^P-PD/MoC/L5x4vV1985/pt- 1133 i
North Carolina. Legislative
Research Comrri i ss i on .
ReoortSn
DATE
ISSUED TO 1
NOT TO BE REMOVED
FROM
UNC LAW LIBRARY
^^^D / 'McC / L5 1 4v- / - ■::Jo:;; / i- - - ^- -■ ■■
North Carolina. Legislative
Research Comr." i ss i on.
LEGISLATIVE
RESEARCH COMMISSION
TAXATION AND REGULATION OF
BANKS, SAVINGS AND LOAN
ASSOCIATIONS, AND CREDIT UNIONS
fv^*i!^^^'''.,
REPORT TO THE
1985 GENERAL ASSEMBLY
OF NORTH CAROLINA
JAN 25 1965
INSTITUTE C
UNIVERSITY Cr
A LIMITED NUMBER OF COPIES OF THIS REPORT IS AVAILABLE
FOR DISTRIBUTION THROUGH THE LEGISLATIVE LIBRARY:
ROOM 2126,2226
STATE LEGISLATIVE BUILDING
RALEIGH, NORTH CAROLINA 27611
TELEPHONE: (919) 733-7778
OR
ROOM 500
LEGISLATIVE OFFICE BUILDING
RALEIGH, NORTH CAROLINA 27611
TELEPHONE: (919) 733-9390
STATE OF NORTH CAROLINA
LEGISLATIVE RESEARCH COMMISSION
STATE LEGISLATIVE BUILDING
RALEIGH 27611
December 15, 1984
TO THE MEMBERS OF THE 19 85 GENERAL ASSEMBLY
The 1985 Legislative Research Commission herewith reports
to the General Assembly on the matter of the taxation and
regulation of banks, savings and loan associations and credit
unions. The report is made pursuant to Chapter 905 of the 1983
General Assembly (1983 Sessions) and Section 3 of Chapter 1113
of the 1983 General Assembly (Regular Session, 1984) .
This report was prepared by the Legislative Research
Commission's Committee on the Taxation and Regulation of Banks,
Savings and Loan Associations and Credit Unions and is trans-
mitted by the Legislative Research Commission for your consid-
eration.
Respectfully submitted,
Liston B. Ramsey ^ W. Craig L^ing n
Cochairmen
Legislative Research Commission
LEGISLATIVE RESEARCH COMMISSION
Senator W. Craig Lawing, Cochairman
Senator William N. Martin
Senator Helen R. Marvin
Senator William W. Staton
Senator Joseph E. Thomas
Senator Russell Walker
Representative Liston B. Ramsey, Cochairman
Representative Christopher S. Barker, Jr.
Representative John T. Church
Representative Bruce Ethridge
Representative John J. Hunt
Representative Margaret Tennille
TABLE OF CONTENTS
Letter of Transmitted] i
LetjisJ ci tivo Ri-;:earch Coinniis.pion Membership ii
PREFACE 1
COMMITTEE PROCEEDINGS 3
1. State Regulation of Financial Institutions Generally 4
A. Potential State Regulation of "Cash Management 7
Accounts"
B. Mutual Deposit Guarantee Associations 9
C. Regulation of Bank Holding Companies 10
2. State Taxation of Financial Institutions and their 11
Depositors
FINDINGS AND RECOMMENDATIONS 17
1. Intangibles Tax 17
2. Regulation of Bank Holding Companies 18
APPENDICES
Authorizing Legislation A-1
Chapter 905 of the 1983 Session Laws
(Regular Session, 1984)
Senate Joint Resolution 381 A-2
Comnittee Membership B
Chapter 1113 of the 1983 Session Laws C
(Regular Session, 1984)
Interstate Regional Reciprocal Banking and
Bank Holding Company Act
Chapter 1087 of the 1983 Session Laws D
(Regular Session, 1984)
Interstate merger and acquisition of Savings and
Loans and on a Reciprocal Basis Permitted
Regulatory Structure of Financial Institutions E
Mr. C. C. Hope, Secretary of the Department of
Commerce
History of State Bank Supervision in North Carolina F
Mr. James Currie, Commissioner of Banks
History and Jurisdiction of Credit Union Commission G
Mr. Roy D. High, Administrator of Credit Unions
Savings and Loan Commission's Procedure H
and Jurisdiction
Mr. George S. King, the Administrator of the Savings
and Loan Division
North Carolina Bankers Association Statement I
Mr. John R. Jordan
North Carolina League of Savings Institutions
Statement J
Mr. Gordon P. Allen
North Carolina Credit Union League Statement K
Mr. Ruffin Bailey
Memoranda on Mutual Fund Regulation and the Cash
Management Account Device L
Mr. Daniel Bell, Security Administrator
Survey of States on Regulation of the CMA Device M
Mr. Randall E. Schuckmann, North American Securities
Administrator Association, Inc.
Investment Company Institute Memoranda N
Mr. Henry A. Mitchell
Investment Company Institute Statement on Regulating
Money Market Funds O
Mr. Matthew P. Fink
Financial Institutions Assurance Corporation
Statement P
Mr. Donald R. Beason
State Taxation of Financial Institution Statement Q
Mr Mark Lynch, Commissioner of Revenue
Brief History of the Taxation of Banks and Savings R
and Loan Associations — Mr. Lynch
Differences in North Carolina Tax Treatment of Banks.... S
and Savings and Loan Associations as of January 1, 1984 —
Mr. Lynch
Comparative Analysis of North Carolina Tax Collections.. T
from Banks and Savings and Loans for the Years
Indicated — Mr. Lynch
Intangibles Tax Collected from Depositors on Money on... U
Deposit — Mr. Lynch
Statement on State Taxation of Types of Financial
Institutions V
Mr. B. E. Dail, Director of Tax Research Division of
the Department of Revenue
Comparison of State Taxes Imposed by Banks, Savings W
and Loan Associations, and Credit Unions — Mr. Dail
Comparison of Taxes Imposed by States and Local X
Governments on Intangible Property--Mr . Dail
States Not Taxing Intangible Personal Property Y
—Mr. Dail
Taxation of Tangible Personal Property of Banks, AA
Savings and Loan Associations and Credit Unions —
Mr. Dail
Analysis of Total or Partial Repeal of the BB
Intangibles Tax — Mr. Dail
The Legislative Research Commission, authorized by Article
6B of Chapter 120 of the General Statutes, is a general purpose
study group. The Commission is co-chaired by the Speaker of
the House and the President Pro Tempore of the Senate and has
five additional members appointed from each house of the
General Assembly. Among the Commission's duties is that of
making or causing to be made, upon the direction of the General
Assembly, "such studies of and investigation into governmental
agencies and institutions and matters of public policy as will
aid the General Assembly in performing its duties in the most
efficient and effective manner" (G.S. 120-30.17(1)).
At the direction of the 1983 General Assembly, the Legis-
lative Research Commission has undertaken studies of numerous
subjects. These studies were grouped into broad categories and
each member of the Commission was given responsibility for one
category ol study. The co-chairmen of the Legislative Research
Commission, under the authority of General Statute 120-30.10 (b)
and (c) , appointed committees consisting of members of the
General Assembly and the public to conduct the studies.
Co-chairmen, one from each house of the General Assembly, were
designated for each committee.
The study of the taxation and regulation of banks, savings
and loan associations and credit unions was authorized by
Section 1(28) of Chapter 905 of the 1983 Session Laws (1983
Sessions) . That act states that the Commission may consider
Senate Joint Resolution 381 in determining the nature, scope
1
and aspects of the study. Section 1 of Senate Joint Resolution
381 reads: "The General Assembly hereby directs the Legisla-
tive Research Commission to conduct a study of the present
regulations and tax levies applicable to commercial banks,
savings and loan associations and credit unions." Relevant
portions of Chapter 905 and Senate Joint Resolution 381 are
included in Appendix A.
