MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session June 13, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Tuesday, June 13, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator John B. (Jack) Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Mike Phillips, Assistant Vice President, Sierra Health Services John Sande III, Lobbyist, Nevada Bankers Association Harvey Whittemore, Lobbyist, Citibank L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry David Horton, Lobbyist, National Counsel with the Committee to Restore the Constitution, Nevada Freedom Coalition The hearing was opened with a discussion of Senate Bill (S.B.) 70. SENATE BILL 70: Authorizes board of examiners for marriage and family therapists to issue subpoenas for attendance of witnesses and production of books and papers. Amendment No.794 (Exhibit C) was discussed by the committee. Senator Townsend asked why "ex parte" was removed from the language. Scott Young, Senior Research Analyst, explained it was removed so that the party who may be brought before the district court on a subpoena may know that an application is being made. SENATOR REGAN MOVED TO AMEND AND DO PASS S.B. 70 WITH AMENDMENT NO. 794. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATORS AUGUSTINE AND SHAFFER WERE ABSENT FOR THE VOTE.) ***** The work session was closed on S.B. 70 and opened on S.B. 361. S.B. 361: Makes various changes relating to mobile home parks. No action was taken on the bill. The amendment was not ready for the committee. The hearing was closed on S.B. 361 and opened on S.B. 453. SENATE BILL 453: Prohibits local zoning regulations that distinguish between certain manufactured homes. Senator O'Connell indicated the counties had not been in favor of this bill. SENATOR LOWDEN MOVED TO INDEFINITELY POSTPONE S.B. 453. SENATOR O'CONNELL SECONDED THE MOTION. THE MOTION CARRIED. (SENATOR REGAN VOTED NO. SENATORS AUGUSTINE AND SHAFFER WERE ABSENT FOR THE VOTE.) ***** The hearing was closed on S.B. 453 and opened on S.B. 491. SENATE BILL 491: Authorizes inclusion of provision for mandatory binding arbitration in certain contracts of insurance. Exhibit D was discussed and Senator Townsend read section 1. A brief discussion was held. Senator Townsend suggested that the State Board of Contractors and the Nevada Trial Lawyers Association (NTLA) be notified. Mike Phillips, Assistant Vice President, Sierra Health Services, stated he will insure that the NTLA will see the amendment Wednesday afternoon. He stated the bill will be ready to vote on Thursday. The hearing was closed on S.B. 491 and opened on S.B. 561. SENATE BILL 561: Nationwide interstate branching for banks. Senator Neal questioned if a depository institution can be both an agency and a branch. John Sande III, Lobbyist, Nevada Bankers Association, stated it could not. He stated a depository institution is made up of one or more branch offices. He stated an agency is limited as to what it can do. He stated banks traditionally do business through branches, although, they can also have agencies. Harvey Whittemore, Lobbyist, Citibank, stated the terms "agency" and "branch" in sections 3 and 4, are with respect to new titles dealing with foreign banks. He explained those sections continue to page 13, section 41. He stated there is a difference between an agency and a branch. He stated a branch is in a location where funds may be deposited and an agency is when a foreign bank sets up an office where a person can cash checks and obtain loans on money, but it will not be a place where funds may be deposited. He emphasized the first sections deal with foreign banks only. Mr. Sande explained the language in section 57. He stated the section pertains to interstate banking. He stated the bill also provides for interstate branching where a bank outside of Nevada may come into the state and set up branches doing business under one charter. He stated interstate banking allows two charters. It will allow one bank to have a relationship with another bank in the state allowing the bank to receive deposits, loan deposits, renew time deposits, close loans, service loans, and receive payments on loans and other obligations in a bank which is not their bank. Mr. Whittemore stated "agency" is discussed in section 3 of the bill. He stated under current law, a person may not put a deposit in a Bank of America-California branch when the account is in a Bank of America-Nevada branch. He pointed out interstate banking will allow for that flexibility. Senator Regan commented the key word in section 57, subsection 2 is "affiliated." He asked if the affiliation must run through a corporate directorship, or if it may be independent. Mr. Sande stated "affiliated" under banking statutes means "sister corporations" where they have a common, parent company. Senator Neal stated section 59 discusses out-of-state holding companies without a branch in Nevada. Mr. Sande stated this section will be amended which will state the 5-year provision will only apply to depository institutions created after the effective date of the act which is September of 1995. He stated an out-of-state bank may not set up branches in Clark and Washoe counties unless it purchases an existing