H. B. 2249
(By Delegates Williams, Carper, Phillips,
H. White, Rutledge and Harrison)
[Introduced February 23, 1993; referred to the
Committee on Banking and Insurance.]
A BILL to amend and reenact section twenty-six, article four,
chapter thirty-one-a of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, relating to
the borrowing by an officer or director of any banking
institution or by the commissioner of banking or any
employee of the department of banking.
Be it enacted by the Legislature of West Virginia:
That section twenty-six, article four, chapter thirty-one-a
of the code of West Virginia, one thousand nine hundred thirty-
one, as amended, be amended and reenacted to read as follows:
§31A-4-26. Limitation on loans and extensions of credit;
limitation on investments; loans to officers and
employees of banks and banking department;
exceptions; valuation of securities.
(a) (1) The total loans and extensions of credit by a state-
chartered banking institution to a person outstanding at one time
and not fully secured, as determined in a manner consistent withsubdivision (2) of this subsection, by collateral having a market
value at least equal to the amount of the loan or extension of
credit shall not exceed fifteen percent of the unimpaired capital
and unimpaired surplus of that state-chartered banking
institution.
(2) The total loans and extensions of credit by a state-
chartered banking institution to a person outstanding at one time
and fully secured by readily marketable collateral having a
market value, as determined by reliable and continuously
available price quotations, at least equal to the amount of the
funds outstanding shall not exceed ten percent of the unimpaired
capital and unimpaired surplus of that state-chartered banking
institution. This limitation shall be separate from and in
addition to the limitation contained in subdivision (1) of this
subsection.
(3) For the purposes of this subsection:
(A) The term "loans and extensions of credit" shall include
all direct or indirect advances of funds to a person made on the
basis of any obligation of that person to repay the funds or
repayable from specific property pledged by or on behalf of the
person and to the extent specified by the commissioner of
banking, such terms shall also include any liability of a state-
chartered banking institution to advance funds to or on behalf of
a person pursuant to a contractual commitment; and
(B) The term "person" shall include an individual,
partnership, society, association, firm, institution, company,public or private corporation, state, governmental agency,
bureau, department, division or instrumentality, political
subdivision, county commission, municipality, trust, syndicate,
estate or any other legal entity whatsoever, formed, created or
existing under the laws of this state or any other jurisdiction.
(4) The limitations contained in this subsection shall be
subject to the following exceptions:
(A) Loans or extensions of credit arising from the discount
of commercial or business paper evidencing an obligation to the
person negotiating it with recourse shall not be subject to any
limitation based on capital and surplus;
(B) The purchase of bankers' acceptances of the kind
described in section thirteen of the Federal Reserve Act and
issued by other banks shall not be subject to any limitation
based on capital and surplus;
(C) Loans and extensions of credit secured by bills of
lading, warehouse receipts, or similar documents transferring or
securing title to readily marketable staples shall be subject to
a limitation of thirty-five percent of capital and surplus in
addition to the general limitations if the market value of the
staples securing each additional loan or extension of credit at
all times equals or exceeds one hundred fifteen percent of the
outstanding amount of such loan or extension of credit. The
staples shall be fully covered by insurance whenever it is
customary to insure such staples;
(D) Loans or extensions of credit secured by bonds, notes,certificates of indebtedness, or treasury bills of the United
States or by other such obligations fully guaranteed as to
principal and interest by the United States or by bonds, notes,
certificates of indebtedness which are general obligations of the
state of West Virginia or by other such obligations fully
guaranteed as to principal and interest by the state of West
Virginia shall not be subject to any limitation based on capital
and surplus;
(E) Loans or extensions of credit to or secured by
unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or establishment of
the United States or of the state of West Virginia or any
corporation wholly owned directly or indirectly by the United
States shall not be subject to any limitation based on capital
and surplus;
(F) Loans or extensions of credit secured by a segregated
deposit account in the lending bank shall not be subject to any
limitation based on capital and surplus;
(G) Loans or extensions of credit to any banking institution
or to any receiver, conservator or other agent in charge of the
business and property of such banking institution or other
federally insured depository institution, when such loans or
extensions of credit are approved by the commissioner of banking,
shall not be subject to any limitation based on capital and
surplus;
(H) (i) Loans and extensions of credit arising from thediscount of negotiable or nonnegotiable installment consumer
paper which carries a full recourse endorsement or unconditional
guarantee by the person transferring the paper shall be subject
under this section to a maximum limitation equal to twenty-five
percent of such capital and surplus, notwithstanding the
collateral requirements set forth in subdivision (2) of this
subsection.