The Legislative Research Conunission grouped this study in
its Finance area under the direction of Senator William W.
Staton. The Committee was chaired by Representative Ed N.
Warren and Senator James H. Edwards. The full membership of
the Committee is listed in Appendix B of this report.
The 19B4 Regular Session of the General Assembly in
passing an earlier Comjtiittee proposal, the Interstate Regional
Reciprocal Banking Act, specified that the Committee in
addition study and report to the 1985 Session of the General
Assembly on the extent of authority beyond that conferred on
the Commissioner of Banks by that Act relating to acquisitions
of North Carolina banks or bank holding companies by
out-of-state regional bank holding companies (Section 3 of
Chapter 1113) of the 1983 Session Laws (1984 Regular Session).
Chapter 1113 is included as Appendix C.
COMMITTEE PROCEEDINGS
The first part of the Committee's study consisted of
obtaining information on the taxation and regulation of the
financial industry in general and in reviewing and passing upon
the interstate regulation of certain segments of the financial
industry.
The Committee during the first half of 1984 devoted most
of its time to this latter issue. The Committee by its Report
to the 1984 Session of the 1983 General Assemhily recommended
three pieces of legislation. Copies of that Report with the
recommended legislation in its appendices are available from
the Legislative Library.
The first piece of legislation, dealing interstate region-
al reciprocal banking, recommended to the 1984 Session
v;as introduced as Senate Bill 706. During the legislative
process that bill was amended to provide for registration of
bank holding companies in North Carolina. Senate Bill 706 was
ratified as Chapter 1113 of the 1983 Session Laws {Regular
Session, 1984) and is attached as Appendix C. The second piece
of recommended legislation permitting interstate regional
mergers and acquisitions of savings and loan associations and
their holding companies was introduced as Senate Bill 807 and
v;as ratified Chapter 1037 of the 1983 Session Laws (Regular
Session 1984) and is attached as Appendix D. The last piece of
legislation recommended by the Committee deals with late fees
on consumer loans and was introduced as Senate Bill 789 but was
not ratified. Senator James H. Edwards was the primary sponsor
ot all of the recommended legislation.
During the later part of 1984 the Committee returned its
attention to the general issue of the regulation and taxation
of financial institutions within the State. Specifically the
Committee investigated the need for State regulation of asset
management accounts, and alleged inequitable tax treatment of
the different types of the financial institutions operating in
the State.
1 . State Regulation of Financial Institutions Generally
The Committee at the outset of its deliberations decided to
obtain an overview of the state regulation of financial insti-
tutions. The Committee asked the state regulatory authorities
of these institutions to present the Committee relating to
their present powers of regulation and anticipated need for
future regulatory authority and their belief a.s to whether the
supervision of the three types of financial institutions ought
to bo consolidated in one state agency.
Mr. C. C. Hope, the Secretary of the Department of Com-
merce, presented a chart (Appendix E) showing for the three
types of institutions both for state and federally-chartered
institutions: the regulatory structure, regulatory powers,
association powers, deposit insurance and taxation. Mr. Hope
opined that the time may come when consolidation of state
agencies regulating financial institutions should occur but
that before that is done an extensive study be undertaken as to
the effect of a consolidation on consumers as wfll as financial
institutions.
Mr. James Currie, the Commissioner of Banks, presented n
brief history of state bank supervision in this State (attached
as Appendix F) , He indicated that the state-chartered banks
are in good financial condition. He argued for a state bank
holding company statute (see the Report of the Committee to the
1984 Regular Session of the General Assembly) .
Mr. Roy D. High, Administrator of Credit Unions, outlined
the history and jurisdiction of Credit Union Commission and the
number, size and types of credit unions his division supervis-
es. Mr. High's remarks are attached as Appendix G.
Mr. George S. King, the Administrator of the Savings and
Loan Division, sketched the Savings and Loan Commission operat-
ing procedure and jurisdiction and indicated that savings and
loan associations are still gearing their investments and
business to real estate lending (Appendix H) .
Representatives from the financial industries being
regulated, also were asked to present their positions on
whether there should be consolidation of state regulatory
authority of these institutions; whether there are state
statutes and regulatory provisions resulting in inequitable
treatment of the different types of financial institutions and
whether they sliould be changed and whether there are inequities
in tho Rt-nt^r taxation of differont typos of finaiu-inl
institutions and how these inequities should be remedied.
Mr, John R. Jordan representing the North Carolina Bankers
Association stated that the Association had not taken a
position on the issue of consolidation but counselled caution
citing the changes sweeping the finance industry (see Appfiidix
I) . His comments with regard to equities in treatment are set
forth below in the part of this report dealing with Taxation.
Mr. Paul H. Stock read the presentation of Mr. Gordon P.
Allen, the legislative agent for the North Carolina Leaguf of
Savings Institutions (see Appendix J). Mr. Stock traced recent
state and federal legislation affecting savings and loan
associations. He stated his association's position that the
present regulatory structure in adequate and efficient based on
the differing functions of the three types of financial insti-
tutions and its opposition to consolidation of the state's
financial regulators.
Mr. Ruffin Bailey representing the North Carolina Credit
Union League stated that association's opposition to stan-
dardization of regulation of the types of financial insti-
tutions. He set forth the historical, the legal and structural
uniqueness of credit unions as a financial institution. He
emphasized that credit unions \/ere born of a real need of
people of average means to obtain credit for consumer goods and
that they are non-profit, member-owned cooperative financial
institutions. Mr. Bailey's statement is contained in Appendix
K.
A. Potential State Regulation of
"Cash Management Accounts"
At the first meeting, the Honorable Harlan E. Doyles, the
State Treasurer, suggested that the Committee should look into
the need for State regulation of all entities receiving public
deposits, specifically money market funds and cash management
accounts .
A cash management account is a device sponsored by
brokerage houses by which cash deposits are accepted from
clients and deposited in money market funds and orders of
withdrawal from clients are honored. The largest of these
devices is the Cash Management Account program (CMA) sponsored
by Merrill, Lynch, Pierce, Fenner and Smith, Inc.
Upon the invitation of the Committee, Mr. Daniel Bell III,
Deputy Securities Administrator in the Department of Secretary
of State appeared at the Committee's second meeting. Mr. Bell
provided the Coirmittee with two memoranda attached as Appendix
L giving a comprehensive overview of the history of security
regulation by North Carolina and of the status of mutual funds
under North Carolina and federal law; and an explanation of the
CMA device. He explained the position of his office regarding
further State regulation of these devices. In brief his
position was that these devices are adequately regulated now,
thai for North Carolina to regulate further these df:vices
would, in effect, prohibit the sale of these devices in this
State to the detriment of the public of this State and that the
problems with these devices perceived by competing financial
institutions are best addressed by Congress as a national
policy rather than by the individual States.
The Committee directed its staff to poll the states to
determine whether there was any legislation, administrative
rules or proceedings or court cases in their jurisdictions
regarding the cash management account device. The poll was
conducted under the auspices and with the aid of the North
American Securities' Administrators Association, Inc. Of the
24 States responding to the questionnaire, none was aware of
any state activity in regard to enacted legislation, adminis-
trative rules or proceedings or court cases regarding cash
management accounts. Appendix M contains the analysis of the
responses to the questionnaire.
The Committee also received a memorandum (attached as
Appendix N) from Mr. Henry A. Mitchell, Jr. representing the
Investment Company Institute who argued that state regulation
oi these devicf>s is of dubious constitutionality, would make
these funds unavailable to North Carolina investors and is
conceptually unsound. Mr. Matthew P. Fink, Senior Vice
President and General Counsel of the Investment Company
Institute appeared before the Committee at its October 1, 1984,
meeting and indicated that legislation regulating money market
funds had been considered in over twenty states and been
enacted in none. He anjued th.Tt there was no need for any
additional requlation of money market- funds. Mr. Fink's
written remarks are attached as Appendix O.
