Washington Administrative Code › Title 208 - Financial Institutions, Department of (See also Titles 50, 419, and 460) › Chapter 208-512A - Limits on loans and extensions of credit › Section 208-512A-003 - Findings and purpose

Current through Register Vol. 24-14, July 15, 2024
(1) The
					director of the division (hereinafter, the "director of banks"), by and through
					the director of bank's delegated authority from the director of the department
					of financial institutions under
					RCW
					   43.320.040 and
					43.320.050, finds and determines,
					that pursuant to
					RCW
					   30A.04.030, the division has the broad
					administrative authority to adopt and promulgate rules and regulations that
					establish and maintain appropriate standards of safety and soundness with
					respect to the loans and extensions of credit made by Washington
					state-chartered banks under Titles 30A and 32 RCW including, without
					limitation, nonloan investments in derivative and similar
					transactions.
(2) As of January 21,
					2013, the effective date of section 611 of the Dodd-Frank Wall Street Reform
					and Consumer Protection Act (hereinafter, "Dodd-Frank Act"), codified as
					section 18(y) of the Federal Deposit Insurance Act,  12 U.S.C. Sec. 1828(y), a
					state insured bank may engage in a derivative transaction, as defined in
					section 5200 (b)(3) of the Revised Statutes of the United States (12 U.S.C. Sec. 84 (b)(3)), only if the law with respect to lending limits of the state in
					which the state-insured bank is chartered takes into consideration credit
					exposure to derivative transactions. In addition to making loans, Washington
					state-chartered banks under Titles 30A and 32 RCW invest in derivative
					transactions as a regular and often-essential component of their overall
					investment strategy, including, without limitation, as a tool to manage their
					liquidity. It is necessary that Washington state law (including statute or
					regulation, or interpretation of the same by the division), be in compliance
					with the afore-stated federal statute and preserve the authority of banks under
					Titles 30A and 32 RCW to continue to engage in derivative transactions on or
					after January 21, 2013. Therefore, it is prudent and expeditious for the
					division to assert the full measure of its statutory authority to adopt this
					chapter so as to clearly set forth the manner in which a bank under Title 30A
					or 32 RCW may, in addition to its investment in other types of loans and
					extensions of credit, safely and soundly engage in derivative
					transactions.
(3) Section 610(a) of
					the Dodd-Frank Act, amending the National Bank Act, at  12 U.S.C. Sec. 84(b),
					revises the definition of "loans and extensions of credit" to include credit
					exposure of a national bank arising from its investment in a derivative
					transaction, repurchase agreement, reverse repurchase agreement, securities
					lending transaction, or securities borrowing transaction. The aforementioned
					section 611 of the Dodd-Frank Act redefines "loans and extensions of credit" to
					include derivative transactions by, in effect, making derivative transactions
					applicable to state "lending limits" laws. Section 611 of the Dodd-Frank Act
					does not specifically address repurchase agreements, reverse repurchase
					agreements, securities lending transactions, or securities borrowing
					transactions. However, the director of banks finds and determines that it
					serves the convenience and advantage of depositors, borrowers, and the general
					public that Washington state-chartered banks and savings banks be able to
					continue to prudently invest in repurchase agreements, reverse repurchase
					agreements, securities lending transactions, and securities borrowing
					transactions despite any future contingency that may be made applicable to them
					by federal banking regulations. Therefore, director of banks further finds and
					determines that the division may, in its safety and soundness standards for
					state member banks and state insured banks, respectively, apply the same
					definition of "loans and extensions of credit" as applicable to national banks
					under section 610 of the Dodd-Frank Act (12 U.S.C. Sec. 84(b)), but only to the
					extent required by the board of governors of the Federal Reserve System
					(hereinafter, the "Federal Reserve Board") or the Federal Deposit Insurance
					Corporation (hereinafter, the "FDIC").
(4) The director of banks finds and
					determines that, pursuant to
					RCW
					   30A.04.111(5) and
					30A.04.215(3) and
					(5), it serves the convenience and advantage
					of depositors, borrowers, and the general public, and further maintains the
					fairness of competition between state-chartered banks and national banks, that,
					on or after January 21, 2013, banks under Title 30A RCW be permitted to
					continue to invest in derivative transactions, repurchase agreements, reverse
					repurchase agreements, securities lending transactions, and securities
					borrowing transactions as national banks are generally permitted to under the
					National Bank Act (12 U.S.C. Sec. 84(b)) and applicable rules of the Office of
					the Comptroller of the Currency (hereinafter, "OCC"), subject to (a) the
					restrictions, limitations, and requirements applicable to such powers and
					authorities of national banks, and (b) the authority of the division to adopt
					and promulgate rules for banks, which, consistent with Title 30A RCW, vary from
					the precise powers and authorities of national banks.
