver or conservator of an insured depository institution. Additionally, the act allows the banking commissioner to waive the filing of a Community Reinvestment Act (CRA) plan for banks that meet certain standards, and expedites the process for them to establish bank branches.

The act also:

1. allows Connecticut banks to open “special need limited branches” for high school students, under certain conditions;

2. provides that no fee can be charged for an application to relocate a Connecticut bank's main office;

3. allows a Connecticut capital stock bank to declare a dividend on its capital stock if it has received the commissioner's prior approval;

4. clarifies the laws applicable to, and allowable activities of, out-of-state banks;

5. requires Connecticut institutions subject to a federal law that limits the consumer credit interest rate that can be charged to members of the armed services and their dependents to follow the law and allows the commissioner to share information with the federal government to enforce it; and

6. makes technical and conforming changes.

EFFECTIVE DATE: Upon passage, except that the provisions on the relocation fee, capital stock bank dividends, and expedited banks are effective October 1, 2009.

EXPEDITED BANKS

5, 6 — Application Procedure

Conditional Approval. Under the act, a person, including an individual or legal entity, wishing to organize an expedited Connecticut bank must execute, acknowledge, and file with the banking commissioner an application to organize. The application must be made on a form acceptable to the commissioner and must contain sufficient information for him to evaluate:

1. the amount, type, and sources of capital that would be available to the bank;

2. the ownership structure and holding companies, if any, over the bank;

3. the identity, biographical information, and banking experience of each of the initial organizers and prospective initial directors, senior executive officers, and any individual, group, or proposed shareholders of the bank that will own or control 10% or more of the bank's stock;

4. the organizers' and investors' overall strategic plan for the bank; and

5. a preliminary business plan outlining intended product and business lines, retail branch plans, and capital, earnings, and liquidity projections.

The commissioner, acting alone, must grant conditional preliminary approval of the application if he finds that:

1. the organizers have sufficient committed funds available to invest in the bank;

2. the organizers and proposed directors possess capacity and fitness for the duties and responsibilities with which they will be charged;

3. the proposed bank charter has a reasonable chance of success and will be operated in a safe and sound manner; and

4. the $15,000 fee for investigating and processing the application imposed by the act has been paid.

The commissioner's approval is subject to the conditions he deems appropriate, including requirements that the bank not commence the business of a Connecticut bank until after its bid or application for a particular insured depository institution is accepted by the FDIC and that the background checks are satisfactory. The organizers also must submit, for the safety and soundness review by the commissioner, more detailed operating plans and current financial statements as potential acquisition transactions are considered, and such plans and statements must satisfy the commissioner.

The act allows the commissioner to alter, suspend, or revoke the conditional preliminary approval if he deems any interim development warrants such action. This approval expires if the bank has not commenced business and consummated an initial acquisition within 18 months, unless the commissioner extends it.

Final Approval and Waivers. The commissioner must not issue a final certificate of authority to commence the business of a Connecticut bank until all conditions and preopening requirements and applicable state and federal regulatory requirements have been met and the requisite $15,000 fee for assuming liabilities and purchasing assets has been paid.

The act allows the commissioner to waive any requirement in the banking laws and regulations necessary for the consummation of a bank acquisition involving an expedited Connecticut bank if he finds that it is advisable and in the interest of depositors or the public. However, he cannot waive the requirement that the institution's insurable accounts or deposits be federally insured. Any waiver the commissioner grants must be in writing and include the reasons for the waiver. He may impose conditions he deems necessary on the final certificate of authority to ensure that the bank will be operated in a safe and sound manner. Finally, the commissioner must cause notice of the issuance of the final certificate of authority to be published in the department's weekly bulletin.

3 — Disclosure of Records

By law, there are a number of records that (1) cannot be disclosed by the banking commissioner or any banking department employee and (2) are not subject to public inspection or disclosure. The act adds to that list information obtained, collected, or prepared in connection with the organization of an expedited Connecticut bank prior to the issuance of a final certificate of authority.

2 — Annual Report to Governor and Banks Committee

The act requires the commissioner to report annually to the governor and the Banks Committee on the final certificates of authority issued for expedited banks.

EXPEDITED BRANCHING FOR ELIGIBLE ENTITIES

4 — Community Reinvestment Act

By law, the commissioner cannot grant an application to entities that received a rating other than outstanding on their most recent community reinvestment performance evaluation unless they submit a plan illustrating how they will provide adequate services to meet the banking needs of all community residents, including those with low- or moderate-income. This applies to a Connecticut branch (including a limited and mobile branch); an out-of-state bank de novo branch; merger, consolidation, or acquisition by a Connecticut or out-of-state bank; or Connecticut or out-of-state holding company. The commissioner and the entity must publish notice that the plan will be available to the public for inspection and comment for 30 days. After this 30-day period, the commissioner must decide whether to approve the entity's proposed activity.