(ii) If the bank's files or the knowledge of its officers of
the financial condition of each maker of such consumer paper is
reasonably adequate, and an officer of the bank designated for
that purpose by the board of directors of the bank certifies in
writing that the bank is relying primarily upon the
responsibility of each maker for payment of such loans or
extensions of credit and not upon any full or partial recourse
endorsement or guarantee by the transferor, the limitations of
this section as to the loans or extensions of credit of each such
maker shall be the sole applicable loan limitations;
(I) (i) Loans and extensions of credit secured by shipping
documents or instruments transferring or securing title covering
livestock or giving a lien on livestock when the market value of
the livestock securing the obligation is not at any time less
than one hundred fifteen percent of the face amount of the note
covered, shall be subject under this section, notwithstanding the
collateral requirements set forth in subdivision (2) of this
subsection, to a maximum limitation equal to twenty-five percent
of such capital and surplus.
(ii) Loans and extensions of credit which arise from the
discount by dealers in livestock of paper given in payment for
livestock, which paper carries a full recourse endorsement or
unconditional guarantee of the seller and which are secured by
the livestock being sold, shall be subject under this section,
notwithstanding the collateral requirements set forth in
subdivision (2) of this subsection, to a limitation of twenty-
five percent of such capital and surplus;
(J) Loans or extensions of credit to the student loan
marketing association shall not be subject to any limitation
based on capital and surplus; and
(K) Loans or extensions of credit to a corporation owning
the property in which that state-chartered banking institution is
located, when that state-chartered banking institution has an
unimpaired capital and surplus of not less than one million
dollars or when approved in writing by the commissioner of
banking, shall not be subject to any limitation based on capital
and surplus.
(5) (A) The commissioner of banking may prescribe rules and
regulations to administer and carry out the purposes of this
subsection including rules or regulations to define or further
define terms used in this subsection and to establish limits or
requirements other than those specified in this subsection for
particular classes or categories of loans or extensions of
credit;
(B) The commissioner of banking may also prescribe rules andregulations to deal with loans or extensions of credit, which
were not in violation of this section prior to the effective date
of this act, but which will be in violation of this section upon
the effective date of this act; and
(C) The commissioner of banking also shall have authority to
determine when a loan putatively made to a person shall for
purposes of this subsection be attributed to another person.
(b) (1) Except as hereinafter provided or otherwise
permitted by law, nothing herein contained shall authorize the
purchase by a state-chartered banking institution for its own
account of any shares of stock of any corporation:
Provided,
That a state-chartered banking institution may purchase and sell
securities and stock without recourse, solely upon the order and
for the account of customers.
(2) In no event shall the total amount of investment
securities of any one obligor or maker held by a state-chartered
banking institution for its own account, exceed fifteen percent
of the unimpaired capital and unimpaired surplus of that state-
chartered banking institution.
(3) For purposes of this subsection:
(A) The term "investment securities" shall include
marketable obligations, evidencing indebtedness of any person in
the form of stocks, bonds, notes and/or debentures; "investment
securities" may be further defined by regulation of the
commissioner of banking; and
(B) The term "person" shall include any individual,partnership, society, association, firm, institution, company,
public or private corporation, state, governmental agency,
bureau, department, division or instrumentality, political
subdivision, county commission, municipality, trust, syndicate,
estate or any other legal entity whatsoever, formed, created or
existing under the laws of this state or any other jurisdiction.
