94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
SB2396

 

Introduced 1/18/2006, by Sen. Don Harmon

 

SYNOPSIS AS INTRODUCED:
 
205 ILCS 5/35.2   from Ch. 17, par. 345

    Amends the Illinois Banking Act. Provides that a state bank and its subsidiaries in compliance with Regulation W promulgated by the Board of Governors of the Federal Reserve shall be deemed to be in compliance with certain provisions of the Act concerning limitations on investments in and loans to affiliates. Effective immediately.


LRB094 17315 MKM 52610 b

 

 

A BILL FOR

 

SB2396 LRB094 17315 MKM 52610 b

1     AN ACT concerning regulation.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Banking Act is amended by changing
5 Section 35.2 as follows:
 
6     (205 ILCS 5/35.2)  (from Ch. 17, par. 345)
7     Sec. 35.2. Limitations on investments in and loans to
8 affiliates.
9     (a) Restrictions on transactions with affiliates.
10         (1) A state bank and its subsidiaries may engage in a
11     covered transaction with an affiliate, as expressly
12     provided in this Section 35.2, only if:
13             (A) in the case of any one affiliate, the aggregate
14         amount of covered transactions of the state bank and
15         its subsidiaries will not exceed 10% of the unimpaired
16         capital and unimpaired surplus of the state bank; and
17             (B) in the case of all affiliates, the aggregate
18         amount of covered transactions of the state bank and
19         its subsidiaries will not exceed 20% of the unimpaired
20         capital and unimpaired surplus of the state bank.
21         (2) For the purpose of this Section, any transactions
22     by a state bank with any person shall be deemed to be a
23     transaction with an affiliate to the extent that the
24     proceeds of the transaction are used for the benefit of, or
25     transferred to, that affiliate.
26         (3) A state bank and its subsidiaries may not purchase
27     a low-quality asset from an affiliate unless the bank or
28     such subsidiary, pursuant to an independent credit
29     evaluation, committed itself to purchase such asset prior
30     to the time such asset was acquired by the affiliate.
31         (4) Any covered transactions and any transactions
32     exempt under subsection (d) between a state bank and an

 

 

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1     affiliate shall be on terms and conditions that are
2     consistent with safe and sound banking practices.
3     (b) Definitions. For the purpose of this Section, the
4 following rules and definitions apply:
5         (1) "Affiliate" with respect to a state bank means
6             (A) any company that controls the state bank and
7         any other company that is controlled by the company
8         that controls the state bank;
9             (B) a bank subsidiary of the state bank;
10             (C) any company
11                 (i) controlled directly or indirectly, by a
12             trust or otherwise, by or for the benefit of
13             shareholders who beneficially or otherwise
14             control, directly or indirectly, by trust or
15             otherwise, the state bank or any company that
16             controls the state bank; or
17                 (ii) a majority of the directors or trustees of
18             which constitute a majority of the persons holding
19             any such office with the state bank or any company
20             that controls the state bank;
21             (D) (i) any company, including a real estate
22             investment trust, that is sponsored and advised on
23             a contractual basis by the state bank or any
24             subsidiary or affiliate of the state bank; or
25                 (ii) any investment company with respect to
26             which a state bank or any affiliate thereof is an
27             investment advisor. An investment advisor is
28             defined as "any person (other than a bona fide
29             officer, director, trustee, member of an advisory
30             board, or employee of such company, as such) who
31             pursuant to contract with such company regularly
32             furnishes advice to such company, with respect to
33             the desirability or investing in, purchasing, or
34             selling securities or other property shall be
35             purchased or sold by such company, and any other
36             who pursuant to contract with a person as described

 

 

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1             above regularly performs substantially all of the
2             duties undertaken by such person described above;
3             but does not include a person whose advice is
4             furnished solely through uniform publications to
5             subscribers thereto or a person who furnishes only
6             statistical and other factual information, advice
7             regarding economic factors and trends, or advice
8             as to occasional transactions in specific
9             securities, but without generally furnishing
10             advice or making recommendations regarding the
11             purchase or sale of securities, or a company
12             furnishing such services at cost to one or more
13             investment companies, insurance companies or other
14             financial institutions, or any person the
15             character and amount of whose compensation for
16             such services must be approved by a court.
17             (E) any company the Commissioner determines as
18         having a relationship with the state bank or any
19         subsidiary or affiliate of the state bank, such that
20         covered transactions by the state bank or its
21         subsidiary with the company may be affected by the
22         relationship to the detriment of the state bank or its
23         subsidiary.
24         (2) None of the following are considered to be an
25     affiliate:
26             (A) any company, other than a bank, that is a
27         subsidiary of a state bank, unless a determination is
28         made under subparagraph (E) of paragraph (1) not to
29         exclude such subsidiary company from the definition of
30         affiliate;
31             (B) any company engaged solely in holding the
32         premises of the state bank;
33             (C) any company engaged solely in conducting a safe
34         deposit business;
35             (D) any company engaged solely in holding
36         obligations of the United States or its agencies or