For eligible entities, described below, the act allows the commissioner to (1) waive the requirement to file a plan or (2) require them to submit information he deems appropriate instead of the plan. The commissioner could already take this action with regard to mobile branches. For Connecticut bank acquisitions, the act only allows the commissioner to waive the requirement.

8 — Branching Application

When the commissioner receives an application from a Connecticut bank to establish a branch in this state (including a limited, special needs limited, and mobile branch) or a branch outside of the state (including a limited or mobile branch), the act requires the commissioner to publish a notice of the application in the department's weekly bulletin. The commissioner must determine if the applicant is an “eligible entity” and must promptly notify the applicant of his determination.

The act requires an eligible entity's application to be deemed approved on the 12th day after the end of the comment period provided in the department's weekly bulletin, unless the commissioner informs the applicant, in writing, before then that:

1. an adverse comment has been received that warrants additional investigation or review;

2. the application presents a significant community reinvestment or compliance concern;

3. the application presents a significant supervisory concern or raises significant legal or policy issues; or

4. the application requires additional information.

The application may be deemed approved prior to the expiration of the 12th day if the commissioner issues a written notice of his intent not to disapprove the application.

4 — Eligible Entities

The act defines an “eligible entity” as an applicant that:

1. received a composite rating of one or two under the Uniform Financial Institutions Rating System as a result of its most recent safety and soundness examination (five is the lowest rating);

2. received a compliance rating of one or two on its most recent compliance examination;

3. received a satisfactory or better rating on its most recent community reinvestment performance evaluation;

4. is well capitalized in that it (a) has a total risk-based capital ratio of 10% or greater; (b) has a tier one risk-based capital ratio of 6% or greater; (c) has a tier one leverage capital ratio of 5% or greater; and (d) is not subject to any written agreement, order, capital directive, or prompt corrective action directive under applicable federal laws to meet and maintain a specific capital level for any capital measure;

5. is not subject to a cease and desist order, consent order, prompt correction action directive, written agreement, memorandum of understanding, or other administrative agreement with its primary state or federal banking regulator; and

6. is not subject to any formal or informal administrative action by its primary state or federal banking regulator.

8 — SPECIAL NEED LIMITED BRANCH FOR HIGH SCHOOL STUDENTS

The act allows any Connecticut bank to establish a special need limited branch (which provides limited services or is open for limited time periods) to participate or assist in a financial education program for high school students where, in connection with the program, the branch receives deposits, cashes checks, or lends money. A bank may do this if:

1. the deposits are received, checks are paid and money is loaned on school premises or a facility the high school uses;

2. the receipt of deposits, paying of checks and lending of money are in accordance with the school's policy;

3. the principal purpose of each program is financial education; and

4. each program is conducted in a manner that is consistent with safe and sound banking practices.

The bank must submit written notice to the commissioner at least 30 days before the date of the establishment of such branch. The notice must include a detailed description of the program, the location of the high school or facility where the program will take place, and any other information the commissioner requires.

9 — LAWS APPLICABLE TO, AND ACTIVITIES OF, OUT-OF-STATE BANKS

Laws Applicable to Out-of-State Banks

Prior law specified that Connecticut law applied to any out-of-state branch in the same way it would apply if the branch were a federal bank. However, certain community reinvestment, consumer protection, fair lending, and branching laws applied to those out-of-state banks in the same way they would have applied to a Connecticut bank branch. The act instead provides that Connecticut law, including the areas listed above, with the exception of laws on certain reports to the banking commissioner and holidays, apply to out-of-state banks (excluding federally chartered banks) to the extent they would apply to an out-of-state branch of a national banking association.

Activities of Out-of-State Banks

Prior law specified that an out-of-state bank, other than one that is federally chartered, could conduct any activity permissible under the laws of its home state, to the same extent that the activity is permissible either for a Connecticut bank or for a branch in this state of an out-of-state federally chartered bank. Instead, the act provides that an out-of-state bank, other than one that is federally-chartered, can conduct any activity that is permissible under the laws of its home state, to the same extent that the activity is permissible either for a Connecticut bank or for a branch in this state of an out-of-state national banking association.

10 — NATIONAL DEFENSE AUTHORIZATION ACT

The act requires compliance with the provision of the John Warner National Defense Authorization Act that limits the consumer credit interest rate that can be charged to armed services members and their dependents by Connecticut banks, credit unions, and other persons whose lending activities in Connecticut are subject to that law. Whenever it appears that any financial institution has violated, is violating, or is about to violate this law, the act allows the banking commissioner to use his powers to take action against it.

It also allows the commissioner to enter into agreements with the U. S. Department of Defense to enhance communication and exchange of information about financial institutions to achieve prompt and effective resolution and redress of consumer complaints and of alleged violations of the above provision.

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