(4) The limitations contained in this subsection (b) shall
be subject to the following exceptions:
(A) Obligations of the United States;
(B) General obligations of any state or of any political
subdivision thereof;
(C) Obligations issued under authority of the Federal Farm
Loan Act, as amended, or issued by the thirteen banks for
cooperatives or any of them or the Federal Home Loan Banks;
(D) Obligations which are insured by the secretary of
housing and urban development under Title XI of the National
Housing Act (12 USC § 1749aaa et seq.);
(E) Obligations which are insured by the secretary of
housing and urban development hereafter in this sentence referred
to as the "secretary" pursuant to section 207 of the National
Housing Act (12 USC § 1713), if the debentures to be issued in
payment of such insured obligations are guaranteed as to
principal and interest by the United States;
(F) Obligations, participations or other instruments of or
issued by the federal national mortgage association or the
government national mortgage association, or mortgages,obligations or other securities which are or ever have been sold
by the federal home loan mortgage corporation pursuant to Section
305 or Section 306 of the Federal Home Loan Mortgage Corporation
Act (12 USC § 1454 or § 1455);
(G) Obligations of the federal financing bank;
(H) Obligations or other instruments or securities of the
student loan marketing association;
(I) Obligations of the environmental financing authority;
(J) Such obligations of any local public agency (as defined
in Section 110(h) of the Housing Act of 1949 (42 USC § 1460 (h))
as are secured by an agreement between the local public agency
and the secretary of housing and urban development in which the
local public agency agrees to borrow from said secretary and said
secretary agrees to lend to said local public agency, moneys in
an aggregate amount which (together with any other moneys
irrevocably committed to the payment of interest on such
obligations) will suffice to pay, when due, the interest on and
all installments (including the final installment) of the
principal of such obligations, which moneys under the terms of
said agreement are required to be used for such payments;
(K) Obligations of a public housing agency as that term is
defined in the United States Housing Act of 1937, as amended, (42
USC Sec. 1401 et seq.) as are secured:
(i) By an agreement between the public housing agency and
the secretary in which the public housing agency agrees to borrow
from the secretary, and the secretary agrees to lend to thepublic housing agency, prior to the maturity of such obligations,
moneys in an amount which, together with any other moneys
irrevocably committed to the payment of interest on such
obligations, will suffice to pay the principal of such
obligations with interest to maturity thereon, which moneys under
the terms of said agreement are required to be used for the
purpose of paying the principal of and the interest on such
obligations at their maturity;
(ii) By a pledge of annual contributions under an annual
contributions contract between such public housing agency and the
secretary if such contract shall contain the covenant by the
secretary which is authorized by subsection (b) of Section 22
(Section 6 (g) (42 USC Sec. 1421a (b)) of the United States
Housing Act of 1937, as amended, and if the maximum sum and the
maximum period specified in such contract pursuant to said
subsection (b), section twenty-two, shall not be less than the
annual amount and the period for payment which are requisite to
provide for the payment when due of all installments of principal
and interest on such obligations; or
(iii) By a pledge of both annual contributions under an
annual contributions contract containing the covenant by the
secretary which is authorized by Section 6 (g) of the United
States Housing Act of 1937 (42 USC Sec. 1437d (g)) and a loan
under an agreement between the local public housing agency and
the secretary in which the public housing agency agrees to borrow
from the secretary, and the secretary agrees to lend to thepublic housing agency, prior to the maturity of the obligations
involved, moneys in an amount which, together with any other
moneys irrevocably committed under the annual contributions
contract to the payment of principal and interest on such
obligations will suffice to provide for the payment when due of
all installments of principal and interest on such obligations,
which moneys under the terms of the agreement are required to be
used for the purpose of paying the principal and interest on such
obligations at their maturity; and
(L) Obligations of a corporation owning the property in
which that state-chartered banking institution is located when
that state-chartered banking institution has an unimpaired
capital and surplus of not less than one million dollars or when
approved in writing by the commissioner of banking.