(5) The director of banks finds and
					determines that, pursuant to
					RCW
					   32.08.157, a mutual or stock savings bank
					under Title 32 RCW may be permitted to engage in derivative transactions on or
					after January 21, 2013, the same as for a bank under Title 30A RCW, provided it
					subjects itself to all of the restrictions, limitations, and requirements for
					exercise of any powers and authorities under
					RCW
					   30A.04.111 as set forth in this chapter
					respecting loans and extensions of credit applicable to banks under Title 30A
					RCW.
(6) There are certain
					standards of safety and soundness embodied in definitions of terms and other
					provisions used in
					RCW
					   30A.04.111, including, without limitation,
					the term "capital and surplus," which have heretofore been inconsistent with
					the standards for computation of lending limits for national banks under the
					National Bank Act and the OCC rules. Pursuant to
					RCW
					   30A.04.215(3) and (5), the
					director of banks finds and determines that it both serves the convenience and
					advantage of depositors, borrowers, and the general public, and further
					maintains the fairness of competition and parity between Washington
					state-chartered banks and national banks, if the division adopts, for purposes
					of RCW
					   30A.04.111, the same definition of "capital
					and surplus" as permitted for national banks, while maintaining the higher
					general lending limit of twenty percent of "capital and surplus" for banks
					under Title 30A RCW than exists for national banks under the OCC rules. In
					addition, the director of banks finds and determines that changes in other
					definitions of terms and technical provisions, as set forth in this chapter,
					serve the convenience and advantage of depositors, borrowers, and the general
					public, and further maintain the fairness of competition and parity between
					Washington state-chartered banks and national banks.
(7) Since
					RCW
					   30A.04.111 does not define "loans and
					extensions of credit" and the words "extensions of credit" are not specified,
					the director of banks herein exercises the director of bank's broad
					administrative authority under
					RCW
					   30A.04.030 and looks to applicable federal
					banking law and regulation for clarification of the term "extensions of
					credit," in keeping with well-settled principles of statutory construction.
					Accordingly, in promulgating and adopting the definition of "loans and
					extensions of credit" set forth in this chapter, the director of banks is
					herein guided by the restrictions on insider lending set forth in Federal
					Reserve Board Regulation O, at  12 C.F.R. Sec. 215.3, to the extent that (a)
					"extension of credit" has been therein broadly defined by the Federal Reserve
					Board to include "an extension of credit in any manner whatsoever" and (b) on
					account of Regulation O having been adopted by the Federal Reserve Board based
					on comparable principles of safety and soundness in regard to banks.
(8) The director of banks finds and
					determines that certain powers and authorities of an out-of-state
					state-chartered bank with a branch or branches in Washington state, which
					affect the operations of banking and delivery of financial services in
					Washington state, and which provide certain exceptions to the general lending
					limit in emergency circumstances, ought to and will be deemed to be exceptions
					to the general lending limit under
					RCW
					   30A.04.111, subject to the conditions set
					forth in this chapter.
(9) These
					rules and regulations are intended to:
(a)
					Prevent one person, or a relatively small group of persons who directly benefit
					from each other or who are engaged in a common enterprise, from borrowing or
					otherwise obtaining an unduly large amount of a bank's funds or other extension
					of credit;
(b) Safeguard a bank's
					depositors by establishing and maintaining standards that promote spreading of
					a bank's loans and extensions of credit among a relatively large number of
					persons engaged in different lines of business; and
(c) Prescribe standards of safety and
					soundness with respect to the credit exposure of a bank to its investment in
					derivative transactions, and to the extent required by the board of governors
					of the Federal Reserve System and the Federal Deposit Insurance Corporation for
					state member banks and state insured banks, respectively, to the credit
					exposure of a bank to its investment in repurchase agreements, reverse
					repurchase agreements, securities lending transactions, or securities borrowing
					transactions.