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Advocacy Alert- 06/9/2003

State Controller not likely to issue registered warrants

Last Wednesday, a meeting was held between bankers and representatives of the State Controller's and Treasurer's office to discuss the likelihood and technical feasibility of registered warrants if a budget is not enacted by the Legislature on or before the fiscal year deadline. The Controller's office made it clear that it is not their intention to issue registered warrants this year. The Controller's office is betting heavily on the successful sale of an $11 billion registered anticipation warrant this week, as it is expected that the market will respond very favorably to the sale.

Current indications point to the use of the $11 billion to meet state payroll obligations even if a budget is not passed on time. In the absence of a budget, the State Controller's office indicated that it will take several other steps to manage the state's cash flow requirements including ceasing payments to vendors for products and services provided to the state beyond the fiscal year deadline of June 30, 2003. Without a budget enacted on time, most vendor payments for services and products provided on or after July 1, 2003 will not be paid. In addition, legislative employee salaries and exempt executive employees of the governor's administration and constitutional officer will not be paid. Further, the State Controller's office will defer expenses, delay expenditures and utilize alternate funding sources. (A copy of the State Controller's letter to the Legislature outlining his cash management plan if a timely budget is not enacted is enclosed in this Courier for your information.)

Should the budget not be enacted by September, it is likely that the issue of registered warrants will be revisited. Among the chief concerns of those at the meeting were the need for adequate advance notice to institutions, and procedures to facilitate registered warrant inspection, equipment testing, branch training, warrant verification and certification. Also discussed was the need for appropriate risk mitigation measures and redemption processes. The group determined that an operations subcommittee comprised of cash managers, item processing department supervisors and related operational managers of financial institutions should assemble in a separate meeting to focus exclusively on the technical issues. Another meeting on this issue has already been scheduled for early July. Stay tuned…

Politics reigns king

The impending recall of Governor Gray Davis has drastically changed the dynamics in the State Capitol. Distrust and extreme partisanship are now the overriding elements of a state legislature tasked with solving one of the largest budget deficits in history. While in the past many legislators were able to set aside their partisan differences in non-election years, the recall effort has created gridlock that could have serious consequences for resolution of the budget battle.

The recall effort has also changed the policy direction of our state, as the governor attempts to stave off a special election where voters would decide whether he should continue in office. Facing an historically low voter approval rating, the governor must rehabilitate his image while passing a budget that contains deep cuts to education and other programs Democrats hold dear. In essence, he is being asked to cut programs and services to the same individuals he will rely upon to defeat the recall effort.

Senator Jackie Speier's Senate Bill 1 may be one of the first policy casualties of the recall effort. The governor recently announced his support for the measure after refusing to support it for the last two years. What impact the recall effort has had on the governor is unknown; however, his abrupt change in position is curious. Whether we will be able to reach an agreement on a "workable, reasonable bill" is now in serious doubt.

Foreign language translation legislation

CBA opposes the foreign language translation bill Senate Bill 584 (Alarcon) as it was amended on May 20. The bill would create extensive and expensive foreign language translation requirements for the five languages covered in the bill (Chinese, Korean, Spanish, Tagalog and Vietnamese). The bill requires a translation of information on rates, terms and conditions for the service or product advertised, but there is no specificity as to the definition of rates, terms and conditions to be translated. Rates, terms and conditions could cover any aspect of a contract or loan agreement and could trigger very broad translation requirements. As the bill is currently drafted, even general promotions of bank services in one of the five languages listed would trigger very broad translation requirements for potentially all bank products in that language. SB 584 has passed out of the Senate and is now in the Assembly. CBA is attempting to obtain amendments to create more specificity as to the trigger for compliance with the bill, the services and products covered, and the rates, terms or conditions that would need to be translated. If you have questions or need additional information on this bill, please contact Pat Zenzola at 916/441-7377 ext. 210 or pzenzola@calbankers.com.

Shelby solicitation for reg relief suggestions makes legislation more likely

Senate Banking Committee Chairman Shelby lit a fire under regulatory relief legislation when he asked regulators and the industry to make suggestions on regulatory relief, thereby signaling his intention to deal with the issue later this year. The House is expected to take up a regulatory relief bill that cleared the House Financial Institutions Committee a few weeks ago. A controversy has broken out over a provision that allows state chartered banks, including industrial development banks, to branch de novo into any other state, provided the law of the chartering state is accommodative. Before the House can complete action, that issue will need to be resolved. Some have suggested that subsequent, non-financial buyers or charterers of ILCs will not be permitted to take advantage of the liberalized branching provisions.

