BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 447 (DeSaulnier) Hearing Date: May 4, 2011
As Amended: April 28, 2011
Fiscal: Yes
Urgency: No
SUMMARY Would require financial institutions doing business in
California to provide specified data to the California Research
Bureau (CRB).
DESCRIPTION
1. Would define financial institution as a depository
institution, a commercial bank or trust company, an agency
branch of a foreign bank in the United States, a credit
union, a thrift institution, a broker or dealer registered
with the Securities and Exchange Commission, a broker or
dealer in securities or commodities, an investment bank or
investment company, or an industrial bank.
2. Would exempt financial institutions with assets of less
than $10 billion from the requirement to submit information
to CRB.
3. Would require financial institutions subject to the
provisions of the bill to submit all of the following to CRB
on an annual basis:
a. Percentage of California branches of the financial
institution in low- and moderate-income census tracts,
where low income means individual of family income less
than 50% of the median income or median family income in
a geographic area, and where moderate income means
individual or family income at least 80% of and less than
120% of median income or median family income in a
geographic area;
b. Percentage of California branches of the financial
institution in low-income census tracts;
c. Percentage of multifamily loans in low- and
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moderate-income census tracts in the state, where
multifamily refers to a residential structure containing
five or more units;
d. Total community development lending in the state,
expressed as a percentage of total banking deposits.
Community development loans are defined as loans made for
affordable housing for low- or moderate-income
individuals, community services targeted to low- or
moderate-income individuals, activities that promote
economic development by financing businesses or farms, as
specified, and activities that revitalize or stabilize
low- or moderate-income geographies or designated
disaster areas;
e. Percentage of California community development loans
to nonprofit borrowers;
f. Percentage of California home purchase loans to low-
and moderate-income borrowers, where a home purchase loan
is any loan secured by, and made for the purpose of
purchasing a dwelling;
g. Percentage of total deposits spent on philanthropic
or charitable donations in the state;
h. Participation in the California Housing Finance
Agency's (CalHFA's) Unemployment Mortgage Assistance
Program, Mortgage Reinstatement Assistance Program, and
Principal Reduction Program, with regard to loans
serviced by the financial institution, as expressed by
the total number of borrowers participating in the state
and the total number of borrowers who have applied for
assistance in the state and have been referred as
eligible candidates by CalHFA. The bill seeks to have
data on each of the three CalHFA programs broken out
separately by financial institutions; and
i. Participation in the federal Home Affordable
Modification Program, as expressed by the total number of
borrowers participating in the state and the total number
of borrowers who have applied for assistance in the
state.
EXISTING FEDERAL LAW:
SB 447 (DeSaulnier), Page 3
1. Provides for the Community Reinvestment Act (CRA), which
contains findings that banks have a continuing and
affirmative obligation to help meet local community banking
needs, and to do so in a safe and sound manner. The
federal CRA arose out of concern that banks were accepting
deposits from households and businesses in their local
communities, while at the same time failing to award loans
to qualified local loan applicants from within these
communities, and instead awarding loans to people outside of
these communities.
The CRA does not mandate any action by a bank. Instead, it
calls on federal supervisory agencies, including the Office
of the Comptroller of the Currency, Federal Reserve Board,
Federal Deposit Insurance Corporation, and Office of Thrift
Supervision, to encourage each bank to help meet local
credit needs, particularly the needs felt by low and
moderate-income communities, in a manner consistent with
safe and sound operation.
The CRA is enforced through periodic examination by state and
local regulators. Banks are graded on their ability to meet
the credit needs of the communities in which they are
located through the application of a lending test, an
investment test, and a service test. Banks receive one of
four possible grades -- "outstanding," "satisfactory,"
"needs to improve," or "substantial compliance." Regulatory
institutions consider an institution's CRA performance when
evaluating an application for a charter, deposit insurance,
branch or other deposit facility, relocation, or merger or
acquisition. Banks are not fined for low CRA scores, nor
are they required to cease operation. They may, however,
have trouble expanding their operations.
The CRA does not cover credit unions or other types of
financial institutions, including the insurance and
investment subsidiaries that banks can establish.
