additional commentary by Rep. Timothy Horrigan; December 30, 2015
HB 672-FN - AS INTRODUCED
HOUSE BILL 672-FN
This bill establishes a state bank.
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Explanation: Matter added to current law appears in bold italics.
removed from current law appears [
Matter which is either (a) all new or (b) repealed and reenacted appears in regular type.
STATE OF NEW HAMPSHIRE
In the Year of Our Lord Two Thousand Fifteen
AN ACT establishing a state bank.
Be it Enacted by the Senate and House of Representatives in General Court convened:
1 New Chapter; Development Bank of New Hampshire. Amend RSA by inserting after chapter 389-A the following new chapter:
DEVELOPMENT BANK OF NEW HAMPSHIRE
389-B:1 Definitions. In this chapter:
I. "Advisory committee" means the development bank of New Hampshire advisory committee established in RSA 389-B:4.
II. "Bank" means the development bank of New Hampshire established under this chapter.
III. "Board" means the board of directors for the development bank of New Hampshire established in RSA 389-B:2.
IV. "Public funds" means funds under the control or in the custody of a public official by virtue of office.
389-B-2 Board; Duties and Powers.
I. The board of directors for the development bank of New Hampshire is established and shall consist of 5 voting members appointed by the governor, subject to approval by the general court. The state treasurer and the banking commissioner shall serve as ex officio nonvoting members of the board. The board shall oversee the operation, management, and control of the bank in accordance with this chapter. The board shall designate one of its members as chair and shall determine the location of the bank and maintain places of business of the bank.
II. The board shall establish the frequency of regular board meetings in bylaws and public notice requirements for meetings through rulemaking under RSA 389-B:7. A special meeting may be called at any time upon notice by the governor, or by 3 members of the board. Three voting members constitute a quorum and may transact business and exercise all rights, duties, and powers of the board.
III. The board shall appoint a person with extensive experience in banking as the president of the bank. The board may appoint and employ any subordinate officers, employees, and agents that the board considers necessary and shall define the duties, designate the titles, and fix the compensation of those positions.
IV. The board may designate the president or another officer or employee as its agent with respect to the functions of the bank, subject to the supervision, limitation, and control of the board. The board may remove and discharge any person appointed and employed under this chapter.
V. Board members shall serve without compensation, except that members may be reimbursed for travel expenses associated with their duties under this chapter.
389-B:3 Advisory Committee.
I. The board shall appoint the development bank of New Hampshire advisory committee to actively enlist the help of private enterprise and encourage use of the bank. The advisory committee shall consist of 7 members and shall include representatives of the state’s financial, business, agricultural, and labor sectors and at least 2 officers of state-chartered financial institutions that do not maintain offices outside the state.
II. The board shall appoint a chair, vice-chair, and secretary for the advisory committee from the members of the advisory committee.
III. Advisory committee members shall serve a term of office of 4 years, except as provided by law for initial appointments. Initial appointments for the development bank of New Hampshire advisory committee shall be for staggered terms. The first 2 members shall be appointed for one-year terms, the second 2 members shall be appointed for 2-year terms, the third 2 members shall be appointed for 3-year terms, and the remaining members shall be appointed for 4-year terms.
IV. The advisory committee shall:
(a) Meet regularly with the board to review and make recommendations concerning the bank’s operations, finances, and loan practices;
(b) Make recommendations to the board for improving management performance, customer service, and internal methods, procedures, and operating policies of the bank;
(c) Make recommendations to the board relating to the establishment of additional objectives for the operation of the bank;
(d) Make recommendations to the board concerning the appointment of officers of the bank; and
(e) Participate on loan committees.
V. Advisory committee members serve without compensation except that members may be reimbursed for travel expenses associated with their duties under this chapter.
389-B:4 Deposit of Funds.
I. The bank may accept deposits of public funds. Except as provided in RSA 389-B:5, the bank may not accept deposits of private funds. All income earned by the bank on public funds shall be credited to and shall become a part of the revenues and income of the bank.
II. The bank shall pay interest on public deposits at a rate comparable to rates paid by private depositories of public funds and may offer other financial products to the state treasurer on a competitive basis.
III. Funds may also be appropriated from the general fund to allow the bank to fulfill its duties under this chapter.
389-B:5 Powers of the Bank.