B. Mutual Deposit Guarantee Associations
In view of the recent experience of financial institutions
surety companies in a sister state, the Committee invited Mr.
Donald R. Beason, the President and Chief Executive Officer of
the Financial Institutions (FIAC) Assurance Corporation, to
appear before the Committee.
The FIAC is the sole North Carolina state-chartered
corporation (G.S. 54B-236 et. seq.) which is authorized to
guarantee deposits in banks, savings and loan association and
credit unions. Mr. Beason was asked to speak to the specific
internal safeguards and the specific external rules imposed on
his corporation which protect deposits in North Carolina
financial institutions insured by FIAC; reasons for the recent
collapse of certain financial institutions in Nebraska; and a
statistical analysis comparing the financial statu?, of FIAC and
its federal equivalent, the Federal Savings and Loan Insurance
Corporation. Mr. Beason distributed notebooks to Committee
members containing his presentation and supporting materials a
copy of which is available for inspection in the State Legisla-
tive Library.
Mr. Beason said that, since its beginning in 1967, FIAC
has grown from insuring $50 million in deposits to nearly $2.8
billion. FIAC insures 34 state-chartered savings and loan
associations and 25 credit unions. Internally, FIAC guarantees
the safety of deposits by imposing strict oversight and diag-
nostic reviews over its member institutions. Mr. Beason
indicated that his corporation is regulated by the State
Department of Commerce and is examined by a combination of
savings and loan association and credit union examiners from
that Department. He assured the Committee that FIAC will not
enter into operations in any state until it is assured, among
other matters, of the adequacy of that state's regulatory
process .
Mr. Beason analysed the difficulties encountered with
Commonwealth Savings Company and its insurer the Nebraska
Guaranty Corporation which lead to their failures. He
indicated that the Nebraska Guaranty Corporation was not "more
than a fund of money with no professional risk management
capabilities or powers." He stated that he believed that the
situation which developed in Nebraska could not occur under the
FIAC system.
He also provided a detailed comparison of FIAC and FSLIC.
Mr. Season's oral presentation is contained in Appendix P, and
a notebook containing his supporting materials is available for
inspection in the Legislative Library.
C. Regulation of Bank Holding Companies
10
Mr. James Currie, the Commissioner of Banks, in discussing
the effect of the passage of interstate reciprocal banking
legislation in other states in the Southeast indicated that
those states have broader authority to investigate bank holding
companies coming into those states than he has for other
states' bank holding companies coming into North Carolina. He
stated that their lack of compatible authority does present
slight problems in the uniformity of administration.
Mr. Currie presented to the Committee an outline of the
authority of other states in the Southeast Region over North
Carolina bank holding companies in regional reciprocal
interstate transactions, (see Appendix Q) .
2. State Taxation of Financial Institutions
and Their Depositors
One of the main thrusts of the original legislation.
Senate Joint Resolution 381, Section 1 (Appendix A) was to
study the "tax levies applicable to commerical banks, savings
and loan associations and credit unions."
The Committee invited various state officials and
representatives of private industry and local government to
give their views on whether there are inequities in the state
taxation of the various types of financial institutions and how
these inequities should be remedied.
Mr. Mark Lynch, the Secretary of Revenue, distributed to
the Committee a copy of his written remarks (see Appendix R)
the following four self-explanatory charts regarding state
taxation of banks and savings and loan association:
11
Brief History of the Taxation of Banks and
Savings and Loan Associations (see Appendix S)
Differences in North Carolina Tax Treatment of
Banks and Savings and Loan Associations as of
January 1, 1984 (see Appendix T)
Comparative Analysis of North Carolina Tax
Collections from Banks and Savings and Loans for
the Years Indicated (see Appendix U) ; and
Intangibles Tax Collected From Depositors on
Money on Deposit (see Appendix V)
Mr. Lynch indicated that credit unions are not included on
these charts because these financial institutions are not
subject to income, franchise or intangible taxes. He also
declined to opine as to whether or not inequities of taxation
exist stating that he believed it to be inappropriate for a
Secretary of Revenue to do so.
Mr. John Jordan, legislative agent for the North Carolina
Bankers Association, said that the state taxation of financial
institutions have been reviewed and amended continuously since
the 1969 Session of the General Assembly. He indicated that
inequities in the taxation of the income of banks have been
corrected and these corrections should not be disturbed. He
further stated that tax inequities between the types of
12
financial institutions still exist and cited the intangibles
tax which is imposed on customers of banks but not on those of
savings and loans or of credit unions. His remarks are found
as Appendix I.
Mr. James M. Culberson, Jr., President of First National
Bank of Randolph County, also spoke for the North Carolina
Bankers' Association. He urged the repeal of the intangibles
tax citing among his other beliefs that the tax is antiquated
and is not imposed on many new types of investments and that
the tax is not applied on a uniform basis in that credit unions
and savings and loan associations are exempt.
Gordon P. Allen and Paul H. Stock representing the North
Carolina League of Savings Institutions, acknowledged the
existence of differences in the tax treatment of various types
of financial institutions but deferred to the General Assembly
the question as to whether or not these differences were
inequitable (The statements appear in Appendix J) .
Mr. Ruffin Bailey, the legislative agent for the North
Carolina Credit Union League stated that association's oppo-
sition to changes in the present tax treatment of credit
unions. He defended the differences in the state tax treatment
of credit unions verses the other types of in-state financial
institutions citing specific reasons for each difference. Mr.
Bailey's statement is contained in Appendix K.
The Honorable Harlan Boyles, the State Treasurer, in his
remarks before the Committee recommended the repeal of the
intangibles tax to place all financial institutions on an equal
13
footing. He suggested the General Fund would btiu'lji. from the
repeal. General Fund revenues could then, be argued, be used
to replace the revenues lost to cities and counties by the
repeal.
The Committee requested of the Revenue Department informa-
tion regarding taxes imposed by each state on banks, savings
and loan associations and credit unions and analysis of the
effect of total or partial repeal of the intangibles tax.
Mr. B. E. Dail, Director of the Tax Research Division of
the Department of Revenue, presented to the Committee an
explanation (Appendix W) and the following tables:
Comparison of State Taxes Imposed by Banks,
Savings and Loan Associations, and Credit
Unions (Appendix X) ;
Comparison of Taxes Imposed by States and Local
Governments on Intangible Property (Appendix Y) ;
States Not Taxing Intangible Personal Property
(Appendix Z) ; and
Taxation of Tangible Personal Property of Banks,
Savings and Loan Associations and Credit Unions
(Appendix AA) .
He indicated that there is much variation in the way the states
tax financial institutions.
14
On the issue of total or partial repeal of the intangibles
tax, Mr. Dail said that $60,616,000 was collected by the
intangibles tax during the 1982-1983 fiscal year, of which
local governments received 93.3 percent. Of that amount $12.3
million is the amount of intangibles tax paid on money on
deposit by all taxpayers including corporations, less the tax
credits allowed to corporations on their franchise taxes. Mr.
Dail analysed the impact on state tax revenues, local govern-
ment revenues, industrial development and in-migration of
retired persons if the intangibles tax were repealed. He
concluded that replacement revenues would be needed to offset
the loss of intangible tax revenues, that under the remaining
present tax structure these revenues would not likely develop
in a short time period and that it is questionable whether
repeal of the their tax would have the necessary dramatic
effect on industrial development or on in-migration of retirees
to develop large additional state revenues. Mr. Dail's analy-
sis is contained in Appendix BB.
Mr. C. Ronald Aycock, Executive Director of the North
Carolina Association of County Commissioners' set forth the
position of that Association in a letter, dated November 9,
1984, to Senator Edwards in these words:
"The Association does not support the repeal of the
intangibles tax. If the tax is repealed, county government
should be held harmless from any revenue loss."