COMMENTS
1. Purpose: According to the author, "The recent foreclosure
crisis has shed light upon banking business practices that
can be characterized as both ill-conceived and unscrupulous.
In light of this, SB 447 will require banking institutions
conducting business in the State of California to disclose
SB 447 (DeSaulnier), Page 4
data on their community reinvestment activities, their
presence in low and moderate income communities, and their
participation in mortgage assistance programs.
"It is imperative that the public have access to data relating
to banks' community reinvestment activities, the degree to
which they are serving low and moderate income communities,
and their participation in mortgage assistance programs.
While much of this information is currently being reported
by banks, it is not all available to the public, and what is
made available is often opaque and cryptic.
"This will increase transparency and provide the public with a
uniform way to measure banks' performance in this regard. It
also has the potential to provide a financial incentive to
the banking industry as a whole to increase its
participation in community reinvestment and mortgage
assistance programs."
2. Background and Discussion: According to the Department of
Financial Institutions (DFI), 25 depository institutions
operating in California had assets of more than $10 billion,
as of December 31, 2010, including JPMorgan Chase Bank, Bank
of America, Citibank, Wells Fargo Bank, US Bank, HSBC Bank,
Compass Bank, Charles Schwab Bank, Comerica Bank,
First-Citizens Bank and Trust, Northern Trust, BNY Mellon
Bank, Umpqua Bank, First Bank, Bank of the West, Union Bank,
OneWest Bank, First Republic Bank, City National Bank, East
West Bank, Silicon Valley Bank, Rabobank, Cathay Bank,
California Bank & Trust, and Navy Federal Credit Union. All
of these financial institutions would be required to submit
data to CRB pursuant to the provisions of this bill, but
only the six California-chartered institutions (Bank of the
West, First Republic Bank, East West Bank, Silicon Valley
Bank, Cathay Bank, and California Bank and Trust) would be
subject to possible disciplinary action by DFI for failure
to report.
Other financial institutions that are non-depositories, such as
Barclays Capital, Goldman Sachs, Morgan Stanley, EJ De La
Rosa, Swiss Re, and others, could also be subject to this
bill's provisions, if their assets exceed $10 billion.
3. Aren't financial institutions already required to report
these data? SB 447 would require financial institutions to
report California-specific data on eleven data elements.
SB 447 (DeSaulnier), Page 5
All of this information is already required to be submitted
by various financial institutions under a variety of other
laws and programs, such as the federal CRA (data elements 1
through 7), the CalHFA's loss mitigation programs (data
elements 8 through 10), and the federal Making Home
Affordable Modification program (data element 11). However,
neither the CRA information nor the HAMP data are currently
required to be broken down by financial institutions on a
California-specific basis. This bill would require such
breakdowns.
Some of the information required by this bill would have to be
submitted on a temporary basis (such as data regarding loan
modifications; loan modification reporting would cease when
the loan modification programs failed to accept new
applicants). Other information, such as the CRA
information, would be required on a permanent basis.
4. Would the data be public? This bill lacks any requirement
that CRB report to the public regarding the information that
will be submitted to it by financial institutions. However,
because the bill lacks any language ensuring the
confidentiality of this information, it could be obtained by
interested members of the public through one or more Freedom
of Information Act requests. If the author wishes to ensure
that the information required to be submitted under the
provisions of this bill will be publicly released by CRB, he
may wish to consider adding an express reporting requirement
on CRB to the bill.
5. How will the bill be enforced? This bill lacks any
enforcement mechanisms to compel production of the
information it requires financial institutions to submit.
Although DFI could presumably discipline a state-chartered
licensee for failing to comply with the provisions of the
bill, it is unclear what type of discipline is desired by
the author. It is also unclear whether California will be
able to compel the production of the required information by
federally-regulated financial institutions.
6. Summary of Arguments in Support:
a. State Treasurer Bill Lockyer appreciates the
author's willingness to take amendments that addressed
his concerns with earlier versions of the bill.
Treasurer Lockyer believes that SB 447 will shine light
SB 447 (DeSaulnier), Page 6
on the business practices of financial institutions in
California and help policymakers and customers ensure
that banks are accountable for their business decisions.
