TO REWRITE THE BANKING LAWS OF NORTH CAROLINA AS RECOMMENDED BY THE JOINT LEGISLATIVE STUDY COMMISSION ON THE MODERNIZATION OF NORTH CAROLINA BANKING LAWS.
Rewrites North Carolina’s banking laws as recommended by the Joint Legislative Study Commission on the Modernization of NC Banking Laws. Renames GS Chapter 53 as Regulation of Financial Services to more accurately reflect the scope of the Chapter.
Repeals Articles 1 through 10, 12, and 13 of GS Chapter 53 and replaces them with the following new Articles in new GS Chapter 53C “Regulation of Banks.”
Article 1 – General Provisions. Defines the scope and applicability of GS Chapter 53C. Provides that unless the context specifies otherwise, as applying to (1) all existing banks organized or created under North Carolina law; (2) all banks created under Article 3 of GS Chapter 53C; (3) all persons who subject themselves to the provisions of GS Chapter 53C; and all persons who violate the provisions of GS Chapter 53C and thereby become subject to the Chapter’s penalties. States that the provisions of this act apply to federally chartered depository institutions with a branch in North Carolina except as restricted by federal law. Also provides that except as restricted by federal law or by the laws of another state in which it was created, an out-of-state bank having a branch in North Carolina is entitled to the same exemptions and immunities as banks organized and created under this state’s law. Provides additional specifications regarding the applicability of GS Chapter 53C to the operations of depository or trust institutions in the state.
Creates a more comprehensive definitions section than under current law. Includes definitions describing the various baking organizations affected by the statute and the federal and state supervisory and regulating agencies.
Includes a severability clause to provide that if one provision of this Chapter is found to be invalid or preempted by federal law, it does not affect the remaining provisions and they continue to be valid.
Article 2 – Commission and Commissioner. Reauthorizes the Banking Commission (Commission) and reduces the membership to 15 including the State Treasurer as an ex officio member (was, 19). Provides criteria for appointments to the Commission, term lengths, filling vacancies, and providing subsistence and travel expenses to Commission members. Also provides criteria regarding the scheduling of meetings, the conditions under which meeting via telephone or video conference is permitted, handling confidential information, and determining a quorum.
Provides for the appointment of a Commissioner of Banks (Commissioner) by the Governor effective April 1, 2011, and every four years thereafter subject to confirmation by the General Assembly by joint resolution. Delineates requirements regarding the appointment of the Commissioner. Provides that the Commission is authorized to supervise, direct, and review the Commissioner’s exercise of powers, duties, and functions. Authorizes the Commissioner to adopt all necessary rules subject to the approval of the Commission. Provides that there is to be an Office of the Commissioner of Banks (OCOB) to assist the Commissioner in the performance of the duties of office and declares guidelines governing the selection of personnel and the operation of the OCOB. Establishes uniform provisions for hearings and appeals for all statutes administered by the Commission and the Commissioner. Revises and expands the list of records which are confidential and extends the legally required confidentiality to legal discovery as well as other requests.
Article 3 – Organization of a Bank. Requires an applicant to seek permission to organize as a bank from the Commissioner. Directs the applicant to provide all information required by the Commissioner and to pay a non-refundable application fee. Requires that the organizers have permission from the Commissioner to file articles of incorporation with the Secretary of State. Declares that a proposed bank is under the jurisdiction of the Commissioner. Directs that the proposed bank’s articles of incorporation must contain information required by GS Chapter 55 (the Business Corporation Act). Provides criteria that must be met by the organizers prior to the approval of the Commissioner of the charter for a proposed bank. Provides that the Commissioner has the authority to deny approval of an application and provides that an applicant may appeal the denial to the Commission under GS 53C-2-6.
Provides that the Commission hold a public hearing to review the approval of an application by the Commissioner. Requires the applicant to publish notice of the public hearing by the Commission and provides guidelines as to what must be contained in that notice. Authorizes the Commission to approve, modify, or disapprove the Commissioner’s decision with respect to the applicant. Prohibits a bank from beginning its operations until the Commissioner issues a charter. Includes provisions for appealing unfavorable decisions from the Commission or the Commissioner.