bank. He stated there is already interstate branching in the smaller counties. This bill will allow it in the larger counties. He stated there is a 5-year regulation in the bill to prevent an entity from setting up a dummy corporation, setting up branches and then selling those branches to an out-of-state financial institution violating the spirit of the bill. Senator Neal asked for an explanation of the "less-than-100,000 population" in section 60. Mr. Whittemore stated the language is consistent with the small county provisions under federal law. Mr. Sande commented it is difficult for the smaller counties to convince a bank to come to Nevada and to buy an existing branch bank. He stated there is a need for banking in the small towns. Senator Neal asked when the commissioner of financial institutions may waive the applicable federal limits on the concentration of deposits. Mr. Sande stated waiving of the limits may be allowed if the commissioner feels it is in the best interest for competitive reasons to allow the concentration limits to be exceeded. Senator Neal asked if the limit is written into the law at this time. Mr. Sande responded there is a limitation in the law which the states can adopt. Senator Neal asked why there is a 60-day limitation on the application. Mr. Whittemore stated the provision is 60 days to issue a written decision after receiving a completed application. He stated the commissioner determines when an application is complete. A discussion was held on section 66. Mr. Whittemore stated the provision has to do with acquisitions and takeovers of particular banks. He explained it is the number which triggers the review by the commissioner. Mr. Sande pointed out section 53 has to do with savings banks which are not under the old statute. He stated a "holding company" is a depository institution. Senator Townsend asked why a bank may want to set up its home company in Nevada, then expand into other states. Mr. Sande explained Nevada's laws are more favorable to holding companies. Mr. Whittemore stated there is a favorable tax treatment of depository institutions. He stated the diversification of financial institutions will create Las Vegas as a financial market center due to the language in this law. Senator Neal asked what is the benefit for this bill to Nevada. Mr. Sande stated freedom of competition, more competition, and more availability of funds when needed will be of benefit to the people of Nevada. He stated the bill will remove the artificial constraints on the movement of money. Mr. Whittemore commented as Nevada grows and its need for capital grows, it is better for Nevada to be progressive by allowing institutions into the state to participate in the growing economy. Senator Regan asked if foreign banks will be required to go through the same level of intensity of investigation as local banks have in the past. Mr. Sande pointed out the commissioner of financial institutions will have jurisdiction, and the bill allows various states to enter into agreements with other states, whereby, they can share information and examine each others banks. Senator Regan commented he would rather have the state monitoring the banking system in the state rather than the federal government. Mr. Whittemore stated section 10 of the bill references the application procedure on pages 16-21. Mr. Sande commented section 59 is intended to stop anyone from creating a bank for the sole purpose of coming into Nevada. He stated they do not want the 5-year provision to apply to existing banks which were charted before the effective date of this act. This provision is to stop speculation in banking. Senator Shaffer commented if a bank has been in existence for 2 years, then it can be sold to anyone who would like to buy it. Mr. Sande pointed out that current law states any bank in Nevada must have a separate charter and the majority of the stockholders must be Nevada residents. Mr. Sande pointed out legislation was passed creating interstate banking in 1985. He commented there are large banks in the state doing business today. He commented there have been many small banks which have opened up to offer more personal service in competition with the large banks whose service is not as personal. Mr. Whittemore explained that S.B. 561 does not change the opportunity for out-of-state banks to make the smaller institutions target for takeover. The existing interstate banking law allows that, it just allows the bank taking over another bank, to not have to make a new, Nevada-based corporation. Mr. Whittemore suggested it would be ignoring reality to suggest that by drawing a line around the borders of Nevada, it will have any affect on where capital flows. Senator Neal expressed his desire to do business with a bank which knows its customers personally. He commented the interstate system does not allow for that personal treatment. Mr. Whittemore stated the services are dictated by the marketplace. If people insist on the type of service Senator Neal is asking for, the banks will supply those services. He commented there are many small, one institution type banks in the state. He stated those banks are very popular in Nevada. Senator Neal pointed out there were no