The data SB 447 seeks to collect and make public will
help banks focus attention on providing fair treatment to
homeowners facing foreclosure, increase their lending to
job-producing businesses in communities across the state,
and become better neighbors, demonstrating a long-term
interest in improving California.
b. PICO California, a statewide faith-based community
organizing network, supports SB 447 as a measure designed
to increase the transparency of banking practices. SB
447 provides California with critical information about
the banks and financial institutions with which it does
business, and incentivizes responsible banking practices,
without requiring any new information to be collected by
banks. SB 447 does not require banks to collect new data
- only to report data that is already being shared with
the federal government. By increasing transparency, SB
447 creates an incentive for banks to help keep families
in their homes, invest in small businesses, and employ
other practices that will invigorate our ailing state
economy. The increased availability of publicly
available information will positively affect banking
practices. PICO observes that SB 447 is consistent with
a national effort to increase the transparency of banking
practices and use this information to inform public
investment decisions.
Similar arguments in support were also submitted by the
Center for Responsible Lending, Alliance of Californians
for Community Empowerment, Contra Costa Interfaith
Supporting Community Organization, and the Greater Long
Beach Interfaith Community Organization.
7. Summary of Arguments in Opposition:
a. The California Bankers Association (CBA) believes
that the bill is unnecessary. Banks are already required
to comply with the federal CRA, which requires banks to
meet the credit needs of the communities in which they
operate, including low- and moderate-income
neighborhoods, consistent with safe and sound banking
operations.
SB 447 (DeSaulnier), Page 7
Furthermore, CBA asserts that information regarding bank
participation in the CalHFA programs is currently
available on CalHFA's Keep Your Home California website,
and that sufficient information regarding banks'
participation in HAMP is already available through HAMP's
website.
Finally, CBA notes that the bill lacks a reasonable public
policy rationale for requiring banks to submit
information to an entity (CRB) that is not a functional
regulator and that lacks the expertise to examine a
bank's compliance with banking laws and regulations.
Financial institutions are already rigorously examined on
a biennial basis by their functional regulators.
b. The Securities Industry and Financial Markets
Association (SIFMA) was pleased to see amendments to SB
447, which eliminated the provision barring the State
Treasurer's Office (STO) from investing in or contracting
with any financial institution that did not provide the
information required by the bill, and the provision
allowing the STO to consider the information submitted by
financial institutions pursuant to the bill, when
deciding between financial entities for contracted
services. However, SIFMA remains opposed to the bill.
First, SIFMA notes that the bill's definition of a
financial institution includes securities brokers and
dealers. While a small percentage of securities firms
may have bank affiliations, securities firms themselves
are not in the traditional business of lending. They do
not provide community development loans or home purchase
loans, and do not issue mortgages. Requiring broker
dealers to comply with SB 447 is confusing, provides no
useful information, and is a waste of resources. SIFMA
also believes that the current version of the bill raises
perception problems, as viewers of the information may
misinterpret the industry's limited responses.
8. Amendments: Staff suggests the following amendments, to
clarify the bill in a manner consistent with the intent of
the author:
a. Amend the bill's definition of a financial
institution. The definition currently used by the bill
covers several entities (such as securities brokers and
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dealers and investment companies) that would lack all of
the information required to be submitted, because they
are not subject to the CRA and do not service mortgages.
Staff also notes that credit unions are not subject to
CRA, but would be subject to this bill's provisions.
b. Amend the title of the division added to the
Financial Code by the bill. The bill proposes to add a
division to the Financial Code titled, "Disclosure
Requirements of National Banks." This title is
misleading, because the bill covers many types of
financial institutions (not just banks), and is not
limited to national banks (it covers any financial
institution with assets of $10 billion or more).
c. Clarify what CRB is supposed to do with the
information submitted to it by financial institutions,
and clarify how, if at all, CRB should publicly
disseminate the data.
d. Clarify the penalties for failure to comply with the
provisions of the bill.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Alliance of Californians for Community Empowerment
Center for Responsible Lending
Contra Costa Interfaith Supporting Community Organization
Greater Long Beach Interfaith Community Organization
PICO California
State Treasurer Bill Lockyer
Opposition
California Bankers Association
Securities Industry and Financial Markets Association
Consultant: Eileen Newhall (916) 651-4102