I. The bank may:
(a) Make, purchase, guarantee, modify, or hold loans:
(1) To state-chartered financial institutions;
(2) That are insured or guaranteed in whole or in part by the United States or its agencies or instrumentalities;
(3) Obtained as security pledged for, or originated in the restructuring of, any other loan properly originated or participated in by the bank; and
(4) To instrumentalities of this state.
(b) Purchase, guarantee, modify, or hold loans originated by financial institutions authorized to do business in this state.
(c) Purchase participation interests in loans made or held by banks, bank holding companies, state-chartered or federally chartered financial institutions, any other financial institutions, or any other entity that provides financial services and that meets underwriting standards that are generally accepted by state or federal financial regulatory agencies; and
(d) Make loans in the form of participation loans to qualified persons residing in or doing business in this state when the originator of the loan is a private financial institution.
II. The bank shall not make loans to any private individual or legal entity.
IV. The bank may buy and sell federal bonds.
V. The bank may lease, assign, sell, exchange, transfer, convey, grant, pledge, or mortgage all real and personal property, title to which has been acquired in any manner.
VI. The bank may:
(a) Act as a custodian bank for financial institutions authorized to do business in this state and accept deposits from the financial institutions in connection with this function;
(b) Issue bank stock loans to financial institutions authorized to do business in this state; and
(c) For financial institutions that make the bank a reserve depository, perform the functions and render the services of a clearinghouse, including all functions for providing domestic and foreign exchange, and rediscount notes, on terms prescribed by the board.
VII. The bank may perform all acts and do all things necessary, convenient, advisable, or desirable to carry out the powers expressly granted or necessarily implied in this chapter through or by means of its president, officers, agents, or employees or by contracts with any person, firm, or corporation.
389-B:6 Transfer to General Fund. As soon as possible after the end of each calendar year, the board shall determine the amount of income, if any, earned by the bank in that prior calendar year that is in excess of amounts necessary to pay for expenses of administering the activities of the bank less any reserves required pursuant to rules adopted in accordance with RSA 389-B:7, for delinquencies and future business and payment of debts from any initial funding. The amount of the excess shall be transferred to the general fund.
389-B:7 Rulemaking. The board shall adopt rules pursuant to RSA 541-A, relative to banking policies and procedures including:
I. Ensuring the safety and soundness of the bank that, to the extent possible, reflect applicable standards for safety and soundness set forth in part 34 of title 12 of the Code of Federal Regulations;
II. Specifying the bank’s powers and permissible investments and activities consistent with RSA 389-B:5;
III. Specifying services that the bank may provide;
IV. Specifying limits for loans and other obligations the bank makes or undertakes;
V. Specifying reserve requirements; and
VI. Setting other requirements that the board considers necessary to administer the bank under this chapter and to accomplish the purposes listed in RSA 389-B:1.
389-B:8 Examination and Report. The banking department shall examine the bank at least once each calendar quarter to verify and ensure that the bank is complying with the rules adopted under RSA 389-B:7. The banking department shall report the results of the examination to the board and to the banking commissioner. The department’s report shall be a public record subject to disclosure.
389-B:9 Audit. The audit division of the legislative budget assistant shall audit the accounts and financial affairs of the bank at least once every 2 years.
389-B:10 Annual Report; Performance Measures. Beginning July 1, 2018 and annually thereafter, the bank shall report to the governor and the legislature on the financial condition and performance of the bank and provide an analysis of the bank’s impact on the state consistent with the bank’s purposes set forth in RSA 389-B:1, particularly the bank’s impact on job creation and economic development.
389-B:11 Exempt from Liability. Whenever any public funds are deposited in the bank, the public official who deposited the funds and the sureties on any bond of the public official shall be exempt from liability for loss of any of the funds while the funds are deposited in the bank.
389-B:12 Use of Name; Execution of Instruments.
I. All business of the bank shall be conducted under the name of the development bank of New Hampshire. Title to property pertaining to the operation of the bank shall be obtained and conveyed in the name of the development bank of New Hampshire.
II. Instruments shall be executed in the name of the state. Within the scope of authority granted by the board, the president of the bank may execute instruments on behalf of the bank, including any instrument granting, conveying, or otherwise affecting any interest in or lien upon real or personal property.
III. Officers or employees of and legal counsel to the bank may execute instruments on behalf of the bank when authorized by the board.