(5) Notwithstanding any other provision in this subsection,
a state-chartered banking institution may purchase for its own
account shares of stock issued by a corporation authorized to be
created pursuant to Title IX of the Housing and Urban Development
Act of 1968 (42 USC Sec. 3931 et seq.) and may make investments
in a partnership, limited partnership, or joint venture formed
pursuant to section 907 (a) or 907 (c) of that act (42 USC Sec.
3937 (a) or (c)), and may purchase shares of stock issued by any
West Virginia housing corporation and may make investments in
loans and commitments for loans to any such corporation:
Provided,
That in no event shall the total amount of such stock
held for its own account and such investments in loans andcommitments made by the state-chartered banking institution
exceed at any time five percent of the unimpaired capital and
unimpaired surplus of that state-chartered banking institution.
(6) Notwithstanding any other provision in this subsection,
a state-chartered banking institution may purchase, for its own
account, shares of stock of small business investment companies
chartered under the laws of this state, which are licensed under
the act of Congress known as the "Small Business Investment Act
of 1958," as amended, and of business development corporations
created and organized under the act of the Legislature known as
the "West Virginia Business Development Corporation Act," as
amended:
Provided,
That in no event shall any such state-
chartered banking institution hold shares of stock in small
business investment companies and/or business development
corporations in any amount aggregating more than fifteen percent
of the unimpaired capital and unimpaired surplus of that state-
chartered banking institution.
(7) Notwithstanding any other provision of this subsection,
a state-chartered banking institution may purchase for its own
account shares of stock of a bankers' bank or a bank holding
company which owns or controls such bankers' bank, but in no
event shall the total amount of such stock held by such state-
chartered banking institution exceed at any time fifteen percent
of the unimpaired capital and unimpaired surplus of that state-
chartered banking institution and in no event shall the purchase
of such stock result in that state-chartered banking institutionacquiring more than twenty percent of any class of voting
securities of such bankers' bank or of the bank holding company
which owns or controls such bankers' bank.
(8) Notwithstanding any other provision of this subsection,
a state-chartered banking institution may invest its funds in any
investment authorized for national banking associations. Such
investments by state-chartered banking institutions shall be on
the same terms and conditions applicable to national banking
associations. The commissioner of banking may, from time to
time, provide notice to state-chartered banking institutions of
authorized investments under this paragraph.
(9) The commissioner of banking may prescribe rules and
regulations to administer and carry out the purposes of this
subsection, including rules and regulations to define or further
define terms used in this subsection and to establish limits or
requirements other than those specified in this subsection for
particular classes or categories of investment securities.
(c) No officer or director of any banking institution or The
commissioner of banking or and any employee of the department of
banking shall not borrow, directly or indirectly, from the a
banking institution with which he is connected, or which is
subject to examination by the commissioner of banking, any sum of
money without the prior approval of a majority of the board of
directors or discount committee of the banking institution, or of
any duly constituted committee whose duties include those usually
performed by a discount committee, embodied in a resolutionadopted by a majority vote of such board or committee. exclusive
of the director to whom the loan is made. If any officer, clerk
or other employee of any bank shall own or control a majority of
the stock of any other corporation, a loan to such corporation
shall, for the purpose of this section, constitute a loan to such
officer, clerk or other employee
(d) Securities purchased by a banking institution shall be
entered upon the books of the bank at actual cost. For the
purpose of calculating the undivided profits applicable to the
payment of dividends, securities shall not be valued at a
valuation exceeding their present cost as determined by
amortization, that is, by deducting from the cost of a security
purchased at a premium, and charging to profit and loss a sum
sufficient to bring it to par at maturity.
NOTE: The purpose of this bill is to delete a state law
requirement regarding loans to officers and directors which is
adequately covered by federal law requirements. Current state
law requirements in this area are slightly different from the
federal law requirements and lead to an extra and unnecessary
layer of regulation. The deletion of the state law requirement
eliminates a regulatory burden on those banking institutions in
the State which have elected a state charter.
Strike-throughs indicate language that would be stricken
from the present law, and underscoring indicates new language
that would be added.
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