Article 4 – Governance of Banks. Provides that banks must be formed as corporations under North Carolina law. Requires that a bank be operated and controlled by its board of directors. Establishes the qualifications and liabilities of directors. Requires the board to establish at minimum audit, executive, and loan committees and provides that it may establish others. Requires officers and employees to provide a bond. Establishes the basis upon which the directors may declare a distribution. Provides additional specifications for the governance of banks including affiliate transactions, maintenance of a reserve fund, assessment of the board of directors, and the functions of a compliance review committee.
Article 5 – Powers of Banks. Delineates express powers of banks that are in addition to the powers conferred upon business corporations organized under the laws of North Carolina. Provides that a bank has all powers reasonably necessary or incident to carry out the business of banking. Requires a bank proposing to engage in new activity to apply to the Commissioner for approval unless specified conditions are met that allows for an exception to the prior approval requirement.
Restates the investment authority for banks. Permits investments in depository institutions, other specialized financial institutions, federally chartered institutions, and a variety of state and federal bonds.
Recodifies former GS 53-45 (as GS 53C-5-3) which authorizes banks,and other fiduciaries to invest in securities approved by the Federal Housing Administration (FHA), the Veterans Administration (VA), or the Secretary of Housing and Urban Development (HUD).
Article 6 – Bank Operations. Establishes provisions that govern a bank’s lending functions. Prohibits a bank from making loans to finance the purchase of the bank’s stock or “to carry” the stock as defined in 12 CFR Part 221 by the Federal Reserve Board. Provides rules for the maximum amount of loans and extensions of credit that may be made to a single person. Identifies types of transactions that are not to be considered as extensions of credit within the meaning of this subsection. Provides definitions and conditions that apply to this subsection. Directs the Commissioner to monitor the lending activities of banks for activities that could adversely affect the safety and soundness of banks. Prevents the Commissioner from adopting rules that preclude a state bank from making loans that would be permitted to a federally chartered institution.
Authorizes a bank to offer all types of deposit accounts and requires the bank to obtain FDIC insurance on its accounts.
Provides rules governing the securing of deposits. Prohibits a bank from creating a lien on its assets or to otherwise secure the repayment of a deposit except as authorized or required by this section, other state laws, or federal law.
Authorizes a bank to deal with a minor like an adult for purposes of deposit accounts and safe deposit boxes. Provides the structure for a simple account open for a minor by an adult. Provides that these provisions do not affect the law governing transactions with minors in cases outside the scope of this section.
Provides that any two or more individuals may establish a joint deposit account via a written contract and the account will be held for them as joint tenants. Provides that the account may also be held under GS 41-2.1 (right of survivorship in bank deposits created by written agreement). Specifies requirements for joint accounts with right of survivorship and provides a model disclosure form for such accounts. Also establishes the incidents of Payable on Death (POD) accounts and provides a model disclosure form. Provides that this section does not repeal or modify any provision of law relating to estate taxes.
Provides criteria for establishing a personal agency account and provides a model disclosure form. Provides that any personal agency account that was created under GS 53-146.3 (personal agency accounts) prior to the effective date of this section is to be governed by the provisions of this section after the effective date of this section.
Defines the bank’s duty in a number of cases, including payment of the balance of an account of a person who is deceased or under a disability, payment under a power of attorney, when and how account statements must be sent and are deemed final, safe deposit boxes and unpaid rentals, and reproduction and retention of records.
Delineates the process for banks to establish branches in this state or other states. Provides that branches may be established de novo (new entities) or by acquisition of existing branches of another bank. Requires the approval of the Commissioner to open a branch, to change the location of a branch or a principal office, or to close a branch.
Sets the process for banks to establish non-branch bank offices. Permits an out-of-state bank to establish and operate a non-branch bank business office in North Carolina upon providing written notice to the Commissioner.
Provides that the bank management may determine the days and hours of the bank’s operation. Also provides rules governing the suspension of banking operations during an emergency.
Article 7 – Control Transactions; Combinations; Conversions.
Part I-Change in Control. Prohibits a person from engaging in a control transaction, as defined by GS 53C-1-4(22), involving a bank without the Commissioner’s prior approval except as otherwise expressly permitted by this section. Authorizes a contract for a control transaction to be executed without the Commissioner’s approval as long as the consummation of the transaction is contingent on the Commissioner’s approval. Requires a control transaction applicant to submit the application for approval in a form as required by the Commissioner, pay a filing fee as required by rule, and submit any additional information required by the Commissioner. Requires the applicant to publish notice of the application. Directs the Commissioner to act on the application within 60 days, absent extraordinary circumstances.