15
The Coimtiittee also was briefed by the staff of the I-egis-
lative Research Commission's Committee on Revenue Laws which is
also investigating changes to the intangibles tax.
During the period of the Committee's life the General
Assembly in its 1984 Regular Session considered a bill, Senate
Bill 750 — introduced by Senator W. Craig Lawing of Mecklenburg
County, which would have phased out the intangibles tax over a
five-year period and would have provided local governments with
partial compensation for the resulting revenue loss. Senate
Bill 750 failed to pass when the Senate refused to appoint a
conference committee.
16
FINDINGS AND RECOMMENDATIONS
The Committee on the Taxation and Regulation of Banks, Savings
and Loans and Credit Unions makes the following findings and
recommends the following actions to the 1985 General Assembly:
1. Intangibles Tax
A. Findings
(1) The public policy of the State is to reduce its citizen's
tax burden, insofar as possible, but not so as to endanger
providing needed public services.
(2) The costs and difficulties of collecting the intangible
tax on money on deposit and money on hand are an onerous and
costly imposition by the State on banks and other corporations.
(3) Money on deposit in banks is subject to the intangibles
tax whereas money on deposit in credit unions and savings and
loan associations is not. Banks are therefor at a comparative
disadvantage with the State's other financial institutions in
attracting and retaining depositors.
(4) The intangibles tax on funds on deposit with insurance
companies (G.S. 105-205) produces little tax and like the tax
on money on deposit is returned to the local governments on the
basis of population.
(5) North Carolina's intangibles tax places this State at a
comparative disadvantage with other states not imposing this
tax in attracting new industry and those individuals dependent
on earnings from invested income.
if)) The repeal of the taxes on these types of intangible
personal property would lead to increased economic growth,
immigration of retirees to North Carolina, and for certain
individuals who maintain residences in North Carolina and other
states, the establishment of their official residence in North
Carolina.
B. Recommendations
(1) That legislation be enacted to repeal the intangibles tax
on money on deposit (G.S. 105-199 and G.S. 105-205), and money
on hand (G.S. 105-200), effective for tax years beginning on or
after January 1, 1985.
(2) That the 1985 General Assembly coordinate the replacement
of revenue loss to local governments resulting from the recom-
mended repeal of tax on these types of intangible personal
property.
2. Regulation of Bank Holding Companies
A. Findings
(1) The financial services industry is undergoing rapid and
sweeping change both in North Carolina and nationally.
18
(2) A need exists for the State of North Carolina to be aware
of and involved in the continuing development of the financial
services industry operating within her borders and affecting
the economic well-being of her citizens.
(3) Under the legislation enacted by the 1984 General Assembly
relating to interstate regional reciprocal banking and regis-
tration of bank holding companies. North Carolina state regula-
tors do not have the authority for a continuing supervision of
regional out-of-state bank holding companies acquiring North
Carolina banks or bank holding companies while other Southeast-
ern states have been given that authority to their regulators
with respect to North Carolina bank holding companies acquiring
their in-state banks or bank holding companies.
(4) The state bank regulators of North Carolina need the
continuing supervisory and examination authority over bank
holding companies afforded other Southeastern states' bank
regulators to assure the continuing viability of North Carolina
banking and to cooperate with other states bank regulators in
an efficient and effective administration of the interstate
regional reciprocal banking legislation.
B. Recommendation
That the House and Senate Banking Committees of the 1985
General Assembly study the enactment of legislation to vest in
the Commissioner of Banks power to regulate bank holding
companies, to approve acquisitions of North Carolina banks by
19
all bank holding companies operating in this State; and to
examine and require reports of those bank holding companies,
20
APPENDIX A
" B 1142 CHAPTER 906
AN Arr AIITHOHIZINU STUDIES BY THK LKUISLATIVF HKSKA|«H
SpTialZ^T ^L™'' COMMISSION ON (iVuRKN^WT
The Genenil Assembly oC North Carulin:, enacLs:
Section 1. Tlie LxKislative lU'starch ('omniksion may study ll.c lonirs
Lsted below. Listed w,lh each top.c >s the 198J bill or resolution that on „,,. lly
proposed the study and the name ol the sponsor The Comtnis,sion tn ,y , on. idei
the or'K-ud b.ll or resolution n, deternun.ng the nature, scope and aspects ol
the study. The topics are: '
(28) Regulation amJ Ta^afon of Banks. Savmgs and lx.ans and Cred.t
Unions (S.J.R. 381 Edwards of Caldwell)
Sec. 6. For each of the topics the Legislative Researih Commission
decides to study, the Commis.sion may report its linding.s, together with any
recommended legislation, to the 19H4 Session of the General As.sembly or to th-
1985 General As.sembly, or the Commission may make an interim report to the
1984 Session and a final report to the 1985 General Assembly.
Sec. 13. Bills and Resolution References. The listing of the original bill
or resolution in this act is for referen.x^ purposes ..nly and shall not be deemed
to have incorporated by reference any of the substantive provisions contained
in the original bill or resolution
Se< . 14. This act is effective upon ratification.
July 'l9«!i' '^'""''"' '^^'"'''■'' '*''"' '*"■'''' """^ ""<* ratified, this the 21st day of
A-1
APPENDIX A
GENERAL ASSEMBLV OF NORTH CAROLINA
SESSION 1983
SENATE JOINT RESOLUTION 3R 1
Sponsors: Senator Edwards of Caldwell.
M§f§rred_toi B.ulss_and_OBeration_of_the_ Senate^
April in, 1^83
1 A JOINT RESOLUTION DIRECTING THE LEGISLATIVE RESEARCH C0M1ISST0K
2 TO STUDY PRESENT SYSTEM OF REGULATION AND TAXATION OF BANKS,
3 SAVINGS AND LOANS AND CREDIT UNIONS.
'1 Whereas, the members of the North Carolina General
5 Assembly are keenly aware of changes currently taking place with
6 regard to the operational and organizational strategies of the
1 various financial institutions in North Carolina; and
8 Whereas, the laws enacted which deal with regulation and
9 taxation are not uniformly applicable to commercial banks,
^^ savings and loan associations and credit unions, as dramatically
^^ illustrated as follows:
STATE AND LOCAL TAXES LEVIED ON BANKS,
12
^3 SAVINGS AND LOAN ASSOCIATIONS,
^'' AND CREDIT UNIONS
i§llK§ Savings Credit
& Loans Unions
17
I- Franchise Tax
General business franchise
I 9
G.S. 105-122 Taxable Taxable Exempt
20
($1.50 per 'K1,000 tax base)
A-2
GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1983
1 II. Cor£grate Income Tax
2 G-S. 105-130 Tdxah]" Tax?»ble Exempt
3 6% of State taxable income
h III. Intan£ibles Tax (Paid bj
5 the institutions)
6 Honey on Deposit
7 G.S. 105-199 Exempt Taxable Exempt
8 (100 per $100.00)
Money on Hand
G.S. 105-200 Taxable Taxable Exempt
(25jzf per $100.00)
Accounts Receivable
G.S. 105-201 Taxable Exempt Exempt
(250 per $100.00)
Notes Receivable, etc.