 

 

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1         obligations fully guaranteed by the United States or
2         its agencies as to principal and interest; and
3             (E) any company where control results from the
4         exercise of rights arising out of a bona fide debt
5         previously contracted, but only for the period of time
6         specifically authorized under applicable State and
7         federal law or regulations or, in the absence of such
8         law or regulation, for a period of 2 years from the
9         date of the exercise of such rights or the effective
10         date of this Act, whichever date is later, subject,
11         upon application, to authorization by the Commissioner
12         for good cause shown of extensions of time for not more
13         than one year at a time, with such extensions not to
14         exceed an aggregate of 3 years.
15         (3) (A) A company or shareholder has control over
16         another company if
17                 (i) such company or shareholder, directly or
18             indirectly, or acting through one or more other
19             persons, owns, controls, or has power to vote 25%
20             or more of any class of voting securities of the
21             other company;
22                 (ii) such company or shareholder controls in
23             any manner the election of a majority of the
24             directors or trustees of the other company; or
25                 (iii) the Commissioner determines, after
26             notice and opportunity for hearing, that such
27             company or shareholder, directly or indirectly,
28             exercises a controlling influence over the
29             management or policies of the other company.
30             (B) Notwithstanding any other provisions of this
31         Section, no company shall be deemed to own or control
32         another company by virtue of its ownership or control
33         of shares in a fiduciary capacity, except as provided
34         in subparagraph (C) of paragraph (1) or because of its
35         ownership or control of such shares in a business
36         trust.

 

 

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1         (4) "Subsidiary" with respect to a specified company
2     means a company that is controlled by such specified
3     company.
4         (5) "Bank" means any bank now or hereafter organized
5     under the laws of any State or territory of the United
6     States including the District of Columbia, any national
7     bank, and any trust company.
8         (6) "Company" means a corporation, partnership,
9     business trust, association, or similar organization and,
10     unless specifically excluded, includes a "state bank" and a
11     "bank".
12         (7) "Covered transaction" means, with respect to an
13     affiliate of a state bank,
14             (A) a loan or extension of credit to the affiliate;
15             (B) a purchase of or an investment in securities
16         issued by the affiliate;
17             (C) a purchase of assets, including assets subject
18         to an agreement to repurchase, from the affiliate,
19         except such purchases of real and personal property as
20         may be specifically exempted by the Commissioner;
21             (D) the acceptance of securities issued by the
22         affiliate as collateral security for a loan or
23         extension of credit to any person or company; or
24             (E) the issuance of a guarantee, acceptance, or
25         letter of credit, including an endorsement or standby
26         letter of credit, on behalf of an affiliate.
27         (8) "Aggregate amount of covered transactions" means
28     the amount of covered transactions about to be engaged in
29     added to the current amount of all outstanding covered
30     transactions.
31         (9) "Securities" means stocks, bonds, debentures,
32     notes or other similar obligations.
33         (10) "Low-quality asset" means an asset that falls into
34     any one or more of the following categories:
35             (A) an asset classified as "substandard",
36         "doubtful", or "loss" or treated as "other loans

 

 

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1         especially mentioned" in the most recent report of
2         examination of an affiliate;
3             (B) an asset in a nonaccrual status;
4             (C) an asset on which principal or interest
5         payments are more than 30 days past due; or
6             (D) an asset whose terms have been renegotiated or
7         compromised due to the deteriorating financial
8         condition of the obligor.
9     (c) Collateral for certain transactions with affiliates.
10         (1) Each loan or extension of credit to, or guarantee,
11     acceptance or letter of credit issued on behalf of, an
12     affiliate by a state bank or its subsidiary shall be
13     secured at the time of the transaction by collateral having
14     a market value equal to
15             (A) 100% of the amount of such loan or extension of
16         credit, guarantee, acceptance, or letter of credit, if
17         the collateral is composed of
18                 (i) obligations of the United States or its
19             agencies;
20                 (ii) obligations fully guaranteed by the
21             United States or its agencies as to principal and
22             interest;
23                 (iii) notes, drafts, bills of exchange or
24             bankers' acceptances that are eligible for
25             rediscount or purchase by a Federal Reserve Bank;
26             or
27                 (iv) a segregated, earmarked deposit account
28             with the state bank;
29             (B) 110% of the amount of such loan or extension of
30         credit, guarantee, acceptance or letter of credit if
31         the collateral is composed of obligations of any state
32         or political subdivision of any State;
33             (C) 120% of the amount of such loan or extension of
34         credit, guarantee, acceptance, or letter of credit if
35         the collateral is composed of other debt instruments,
36         including receivables; and