banks in his neighborhood until he testified that the banks were, deliberately, not putting branches in his neighborhood. He stated they have banks, now, because during a hearing in Washington, D.C., he exposed their reluctance to place banks in his neighborhood. Mr. Whittemore commented that the market which was created in 1985 to allow interstate banking set the stage for the establishment of those branch banks in Senator Neal's neighborhood. Senator Regan commented philosophies have changed in certain areas of Clark County. He pointed out the banking industry changes have changed the ways banks are run. He stated managers in large banks are not managers any longer, they are custodians. Mr. Sande pointed out federal regulations have added to the distance placed between the customer and the manager in the larger banks. Senator Neal asked who determines if there is a monopoly. L. Scott Walshaw, Commissioner, Division of Financial Institutions, Department of Business and Industry, stated the antitrust laws apply to any merger or acquisition. He stated if a bank wishes to apply for an acquisition and merger, an analysis is made of the application. At that time a determination is made as to whether the request will create a monopoly or not. Divestiture is required in applicable markets if it is necessary. Senator Neal asked how the division will protect the public when it receives requests for an international market in banking. Mr. Walshaw stated sections 40-41 create language which allows the state to determine the manner in which an international bank will enter the market. He stated if the language in these sections is not adopted, federal legislation will mandate how international banking will occur. He commented S.B. 561 will allow the state to determine how an international bank will operate in Nevada, if the occasion arises. Mr. Walshaw stated the Riegle-Neil bill, which is the federal law which allows international banking, creates the opportunity to allow foreign banking or international banking across the country. It does three things; it creates interstate banking as the law of the land, creates the opportunity for those banks which operate on an interstate basis, and allows banks to collapse charters and operate branches across state lines. He said the states have the option of adopting language in two of the three areas, interstate branching, and foreign or international banking. He stated if Nevada does not adopt its own legislation, the federal laws will force the state to do so in a manner over which the state has no control. He stated the federal law will take effect in June 1997. Senator Neal asked if the authority given to Mr. Walshaw and his office in S.B. 561 is sufficient to protect the consumers. Mr. Walshaw stated he thinks the proposed law is strong enough. He stated there are provisions in the Riegle-Neil bill for his office to enter into agreements to share information and examination reports with other state agencies. Mr. Walshaw pointed out that 90 percent of the deposits are controlled by out-of-state bank holding companies which entered the market under the law as it was changed in 1985. He stated there will be little effect on the Nevada banking market, if this law is adopted. He stated interstate banking is a reality. He stated there will be more convenience for the customer with interstate and international banking. It will allow a customer to go to any bank with the same parent company and transact business just as if that person is at their own bank. Mr. Walshaw stated there have been both positive and negative aspects to the changes in banking. The negative points are the changes in management. Some people are dissatisfied with the large banks because they are not treated as personally as they were in the past. But, he pointed out, the larger banks have brought the ability to make larger loans to the public. He stated the entrance of U.S. Bank into Nevada is a good example. It has increased the service to the communities in Nevada. He stated it has made 300 new commercial loans each year since its establishment in Nevada. He stated the positive aspects of interstate and international banking are greater than the negative. Senator Shaffer asked how many small banks have opened in Nevada since 1985. Mr. Walshaw stated about three-quarters of the small banks have opened since 1985. David Horton, Lobbyist, National Counsel with the Committee to Restore the Constitution, Nevada Freedom Coalition, read Exhibit E, presented Exhibit F. He submitted Exhibit G. (Original is on file in the Research Library.) Senator Regan asked Mr. Horton if he would trust the state to regulate the banking system in Nevada more than the federal government. Mr. Horton stated he would trust the state. Senator Regan pointed out if the Legislature waits until 1997 to make a decision on this bill, it will be too late, because the federal regulations will take over and the state will have no say in the development of international banking. He stated he would rather have the control in Carson City than in Washington, D.C. There being no further business, the hearing was closed at 10:05 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor June 13, 1995 Page