G.S. 105-202 Taxable Exempt Exempt
(250 per $100.00)
Shares of Stock
G.S. 105-203 Taxable Exempt Exempt
IV. Intanciibles Tax (Paid
by depositors)
Money on Deposit
(100 per $100.00) Taxable Exempt Exempt
V- I;i2§n§§ Tax
ftnnual privilege tax
G.S. 105-102.3 Taxable Exempt Exempt
($30. 00 per $^, 000, 000
of average total assets)
Senate Joint Resolution 38 1
A-3
GENERAL ASSEMBLY OF NORTH CAROLINA SESSION 1983
1 VI. Sales and Use Tax Taxable Taxable Taxable
2 VII- Ad Valorem Tax 'i.,x .'ile Taxable Taxable
3 Whereas, the General Assembly has crt-att-fl md providr-'"
li for separate and autonomous regulatory bodies in the Bankinn
5 Commission, the Savings and Loan Commission and the Credit rrnion
6 Commission, all with separate and express jurisdictional
7 responsibilities none of which have an overall authority to
8 develop a State policy for regulation and taxation;
9 Whereas, the public interest dictates the need for a
10 legislative review of the entire industry, with emphasis upon
11 regulation and taxation; Now, therefore,
12 Be it resolved by the Senate, the House of 'Representatives
13 concurring:
lli Section 1. The General Assembly hereby directs the
15 Legislative Research Commission to conduct a study of the present
16 regulations and tax levies applicable to commercial banks,
17 savings and loan associations and credit unions.
18 Sec. 2. The Legislative Research (Commission shall
19 report its findings, together with any recommended legislation,
20 to the 1984 Session of the General Assembly or the Commission may
21 make an interim report to the '[^BH Session and a final report to
22 the 1985 General Assembly.
23 Sec- 3. This resolution is effective upon ratification.
2h
25
2 b
27
28
Senate Joint Re.'-.olution 181
A-
APPENDIX B
MEMBI'IRSIIIP
BANKS, SAVINGS & LOANS STUDY COMMITTEE
Senator James H, Edwards
Cochairman
420 7th Avenue, S.W.
Hickory, NC 28601
Tel. 704-328-6405
Rep. Edward N. Warren
Cochairman
401 W. First Street
Greenville, NC 27834
Tel. 919-758-1543
Senator Dallas L. Alford, Jr.
Box 229
Rocky Mount, NC 2 7801
Tel. 919-442-4696
Rep. Harold J.Brubaker
138 Scarboro Street
Asheboro, NC 27203
Tel. 919-629-5128
Senator Harold W. Hardison
P. O. Box 128
Deep Run, NC 28525
Tel. 919-568-3131
Rep. Charles D. Evans
P. O. Box 189
Manteo, NC 27954
Tel. 919-473-2171
Senator Joseph E. Johnson
Box 750
Raleigh, NC 27602
Tel. 919-833-9789
Rep. John C. Hasty
1181 W. Sanders Street
Maxton, NC 28364
Tel. 919-844-5257
Senator Kenneth C. Royall, Jr
P. 0. Box 8766
Forest Hills Station
Durham, NC 27707
Tel. 919-489-9191
Rep. Wendell H. Murphy
P. 0. Box 759
Rose Hill, NC 28458
Tel. 919-289-2111
Senator William Staton
205 Courtland Drive
Sanford, NC 27330
Tel. 919-775-5616
B-1
APPENDIX C
GENERAL ASSEMBLY OF NORTH CAROLINA
1983 SESSION (REGULAR SESSION, 1984)
RATIFIED BILL
CH&PTEB 1113
SENATE BILL 706
AN ACT TO PEEHIT INTERSTATE BANKING IN NORTH CAROLINA ON A
RECIPROCAL BASIS AND TO PROVIDE FOR THE REGISTRATION OF BANK
HOLDING COHPANIES.
Hhereas, banking organizations play a vital role in the
development and growth of a viable local and regional econoay;
and
Whereas, it is anticipated that bankinq services in
North Carolina will be iaproved and coapetition enhanced by the
developaent in the southeastern region of the United States of
bank holding conpanies that are sufficient in size to compete
effectively with the largest banking organizations in the Onited
States in all areas of banking: and
ihereas, it is also anticipated that econoaic growth in
North Carolina will be stimulated and aided by the development of
such bank holding coapanies in the southeastern region of the
Onited States; and
Whereas, it is desirable, at the same tiae, to place
certain liaitations on the development of bank holding coapanies
serving North Carolina in order to prevent undue concentrations
of economic resources and a lessening of competition as a result
thereof; and
Whereas, a number of the United States, including states
located in the southeastern region of the Onited States and
contiguous to North Carolina, have already authorized soae fora
of interstate banking; and
Whereas, it is desirable to encourage other states
located in the southeastern region of the Onited States to pernit
the acquisition of their banks and bank holding coapanies by bank
holding companies principally located in North Carolina in order
to further the developaent of bank holding companies in the
southeastern region of the Onited States; and
Whereas, federal law permits each of the Onited States
to determine the extent to which bank holding companies may
engage in interstate banking within its borders; and
Hhereas, it is in the best interest of North Carolina
and its citizens to establish legislation to permit acquisition,
on a reciprocal basis, of North Carolina banks and bank holding
companies by bank holding companies principally located in other
states in the southeastern region of the Onited States, subject
to the supervision and regulation of the North Carolina
Commissioner of Banks; Now, therefore.
The General Assembly of North Carolina enacts:
Section 1. . Chapter 53 o f the General Statutes of North
Carolina is amended to add two new Articles as follows:
"ARTICLE 17.
"North Carolina Regional Reciprocal Banking Act. .
"* 53-209. Title. — This Article shall be known and may be
cited as the North Carolina Regional Reciprocal Banking Act.
C-1
"§ 53-210. Definitions. — Notwithstanding any other section of
this Chapter, for the purposes of this Article:
(1) 'Acquire' neans:
a. the nerger or consolidation of one bank holding
company with another bank holding company;
b. the acquisition by a bank holding company of direct
or indirect ownership or control of voting shares
of another bank holding coapany or a bank, if,
after such acquisition, the bank holding company
making the acquisition will directly or indirectly
own or control more than five percent (5%) of any
class of voting shares of the other bank holding
company or the bank;
c. the direct or indirect acquisition by a bank holding
company of all or substantially all of the assets
of another bank holding company or of a bank; or
d. any other action that would result in direct or
indirect control by a bank holding company of
another bank holding company or a bank.
(2) 'Bank' means any 'insured bank' as such term is defined in
Section 3(h) of the Federal Deposit Insurance Act (12 U.S.C.
18 13(h)) or any institution eligible to become an 'insured bank'
as such term is defined therein, which, in either event,
a. accepts deposits that the depositor has a legal
right to withdraw on demand; and
b. engages in the business of making commercial loans.
(3) 'Banking office' means the principal office of a bank, any
branch of a bank, any teller's window of a bank or any
other office at which a bank accepts deposits:
Provided, however, that 'banking office' shall not mean:
a. unmanned automatic teller machines, point of sale
terminals or other similar unmanned electronic
banking facilities at which deposits may be
accepted ;
b. offices located outside the United States; or
c. loan production offices, representative offices or
other offices at which deposits are not accepted.
(4) 'Bank holding company' has the meaning set forth in
Section 2(a)(1) of the Bank Holding Company Act of 1956
as amended (12 0. S. C. 1841(a) (1)).
(5) 'Commissioner' means the Commissioner of Banks of this
State.
(6) 'Control' has the meaning set forth in Section 2(a)(2) of
the Bank Holding Company Act of 1956 as amended (12
U.S.C. 1841 (a) (2) ).
(7) 'Deposits' means all demand, time, and savings deposits,
without regard to the location of the depositor:
Provided, however, that 'deposits' shall not include any
deposits by banks. For purposes of this Article,
determination of deposits shall be made with reference
to regulatory reports of condition or similar reports
made by or to state and federal regulatory authorities.
(8) 'North Carolina bank' means a bank that:
a. is organized under the laws of this State or of the
United States; and
SenatP Bill 706
C-2
b. has banking offices located only in this State.
(9) 'North Carolina bank holding company* means a bank holding
company :
a. that has its principal place of business in this
State;
^' the North Carolina bank and regional bank
subsidiaries of which hold more than eighty percent
(80%) of the total deposits held by all of its bank
subsidiaries, other than bank subsidiaries
controlled by it in accordance with G.S. 53-2 12 of
this Article; and
c. that is not controlled by a bank holding company
other than a North Carolina bank holding company.