2 State Treasurer and Bank Commissioner to Make Recommendations. No later than January 15, 2016, the state treasurer and the bank commissioner, in consultation with the attorney general, shall submit a report to the house and senate finance committees with recommendations for implementing the development bank of New Hampshire. The report shall include:
(a) A draft of any legislation needed to amend the New Hampshire constitution to authorize the state to establish the bank;
(b) A recommendation on the amount of money needed to adequately capitalize the bank;
(c) A draft of any legislation needed to transfer funds to the bank;
(d) A description and draft of statutory changes needed to fully utilize the resources and powers of the bank and to eliminate any duplication of efforts or conflict with the authority or responsibilities of the New Hampshire municipal bond bank and any other state agencies;
(e) Recommendations for guaranteeing funds deposited in the bank;
(f) Recommendations pertaining to the liability of the state and the bank in civil actions; and
(g) Recommendations regarding the confidentiality of certain records held by the bank.
3 Effective Date. This act shall take effect July 1, 2015.
HB 672-FN FISCAL NOTE
AN ACT establishing a state bank.
The Treasury Department, Banking Department, and Department of Justice state this bill, as introduced, may increase state expenditures and revenue by an indeterminable amount in FY 2016 and each year thereafter. There will be no impact on county and local expenditures or revenue.
The Department of Treasury states this bill establishes a development bank. The Department assumes future financing for capitalization of the development bank will occur through a state bond issue with debt service being paid out of the bank’s profits. The Department has no information to determine when this bond issue would happen or the amount of financing. Under the requirements of the Basel III accord, a global bank capitalization standard, banks are required to effectively maintain a seven percent key capital ratio. If this amount were based on the average balances maintained by the Department, approximately $63 million would be needed to meet the standard. However, given the variability of cash inflow and outflows associated with the $5.3 billion in receipts and disbursement handled by the Department this capitalization requirement could easily be higher. The Department states none of the capitalization estimates take into account any other assets the state bank may need to account for on its balance sheet at the time of capitalization. The Department states this bill may likely increase state expenditures, although not necessarily revenues, by an indeterminable amount in FY 2016 and each year thereafter due to the historically low interest rate environment.
The Banking Department estimates it will need to conduct four exams of 5 days each annually, for a total of 20 examiner days. The Department is unable to estimate the fiscal impact for FY 2016 because the development bank will be in the process of being established and does not know whether examinations will be performed. Assuming the bank will be formed by FY 2017, the Department estimates the following examiner revenue:
The Department is self-funded with its costs and expenses, including personnel, paid by fees, fines, and assessments if fees and fines do not cover actual expenditures.
The Department of Justice states this bill will have an indeterminable impact on state expenditures. The Departments states it is unclear what additional resources would be required for the start-up of the bank but may necessitate the use of a full-time Assistant Attorney General at $102,000, and require a part-time paralegal at $29,644 in FY 2016. The Department is unable to project the resources needed for prosecution on behalf of the bank. However, this bill does not contain an appropriation or authorization for new positions in the Department.
Here is my written testimony:
in Favor of HB 672
HB 672 is the first step towards establishing a state bank here in New Hampshire, similar to the Bank of North Dakota, which has been in operation since 1924. Similar bills are being considered in our neighboring states of Vermont and Maine.
The Development Bank of New Hampshire would work with government agencies and with our state's existing private-sector financial institutions to to invest in the New Hampshire economy and to keep New Hampshire dollars here in New Hampshire. The Development Bank's profits would go into the state's general fund, which would reduce our state's tax burden.
The Development Bank's primary function would be to lend money to (and borrow it from) other government entities. It would not make loans directly to individual or businesses, although it could partner with private-sector lenders. It would not provide retail banking services to individuals or businesses, although it could provide such services to state, county and local government, which could save taxpayers a significant amount of money. In North Dakota, state government agencies are required to do their banking through the Bank of North Dakota, and local and county governments are allowed but not required to do so.
This is a short bill which addresses an immensely complicated topic. If passed as is, HB 672 would in the short run do nothing more than establish a board of directors and an accompanying advisory commission, along with authorizing the Joint Legislative Committee on Administrative Rules (JLCAR) to begin the rule-making process. The state treasurer and the bank commissioner, in consultation with the attorney general, would be asked to write a report on how to get the bank started. That report would include recommendations for future legislation. The bank would probably not begin operations until at least 2018.