 

 

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1             (D) 130% of the amount of such loan or extension of
2         credit, guarantee, acceptance or letter of credit if
3         the collateral is composed of stock, leases, or other
4         real or personal property.
5         (2) Any such collateral that is subsequently retired or
6     amortized shall be replaced by additional eligible
7     collateral where needed to keep the percentage of the
8     collateral value relative to the amount of the outstanding
9     loan or extension of credit, guarantee, acceptance, or
10     letter of credit equal to the minimum percentage required
11     at the inception of the transaction.
12         (3) A low-quality asset shall not be acceptable as
13     collateral for a loan or extension of credit to, or
14     guarantee, acceptance, or letter of credit issued on behalf
15     of, an affiliate.
16         (4) The securities issued by an affiliate of the state
17     bank shall not be acceptable as collateral for a loan or
18     extension of credit to, or guarantee, acceptance or letter
19     of credit issued on behalf of, that affiliate or any other
20     affiliate of the state bank.
21         (5) The collateral requirements of this paragraph do
22     not apply to an acceptance that is already fully secured
23     either by attached documents or by other property having an
24     ascertainable market value that is involved in the
25     transaction.
26     (d) Exemptions. The provisions of this Section, except
27 paragraph (4) of subsection (a), shall not be applicable to the
28 following as to which there shall be no limitation:
29         (1) any transaction, subject to the prohibition
30     contained in paragraph (3) of subsection (a), with a bank
31             (A) which controls 80% or more of the voting shares
32         of the state bank;
33             (B) in which the state bank controls 80% or more of
34         the voting shares; or
35             (C) in which 80% or more of the voting shares are
36         controlled by the company that controls 80% or more of

 

 

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1         the voting shares of the state bank;
2         (2) making deposits in an affiliated bank or affiliated
3     foreign bank in the ordinary course of correspondent
4     business, subject to any restrictions that the
5     Commissioner may prescribe;
6         (3) giving immediate credit to an affiliate for
7     uncollected items received in the ordinary course of
8     business;
9         (4) making a loan or extension of credit to, or issuing
10     a guarantee, acceptance, or letter of credit on behalf of,
11     an affiliate that is fully secured by
12             (A) obligations of the United States or its
13         agencies;
14             (B) obligations fully guaranteed by the United
15         States or its agencies as to principal and interest; or
16             (C) a segregated, earmarked deposit account with
17         the state bank;
18         (5) purchasing securities issued by any company of the
19     kinds described as follows:
20         Shares of any company engaged or to be engaged solely
21     in one or more of the following activities: holding or
22     operating properties used wholly or substantially by any
23     banking subsidiary of such bank holding company in the
24     operations of such banking subsidiary or acquired for such
25     future use; or conducting a safe deposit business; or
26     furnishing services to or performing services for such bank
27     holding company or its banking subsidiaries; or
28     liquidating assets acquired from such bank holding company
29     or its banking subsidiaries or acquired from any other
30     source prior to May 9, 1956, or the date on which such
31     company became a bank holding company, whichever is later;
32         (6) purchasing assets having a readily identifiable
33     and publicly available market quotation and purchased at
34     the market quotation or, subject to the prohibition
35     contained in paragraph (3) of subsection (a), purchasing
36     loans on a nonrecourse basis from affiliated banks; and

 

 

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1         (7) purchasing from an affiliate a loan or extension of
2     credit that was originated by the state bank and sold to
3     the affiliate subject to a repurchase agreement or with
4     recourse.
5     (e) Notwithstanding the provisions of this Section, a state
6 bank and its subsidiaries in compliance with the provisions of
7 Regulation W [12 C.F.R. Part 223] promulgated by the Board of
8 Governors of the Federal Reserve, as amended from time to time,
9 shall be deemed to be in compliance with this Section.
10     This Section shall apply to any transaction entered into
11 after January 1, 1984, except for transactions which are the
12 subject of a binding written contract or commitment entered
13 into on or before July 28, 1982, and except that any renewal of
14 a participation in a loan outstanding on July 28, 1982, to a
15 company that becomes an affiliate as a result of the enactment
16 of this Act, or any participation in a loan to such an
17 affiliate emanating from the renewal of a binding written
18 contract or commitment outstanding on July 28, 1982, shall not
19 be subject to the collateral requirements of this Act.
20 (Source: P.A. 88-546; 89-364, eff. 8-18-95.)
 
21     Section 99. Effective date. This Act takes effect upon
22 becoming law.