Full Text of SB2396 94th General Assembly
SB2396eng 94TH GENERAL ASSEMBLY
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| AN ACT concerning regulation.
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| Be it enacted by the People of the State of Illinois,
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| represented in the General Assembly:
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| Section 5. The Illinois Banking Act is amended by changing | 5 |
| Section 35.2 as follows:
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| (205 ILCS 5/35.2) (from Ch. 17, par. 345)
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| Sec. 35.2. Limitations on investments in and loans to | 8 |
| affiliates.
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| (a) Restrictions on transactions with affiliates.
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| (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:
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| (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
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| (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.
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| (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.
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| (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.
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| (4) Any covered transactions and any transactions | 32 |
| exempt under subsection
(d) between a state bank and an |
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| affiliate shall be on terms and conditions
that are | 2 |
| consistent with safe and sound banking practices.
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| (b) Definitions. For the purpose of this Section, the | 4 |
| following rules
and definitions apply:
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| (1) "Affiliate" with respect to a state bank means
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| (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;
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| (B) a bank subsidiary of the state bank;
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| (C) any company
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| (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
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| (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
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| that controls the state bank;
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| (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
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| subsidiary or affiliate of the state bank; or
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| (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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| 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
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| furnishing such services at cost to one or more | 13 |
| investment companies,
insurance companies or other | 14 |
| financial institutions, or any person the
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| character and amount of whose compensation for | 16 |
| such services must be approved
by a court.
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| (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
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| 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.
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| (2) None of the following are considered to be an | 25 |
| affiliate:
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| (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;
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| (B) any company engaged solely in holding the | 32 |
| premises of the state
bank;
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| (C) any company engaged solely in conducting a safe | 34 |
| deposit business;
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| (D) any company engaged solely in holding | 36 |
| obligations of the United
States
or its agencies or |
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| obligations fully guaranteed by the United States or
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| its agencies as to principal and interest; and
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| (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
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| exceed an aggregate of 3 years.
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| (3) (A) A company or shareholder has control over | 16 |
| another company if
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| (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;
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| (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
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| (iii) the Commissioner determines, after | 26 |
| notice and opportunity for
hearing, that such | 27 |
| company or shareholder, directly or indirectly,
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| exercises a controlling influence over the | 29 |
| management or policies of the
other company.
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| (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
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| 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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| (4) "Subsidiary" with respect to a specified company | 2 |
| means a company that
is controlled by such specified | 3 |
| company.
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| (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.
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| (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".
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| (7) "Covered transaction" means, with respect to an | 13 |
| affiliate of a
state bank,
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| (A) a loan or extension of credit to the affiliate;
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| (B) a purchase of or an investment in securities | 16 |
| issued by the
affiliate;
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| (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;
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| (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
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| (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.
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| (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.
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| (9) "Securities" means stocks, bonds, debentures, | 32 |
| notes or other similar
obligations.
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| (10) "Low-quality asset" means an asset that falls into | 34 |
| any one or more
of the following categories:
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| (A) an asset classified as "substandard", | 36 |
| "doubtful", or "loss" or
treated
as "other loans |
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| especially mentioned" in the most recent report of | 2 |
| examination
of an affiliate;
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| (B) an asset in a nonaccrual status;
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| (C) an asset on which principal or interest | 5 |
| payments are more than 30
days past due; or
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| (D) an asset whose terms have been renegotiated or | 7 |
| compromised due to
the deteriorating financial | 8 |
| condition of the obligor.
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| (c) Collateral for certain transactions with affiliates.
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| (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
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| (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
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| (i) obligations of the United States or its | 19 |
| agencies;
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| (ii) obligations fully guaranteed by the | 21 |
| United States or its agencies
as to principal and | 22 |
| interest;
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| (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
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| (iv) a segregated, earmarked deposit account | 28 |
| with the state bank;
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| (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;
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| (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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| (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.
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| (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.
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| (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.
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| (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.
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| (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
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| transaction.
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| (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:
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| (1) any transaction, subject to the prohibition | 30 |
| contained in paragraph
(3) of subsection (a), with a bank
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| (A) which controls 80% or more of the voting shares | 32 |
| of the state bank;
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| (B) in which the state bank controls 80% or more of | 34 |
| the voting shares;
or
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| (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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| the voting shares of the state bank;
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| (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;
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| (3) giving immediate credit to an affiliate for | 7 |
| uncollected items received
in the ordinary course of | 8 |
| business;
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| (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
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| (A) obligations of the United States or its | 13 |
| agencies;
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| (B) obligations fully guaranteed by the United | 15 |
| States or its agencies
as to principal and interest; or
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| (C) a segregated, earmarked deposit account with | 17 |
| the state bank;
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| (5) purchasing securities issued by any company of the | 19 |
| kinds described
as follows:
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| 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
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| 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;
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| (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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| (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.
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| (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.
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| 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.
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| (Source: P.A. 88-546; 89-364, eff. 8-18-95.)
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| Section 99. Effective date. This Act takes effect upon | 22 |
| becoming law.
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