(10) 'Principal place of business* of a bank holding company
means the state in which the total deposits held by the
banking offices of the bank holding company's bank
subsidiaries are the largest.
(11) 'fiegion' means the states of Alabama, Arkansas, Florida,
Georgia, Kentucky, Louisiana, Maryland, Mississippi,
North Carolina, South Carolina, Tennessee, Virginia and
iest Virginia, and the District of Columbia.
(12) 'Regional bank' means a bank that:
a. is organized under the laws of the United States or
of one of the states in the region other than North
Carolina; and
b. has banking offices located only in states within
the region.
(13) 'Regional bank holding company' means a bank holding
company :
a. that has its principal place of business in a state
within the region other than North Carolina;
b. the regional bank and North Carolina bank
subsidiaries of which hold more than eighty percent
(8 0%) of the total deposits held by all of its bank
subsidiaries, other than bank subsidiaries
controlled by it in accordance with G.S. 53-2 12 of
this Article;
c. that is not controlled by a bank holding company
other than a regional bank holding company; and
d. that neither is controlled by nor is a foreign bank
as defined in the International Banking Act of 1978
(12 O.S. C. 3101 (7) ).
(1U) 'State' means any state of the Onited States or the
District of Columbia.
(15) 'Subsidiary' has the meaning set forth in Section 2(d) of
the Bank Holding Company Act of 1956 as anended (12
D.S.C. 1841 (d)).
"§ 53-2 11. Acguisitions by regional bank holding companies. --
(a) A regional bank holding company that does not have a North
Carolina bank subsidiary (other than a North Carolina bank
subsidiary that was acquired either pursuant to Section 116 or
Section 123 of the Garn-St Germain Depository Institutions Act of
1982 (12 O.S.C. 1730a(m), 1823(f)) or in the regular course of
securing or collecting a debt previously contracted in good
faith, as provided in Section 3(a) of the Bank Holding Company
Senate Bill 706 3
C-3
Act of 1956 as amended (12 U.S.C. 1842 (a))) may acquire a North
Carolina bank holding conpany or a North Carolina bank with the
approval of the Commissioner. The regional bank hoidinq company
shall subnit to the Commissioner an application for approval of
such acquisition, which application shall be approved only if:
(1) The Commissioner determines that the laws of the
state in which the regional bank holding company
making the acquisition has its principal place of
business permit all North Carolina bank hoidinq
companies to acquire banks and bank hoidinq
companies in that state;
(2) The Commissioner determines that the laws of the
state in which the regional bank holding company
making the acquisition has its principal place of
business permit such regional bank holding company
to be acquired by the North Carolina bank holding
company or North Carolina bank sought to be
acquired. For the purposes of this subsection, a
North Carolina bank shall be treated as if it were
a North Carolina bank holding company;
(3) The Commissioner determines either that the North
Carolina bank sought to be acquired has been in
existence and continuously operatinq for more than
five years or that all of the bank subsidiaries of
the North Carolina bank hoidinq company sought to
be acquired have been in existence and continuously
operatinq for more than five years: Provided, that
the Commissioner may approve the acquisition by a
regional bank hoidinq company of all or
substantially all of the shares of a bank orqanized
solely for the purpose of facilitating the
acquisition of a bank that has been in existence
and continuously operating as a bank for more than
five years; and
(4) The Commissioner makes the acquisition subject to
any conditions, restrictions, requirements or other
limitations that would apply to the acquisition by
a North Carolina bank holding company of a bank or
bank holding company in the state where the
regional bank holding company making the
acquisition has its principal place of business but
that would not apply to the acquisition of a bank
or bank hoidinq company in such state by a bank
holding company all the bank subsidiaries of which
are located in that state.
(b) A regional bank holding company that has a North Carolina
bank subsidiary (other than a North Carolina bank subsidiary that
was acguired either pursuant to Section 116 or Section 123 of the
Garn-St Germain Depository Institutions Act of 1982 (12 U.S.C.
1730a(m), 1823(f)) or in the regular course of securing or
collecting a debt previously contracted in good faith, as
provided in Section 3(a) of the Bank Holding Company Act of 1956
as amended (12 O.S.C. 1842 (a))) may acquire any North Carolina
bank or North Carolina bank holding company with the approval of
the Commissioner. The regional bank holding company shall submit
^ Senate Bill 706
to the C OBinissioner an application for approval of such
acquisition, which application shall be approved only if:
(1) The Comaissioner determines either that the North
Carolina bank sought to be acquired has been in
existence and continuously operating for more than
five years or that all of the bank subsidiaries of
the North Carolina bank holding company sought to
be acquired have been in existence and continuously
operating for more than five years: Provided, that
the Commissioner may approve the acquisition by a
regional bank holding company of all or
substantially all of the shares of a bank organized
solely for the purpose of facilitating the
acquisition of a bank that has been in existence
and continuously operating as a bank for more than
five years; and
(2) The Commissioner makes the acquisition subiect to
any conditions, restrictions, requirements or other
limitations that would apply to the acquisition by
a North Carolina bank holding company of a bank or
bank holding company in the state where the
regional bank holding company making the
acquisition has its principal place of business but
that would not apply to the acquisition of a bank
or bank holding company in such state by a bank
holding company all the bank subsidiaries of which
are located in that state.
(c ) The Commissioner shall rule on any application submitted
under this section not later than 90 days following the date of
submission of a complete application. If the Commissioner fails
to rule on the application within the requisite 90-day period,
the failure to rule shall be deemed a final decision of the
Commissioner approving the application.
"* 53-212. Exceptions. --A North Carolina bank holding company,
a North Carolina bank, a regional bank holding company, or a
regional bank may acquire or control, and shall not cease to be a
North Carolina bank holding company, a North Carolina bank, a
regional bank holding company, or a regional bank, as the case
may be, by virtue of its acquisition or control of:
(1) a bank having banking offices in a state not within the
region, if such bank has been acguired pursuant to the provisions
of Section 116 or Section 123 of the Garn-St Germain Depository
Institutions Act of 1982 (12 O.S.C. 1730a(m), 1823(f)):
(2) a bank having banking offices in a state not within the
region, if such bank has been acquired in the regular course of
securing or collecting a debt previously contracted in good
faith, as provided in Section 3(a) of the Bank Holding Company
Act of 1956 as amended (12 U. S. C. 1842(a) ) , and if the bank or
bank holding company divests the securities or assets acquired
within two years of the date of acquisition. A North Carolina
bank, a North Carolina bank holdinq company, a reqional bank
holding company, or a regional bank may retain these interests
for up to three additional periods of one year each if the
Commissioner determines that the required divestiture would
Senate Bill 706
C-5
create undue financial difficulties for that bank or bank holding
company; or
(3) a bank or corporation organized under the laws of the
United States or of any state and operating under Section 25 or
Section 25(a) of the Federal Reserve Act as amended (12 U.S.C.
60 1 or 6 11-3 1) or a bank or bank holding company organized under
the la«s of a foreign country that is principally engaged in
business outside the United States and that either has no banking
office in the United States or has banking offices in the United
States that are engaged only in business activities permissible
for a corporation operating under Section 25 or Section 25(a) of
the Federal Reserve kct as amended.
"§ 53-213. Prohibitions.-- (a) Except as expressly permitted by
federal law, no bank holding company that is not either a North
Carolina bank holding company or a regional bank holding company
shall acquire a North Carolina bank holding company or a North
Carolina bank.
