BILL ANALYSIS Ó SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE Senator Juan Vargas, Chair SB 664 (Comm. on Banking & Fin. Institutions)Hearing Date: April 27, 2011 As Amended: April 25, 2011 Fiscal: Yes Urgency: No SUMMARY Would renumber sections of the Financial Code to reflect recent Financial Code reorganization and make certain conforming changes to the federal Dodd-Frank Wall Street Reform and Consumer Protection Act. DESCRIPTION 1. Would conform California's Banking Law to Section 613 of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), by authorizing national banks and foreign (out-of-state) banks to branch into California, as if those banks were organized in California. Pursuant to that conforming change, any bank that establishes a branch office in California in accordance with the changes made by Dodd-Frank to the National Bank Act or Federal Deposit Insurance Act would have to notify the Commissioner of Financial Institutions (Commissioner), as specified, within ten days of establishing, relocating, or redesignating that branch office in California. 2. Would renumber the sections of the Financial Code administered by the Department of Financial Institutions (DFI), to reflect a multi-year Financial Code reorganization initiated by DFI beginning in 2008. The contents of the Financial Code sections would remain unchanged; only the code numbers would be revised, and the code sections reorganized. EXISTING LAW 3. Prohibits an out-of-state bank from opening a branch in California, without first purchasing a California bank that is at least five years old and merging that California bank into the out-of-state bank (Financial Code Sections 3824 and 3825). SB 664 (Comm. On B. & F.I.), Page 2 4. Establishes Divisions 1, 2, 5, 7, 15, and 16 of the Financial Code, and gives the Commissioner jurisdiction over banks, industrial banks, trust companies, transmitters of money abroad, traveler's check issuers, savings associations, credit unions, industrial loan companies, business and development corporations, and sellers of payment instruments. 5. Contains numerous code sections that specify the powers of the Commissioner in relation to his or her regulatory oversight over state licensees. SB 664 (Comm. On B. & F.I.), Page 3 COMMENTS 1. Background and Discussion: In 2008, DFI commenced a multi-year effort to update and reorganize the laws over which it has jurisdiction. This reorganization was intended to update laws that had fallen far out of date; reflect numerous changes made to the state General Corporations Law and to federal banking law since the laws overseen by DFI were originally drafted; and clean up various inconsistencies, incorrect code references, and obsolete code sections that had crept into the code over time. DFI sponsored three pieces of chaptered legislation to accomplish this update, including AB 1301 (Gaines), Chapter 125, Statutes of 2008, AB 2749 (Gaines), Chapter 501, Statutes of 2008, and AB 1268 (Gaines), Chapter 532, Statutes of 2010. SB 664 finalizes the reorganization process, by renumbering code sections amended by the earlier bills. This reorganization makes no substantive changes; it merely orders the code sections more logically, and is intended to be easier for licensees to follow and for DFI to administer. SB 664 also updates California's Banking Law to reflect amendments made by Section 613 of Dodd-Frank to the National Bank Act and the Federal Deposit Insurance Act. These changes (technically referred to as de novo interstate branching amendments) allow state and national banks to branch into any state, as if the state or national bank is organized under the laws of the state into which it branches. Prior federal law had allowed states to prohibit national and out-of-state banks from branching into their states. California adopted such a prohibition, forbidding de novo interstate branching, unless the national or out-of-state bank acquired a California bank at least five years old and merged that California bank into its operations. SB 664 strikes California's prohibition against de novo interstate branching. Because Dodd-Frank does not require the branching bank to notify the state financial institutions regulator of the state in which the new branch will be established, SB 664 adds a requirement that any bank branching into California notify the DFI commissioner. State banks branching into California will have to follow the same laws that California-chartered banks must follow (just as California-chartered banks branching into another state SB 664 (Comm. On B. & F.I.), Page 4 would have to follow the laws of that other state with respect to the branches they open in that state). National banks branching into California will have to follow the National Bank Act and any California laws that are not pre-empted. 2. Summary of Arguments in Support: None received. 3. Summary of Arguments in Opposition: None received. 4. Prior and Related Legislation: a. AB 1301 (Gaines), Chapter 125, Statutes of 2008: The first in a series of bills sponsored by DFI to update and modernize sections of the Financial Code administered by that department. b. AB 2749 (Gaines), Chapter 501, Statutes of 2008: The second in that series of bills. c. AB 1268 (Gaines), Chapter 532, Statutes of 2010: The third in that series of bills. LIST OF REGISTERED SUPPORT/OPPOSITION Support None received Opposition None received Consultant: Eileen Newhall (916) 651-4102