Part II-Combinations. Sets the process for dealing with a bank’s application to combine with one or more depository institutions or non-depository institution. Requires that the applicant bank be the surviving entity in any combination with a non-depository institution. Requires approval of the Commissioner to combine the institutions. Directs that the application include copies of agreements under which the combination is proposed and any information required by the Commissioner. Mandates that the applicant must publish public notice. Requires the Commissioner to act on the application within 60 days, absent extraordinary circumstances. Authorizes the establishment of an interim bank to effectuate the combination and authorizes a combination with a subsidiary.
Part III-Charter Conversion. Sets the process by which a depository institution that is not a bank may apply to the Commissioner for permission to convert to a North Carolina bank charter. Requires that the applicant submit a conversion plan as a part of the application process and provides that the application be in a form as set by the Commissioner and be accompanied by a fee as set forth by rule. Also provides process for a state bank to convert to another type of institution.
Article 8 – Bank Supervision. Restates the Commissioner’s authority to supervise banks, including the authority to order an examination or investigation of any suspected violation of the banking laws. Sets the schedule of bank assessments and fees to be paid into the office of the OCOB. Requires banks to file annual and periodic reports of conditions. Also requires banks to file copies of all applications and reports of condition filed by the bank under federal law at the same time as it files such documents with its primary federal regulator.
Grants broad authority to the Commissioner to examine a bank, its holding company and affiliates, including access to all books and records of the bank, its holding company or affiliates.
Makes it a Class H felony for an examiner to knowingly or willfully make a false report after an examination. Makes it a Class 1 misdemeanor for an examiner or other employee of OCOB to fail to maintain confidentiality of information obtained in an examination. Makes it a Class 1 misdemeanor for a bank to make any loan or give any gratuity to the Commissioner, deputy commissioner, or any examiner. Also makes it a Class 1 misdemeanor for the Commissioner, deputy commissioner, or any bank examiner to accept any such loan or gratuity. Makes it a Class 1 misdemeanor for any person to transmit false statements about the financial condition of a bank. Establishes Class C and H felonies for the misapplication and embezzlement of funds
Specifies the authority of the Commissioner in enforcing banking laws. Authorizes the Commissioner to issue a show cause order to place a bank under supervisory control, when the Commissioner believes the bank has insufficient capital or is being operated in an unsafe or unsound manner that threatens the financial integrity of the bank. Also authorizes the Commissioner to issue an order that temporarily removes an officer, director, or employee of the bank if the Commissioner believes that person has violated the law or engaged in unsafe or unsound practices or for other reasons.
Authorizes the Commissioner to enter cooperative supervisory and information sharing agreements with out-of-state bank regulatory agencies.
Article 9 – Supervisory Liquidation; Voluntary Dissolution and Liquidation.
Part 1-Authorizes the Commissioner to require a combination or other control transaction, upon a finding that the bank is unable to operate in a safe and sound manner. Permits the Commissioner to order the transaction to take place without a vote of the bank’s shareholders. Prohibits a bank in the process of either voluntary or involuntary dissolution from paying distributions to its shareholders without the prior written consent of the Commissioner. Establishes the procedural requirements for the Commissioner to cancel a charter.
Part 2-Authorizes a bank, with the Commissioner’s approval, to undertake a voluntary dissolution and liquidation.
Part 3-Sets forth the process for the Commissioner to take custody of the books, records, and assets of a bank, and for appointing a receiver for the purpose of receivership and liquidation of the bank.
Part 4-Establishes the provisions relating to any dissolution of receivership, including storage and destruction of records, termination of trusts, and appointment of successor or substitute trustee.
Article 10 – Bank Holding Companies.
Part 1-Requires holding companies to register with the Commissioner and to renew registration annually. Requires the approval of the Commissioner before a person may engage in a control transaction.
Part 2-Authorizes combinations of one or more holding companies or other companies with the approval of the Commissioner.
Part 3-Authorizes the Commissioner to issue cease and desist orders to holding companies upon finding that they may have violated the laws of this state. Requires holding companies to notify the Commissioner of changes in key personnel within two business days of the change.
The reminder of this act makes conforming changes to various sections of the General Statutes that contained references to the sections of the banking law that were repealed in this act (Articles 1 through 10, 12, and 13 of GS Chapter 53).
Effective October 1, 2012.