(b) Except as required by federal law, a North Carolina bank
holding company or a regional bank holding company that ceases to
be a North Carolina bank holding company or a regional bank
holding company shall as soon as practicable and, in all events,
within one year after such event divest itself of control of all
North Carolina bank holding companies and all North Carolina
banks: Provided, however, that such divestiture shall not be
required if the North Carolina bank holding company or the
regional bank holding company ceases to be a North Carolina bank
holding company or a regional bank holding company, as the case
nay be, because of an increase in the deposits held by bank
subsidiaries not located within the region and if such increase
is not the result of the acquisition of a bank or bank holding
company.
"§ 53-2 14. Applicable laws, rules and regulations, — (a) Anv
North Carolina bank that is controlled by a bank holding company
that is not a North Carolina bank holding company shall be
subject to all laws of this State and all rules and regulations
under such laws that are applicable to North Carolina banks that
are controlled by North Carolina bank holding companies.
(b) Notwithstanding the provisions of G. S. 53-95, the
Commissioner may promulgate rules, including the imposition of a
reasonable application and administration fee, to implement and
effectuate the provisions of this Article.
"§ 5 3-215. Appeal of commissioner's decision. — Notwithstanding
any other provision of law, emy aggrieved party in a proceeding
under G.S. 53-211 or G.S. 53-212(2) may, within 30 days after
final decision of the Commissioner and by written notice to the
Commissioner, appeal directly to the North Carolina Court of
Appeals for judicial review on the record. In the event of an
appeal, the Commissioner shall certify the record to the Clerk of
the Court of Appeals within 30 days after filing of the appeal.
"§ 5 3-216. Periodic reports ; interstate agreements. — The
Commissioner may from time to time require reports under oath in
such scope and detail as he may reasonably determine of each
regional bank holding company subject to this Article for the
purpose of assuring continuing compliance with the provisions of
this Article.
Senatf Bill 706
C-6
The Cofflmissionei.- may enter into cooperatjvf iqr»'«-'iiiori t : . with
other back, regulatory authoritiet; for the period ir t-x^i mina t . on of
any regional bank holding company that has a North Catolin.i bank
subsidiary and may accept reports of examination and oth*>r
records from such authorities in lieu of conducting its own
examinations. The Comnissioner may enter into -joint action: with
other bank regulatory authorities having concurrent iurisdiction
over any regional bank, holding company that has a North Carolina
bank subsidiary or may take such actions independently to carry
out its responsibilities under this Article and assure compliance
with the provisions of this Article and the applicable banking
laws of this State.
"§ 53- .^17. Enforcement. — The Co mraissioner shall have tae power
to enforce the provisions of this Article, including the
divestiture requirement of G.S. 53-2 1i(b), through an action in
any court of this State or any other state or in anv court of the
United States, as provided in G.S. 53-94 and G.S. 53-134, f.,r the
purpose of obtaining an appropriate remedy for violition of any
provision of this Article, including such criminal penalties as
are contemplated by G.S. 53-134.
"§ 53-218. Nonsever ability. --It i :^ the piiri)o;,e of thir. -Vitscic
17 to facilitate orderly development of ti.inkin() or ganiza ti r>nr,
that have banking offices in more than one ;;tato within the
region. It is not the purpose of this Article to authorize
acquisitions of North Carolina bank holding corapames or North
Carolina banks by bank holding companies that do /lot h^iv. their
principal place of business in thi.'^ State on any basi:. oth'i llian
as expressly provided in this Article. Therefore, it any portion
of this Article pertaining to the terms and conditions for and
limitations upon acquisition of North Carolina bank holding
companies and North Carolina banks by bank holding companies that
do not have their principal place of business in this State is
determined to be invalid for any reason Dy a final nonappealable
order of any North Carolina or federal court ol (otupetent
jurisdiction, then this entiie Article shall be null and void in
its entirety and shall be of no further force or effect from the
effective date of such order: Provided, however, tMat any
transaction that has been lawfully consummated pursuant ♦ ■ t h i <,
Article prior to a determination of invaLidity tie
unaffected by .such determination.
"ARTICLE 18.
"Bank Holding Company Act of 1984.
"« 53-225. Title and scope.— (a) This Article shall b< knoyn
and may be cited as the North Carolina Bank Holding Comp.i! . t
of 1984.
(b ) This Article provides for the registration of bank hoiamu
companies in North Carolina. Nothing contained in this Article
shall be deemed to apply to the registration, examination or
supervision of banks or trust companies.
(c) Action.^ by the Commissioner under this Article 5.hr.li not
be subject to review by the State Banking Commission but .sliali be
reviewable pursuant to G.S. 53-231.
"% 53-226. Def initi ons. — For the purposes of this Article:
(a) 'Bank' means any insured bank as the term is defined in
Section 3(h) of the Federal Deposit Insurance Act, (12 O.S.C.
Senate Bill 706
C-7
Section 1813(h)), or any institutKKi «'liqibLo t<i become an
insured bank as the term is defined therein, which, in either
event:
(1) Accepts deposits that the depositor has a leqal
right to withdraw on demand; and
(2) Engages in the business of making comnerciai loans.
(b) 'Bank holding company' means any company which has control
over any bank.
(c) 'Commissioner' means the Commissioner of Banks of this
State.
(d) 'Company' means a corporation, ioint stock company,
business trust, partnership, voting trust, association, and any
Similar organized group of persons, whether incorporated or not,
and whether or not organized under the laws of this State or any
other state or any territory or possession of the United States
or under the laws of the foreign country, territory, colony or
possession thereof, other than a corporation all the capital of
which is owned by the Onited States or a corporation which is
chartered by the Congress of the United States; 'company'
includes subsidiary and parent companies.
(e) 'Control' means that:
(1) Any company directly or indirectly or acting
through one or more persons owns, controls, or has
power to vote twenty-five per centum {25%) or more
of the voting securities of the bank;
(2) The company controls in any manner the election of
a majority of the directors, managers or trustees
of the bank or company; or
(3) The Commissioner determines, after notice and
opportunity for hearing, that the company directly
or indirectly exercises a controlling influence
over the management or policies of the bank or
company.
(f ) 'Subsidiary', with respect to a bank holding company,
means:
(1) Any company twenty-fiv<> p»'i ci mi turn (/''j^) oi mow of
whose voting shares (oxclU'lLnj shares owned by the
United States or by any company wholly owned by the
United States) is held by it with power to vote;
(2) Any company the election of a majority of whose
directors is controlled in any manner by a bank
holding company; or
(3) Any company with respect to the management or
policies of which a bank holding company has the
power, directly or indirectly, to exercise control,
as determined by the Comrai r.sioner.
(g ) For the purposes of any proceeding under subdivision;.
(e)(3) and (f) (3) of this section, there is a presumption that
any company which directly or indirectly owns, controls, or has
power to vote less than 5 percent {5%) of any class of voting
securities of a given bank or company does not have control over
that bank or company.
"§ 53-227. Registration of bank holding companies. --Every bank
holding company, not later than July 1, 19aS, or within 1B0 days
after becoming a bank holding company controlli£<g a North
Senate Bill 706
Carolina federally or State- char tered back or banks, or within
180 days after acquiring control over a nonbank subsidiaLy or
subsidiaries having offices located in this State shall register
with the Commissioner on forms approved by the Comaissioner.
"§ 53-228. Cease and desist .--Upon a finding that any action
of a bank holding company or nonbank subsidiary subject to this
Article may be in violation of any North Carolina bank Lnq law,
tho Commissioner, after a reasonable notice to thf> bank holding
company or its nonbank subsidiary and an opportunity for it to be
heard, shall have the authority to order it to cease and desist
from such action. If the bank holding company or nonbank
subsidiary fails to appeal such decision in accordance with G. S.
53-231 hereof and continues to engage in such action in violation
of the Commissioner's order to cease and desist such action, it
shall be subject to a penalty of one thousand dollars ($1,000),
to be recovered with costs by the Commissioner in any court of
competent jurisdiction in a civil action prosecuted by the
Commissioner. The penalty provision of this section shall be in
addition to and not in lieu of any other provision ot law
applicable to a bank holding company's or its nonbank
subsidiary's failure to comply with an order of the Commissioner.