Meanwhile, the regulators themselves, with FDIC taking the lead, announced a plan under which they will examine all their regulations to determine whether they are "outdated, unnecessary or unduly burdensome" and make proposals to Congress for changes deemed appropriate. The plan would call for the regulators to divide their regulations and invite industry comment on various portions every six months for a period of three years. The first announcement seeks comments on applications and reporting, powers and activities and international operations. Federal law requires all agencies to review their regulations at least once every 10 years. The regulators are sponsoring roundtables around the country to encourage banker participation. One session is scheduled in San Francisco on September 18. We encourage banks to write to their regulators with suggested regulatory changes or, if you prefer, to contact Leland Chan at lchan@calbankers.com with your comments for incorporation into CBA's letter.

Check truncation bill expected to pass

The House was expected to take up its check truncation bill, H.R. 1474 Thursday afternoon as Advocacy went to press. The legislation, which has very broad bipartisan support, would let banks clear checks electronically. Original checks would not have to be returned to customers. Substitute checks, paper images of the original, would be deemed to have the same legal validity as originals.

SBA increases 7(a) lending authority

The Small Business Administration freed up an additional $1.4 billion in lending authority under various small business programs, and the popular 7(a) program should get the lion's share. It will be recalled that nearly two thirds of the California delegation signed onto a letter advocated by CBA last year, urging that a new econometric model that more accurately reflects losses should be adopted for estimating subsidies, so that more loans could be authorized with the same amount of subsidy. That change was legislated by the Congress earlier this year, and there were additional funds remaining that had been previously allocated to the STAR program. This accounted for the large increase in program authorization. (I personally don't know what the STAR program is, but those interested in SBA lending presumably do.)

Treasury to NCUA: Don't proceed with rule relaxing business lending limits

The Treasury Department, in a rare comment on a regulatory proposal from a financial regulator has told the National Credit Union Administration that its proposals to relax limits on commercial lending by excluding participation interests purchased from service organizations from the lending cap would undermine Congressional intent. The CUNA proposal, which theoretically would allow a credit union and an affiliated service organization to completely ignore business lending limits, has drawn fire from other banking trade groups, including CBA. The Treasury letter warns that the statute may not authorize the proposed changes to the business lending caps and continues: "such changes to these limitations should be left for Congress to determine."

Fed PAC results

F&M Bank remains in the lead for the Bank of the Year Award, presented every year to the bank which most exceeds its Fed PAC contribution goal. Though The Mechanics Bank is not far behind, it is still early in the contribution cycle, so it's anyone's guess who will walk away with the coveted trophy in January. CBA thanks the following banks which have already exceeded their contribution goals:

F&M Bank 265%
The Mechanics Bank 256%
Bank of Stockton 173%
Mission Community Bank 157%
Pacific State Bank 157%
Visalia Community Bank 155%
Pacific Crest Bank 152%
Encino State Bank 146%
First Northern Bank 141%
Affinity Bank 135%
Temecula Valley Bank 133%
Mid-State Bank & Trust 129%
Montecito Bank & Trust 125%
Alliance Bank 124%
Verdugo Banking Company 118%
Union Bank of California 107%

Legislative meeting update

The following meetings have been scheduled between CBA members and their elected officials. If you would like more information on these meetings, or would like to participate in any of the meetings, please contact Mary Boruff at (916) 441-7377, ext. 207. If you are not available, please send a senior officer from your bank. These meetings are a good opportunity for your senior management to get to know the legislators who vote on the issues of importance to your bank.

You are welcome to phone in to a grassroots conference call (888/903-2663) every Thursday afternoon (4:00 pm - State Legislature / 4:30 pm - House of Representatives) prior to a scheduled district office meeting(s) to discuss CBA's priority issues and to answer any questions you may have regarding meeting with your legislator.

*          Freshman legislator

**        Meeting rescheduled – new time

***      Meeting rescheduled – new date/time