"* 53-2 29. Requisition and control of certain nonbank banking
institutions. — Notwithstanding any other provision of this
Article or any other provision of the General Statutes of this
State, no bank holding company or any other company may acguire
or control any banking institution that:
(1) has offices located in this State; and
(2) is not a bank as defined in G. S. 53-226 (a) of this
Article.
For purposes of this section, 'company' means any corporation,
partnership, business trust, association, or similar
organization, or any other trust unless by its terms it must
terminate within 25 years or not later than 2 1 years and 10
months after the death of individuals living on the effective
date of the trust, and 'banking institution' means any
institution organized under Article 2 of Chapter 53 (G. S. 53-2,
et se£.) or Article 11 of Chapter 53 (G. S. 53-136, et seg. ) of
the General Statutes of this State or under Chapter 2 of Title 12
of the United States Code (12 0. S. C. § 21, et seg. ) . Provided,
the provisions of G.S. 53-229 shall not apply to applications by
any company which is chartered by the Congress of the United
States and which application is pending before the Commissioner
on the effective date of this section.
"§ 53-230. Rules. --Notwithstanding the provision of G.S. 53-
95, the Commis.'ji oner may promulgate such reasonable rules as may
be necessary to effectuate the purposes of this Article.
"§ 53-23 1. Ae^eal of commissioner's decision. — Notwithstanding
any other provision of law, any aggrieved party may, within 30
days after final decision of the Commissioner and by written
notice to the Commissioner, appeal directly to the North ("aroiina
Court of Appeals for judicial review on the record. In th< tvont
of an appeal, the Commissioner shall certify tho record to thr
Clerk of the Court of Appeals within 30 days thereafter. Such
record shall include all memoranda, briefs and any other
documents, data, information or evidence submitted by any party
Senate Bill 706 9
C-9
to such proceeding except for material such as trade secrets
normally not available through conmercial publication for which
such party has made a claim of confidentiality and requested
exclusion from the record which the Conmissioner deems
confidential. All factual information contained in any report of
examination or investigation submitted to or obtained by the
Commissioner's staff shall also be made a part of the record
unless deemed confidential by the Commissioner.
"§ 53-232. Fees. --Each bank holding company subiect to this
act shall pay the following fees:
(a) An initial registration fee of t1,000.
(b) An annual registration fee of $750.00.
(c) A fee of $50.00 for the issuance of any certified copies
of documents plus $1.00 per page over a number of pages specified
by the Commissioner."
Sec. 2. G. S. 7&-29(a) is amended by inserting the words
"the Comaissioner of Banks pursuant to Articles 17 and 18 of
Chapter 53 of the General Statutes," after the words "the North
Carolina Utilities Commission".
Sec. 3. The guestion of the extent of authority beyond
that conferred by Article 17 upon the Commissioner of Banks with
regard to the acquisition of a North Carolina bank or bank
holding company by an out-of-state regional bank holding company
is referred to the Committee on Taxation and fiegulation of Banks,
Savings and Loan Associations, and Credit Onions of the
Legislative Research Commission for study and report to the 1985
Session of the General Assembly.
Sec. a. Article 17 of Chapter 53 of the General
Statutes contained in Section 1 of this act shall become
effective January 1, 1985. The rest of this act is effective
upon ratification.
In the General Assembly read three times and ratified,
this the 7th day of July, 1984.
JAMES C. GREEN
James C. Green
President of the Senate
LISTON B RAMSEY
Liston B. Bamsey
Speaker of the House of Representatives
Senats Bill 706
C-10
APPENDIX D
GENERAL ASSEMBLY OF NORTH CAROLINA
1983 SESSION (REGULAR SESSION, 1984)
RATIFIED BILL
CHAPTEK 1087
SENATE BILL 807
AN ACT TO PEHMIT INTEBSTATE HEBGBHS AND ACQOISITIONS OF SAVINGS
AND LOAN ASSOCIATIONS AND SAVINGS AND LOAN HOLDING COMPANIES ON
A BECIPBOCAL BASIS HITHIN A SPECIFIED BEGION.
The General Asseably of North Carolina enacts:
Section 1. . Chapter 54B of the General Statutes is
aaended by adding a new Article 3A to read as follows:
"Article 3A.
"North Carolina Begional Beciprocal Savings
and Loan Acguisition Act.
"§ 54B-U8.1., Title.T-This Article shall be known and nay be
cited as the North Carolina Begional Beciprocal Savings and Loan
Acquisition Act. .
"ft 54B-48.2. Definitions. — Notwithstanding the provisions of
G. 5. .54B-4, as used in this Article, unless the context reguires
otherwise:
(1) •Acquire', as applied to an association or a
savings and loan holding company, aeans any of the
following actions or transactions:
a. . The nerger or consolidation of an association
with another association or savings and loan
holding company or a savings and loan holding
company with another savings and loan holding
conpany. .
b. . The acquisition of the direct or indirect
ownership or control of voting shares of an
association or savings and loan holding
company if, after the acqaisition, the
acquiring association or savings and loan
holding company will directly or indirectly
own or control more than five percent (5%) of
any class of voting shares of the acquired
association or savings and loan holding
company.
c. The direct or indirect acquisition of all or
substantially all of the assets of an
association or savings and loan holding
company. .
d, . The taking of any other action that would
result in the direct or indirect control of an
association or savings and loan holding
company.
(2) 'Administrator' means the Administrator of the
Savings and Loan Division,
(3) 'Association' means a mutual or capital stock
savings and loan association, building and loan
association or savings bank chartered under the
laws of any one of the states or by the Federal
Home Loan Bank Board, pursuant to the 'Home Owners'
D-1
Loan Act of 1933V- 12 U.S.C. Section T464, as
amended.
{H) 'Branch office* means any office at which an
association accepts deposits. The ter iq branch
office does not include:
a. , Onoanned autoaatic teller nachines, point-of-
sale terminals, or siailar unmaDned electronic
banking facilities at which deposits may be
accepted;
b. Offices located outside the United States; and
c. Loan production offices, representative
offices, service corporation offices, or
other offices at which deposits are not
accepted. .
(5) 'Company* means that which is set forth in the
Federal Savings and Loan Holding Company Act, 12
0« S.C. .Section 1 730a (a) ( 1) (C) , as amended.
(6) 'Control* means that which is set forth in the
Federal Savings and Loan Holding Company Act, 12
0. S.C. . Section 1?30a (a) (2) , as aaended.
(7) "Deposits' means all detaand, time, and savings
deposits, without regard to the location of the
depositor: Provided, however, that 'deposits*
shall not include any deposits by associations..
For purposes of this Article, determination of
deposits shall be made with reference to regulatory
reports of condition or similar reports made by or
to State and federal regulatory authorities. .
(8) "Federal association* means an association
chartered by the Federal Home Loan Bank Board
pursuant to the "Home Owners* Loan Act of 1933*, 12
0. 5. C. Section 146(4, as amended..
(9) * North Carolina association* means an association
organized under the laws of the State of North
Carolina or under the laws of the Onited States and
that:
a. . Has its principal place of business in the
State of North Carolina;
b. . Which if controlled by an organization, the
organization is either a North Carolina
association. Southern Region association.
North Carolina savings and loan holding
company, or a Southern Region savings and loan
holding company; and
c. . Hore than eighty percent (80*) of its total
deposits, other than deposits located in
branch offices acguired pursuant to Section
123 of the Garn-St Germain Depository
Institutions Act of 1982 (12 O.S.C- 1730a(m))
or comparable state law, are in its branch
offices located in one or more of the Southern
Region states. .
(10) *North Carolina Savings and Loan Holding Corapany'
means a savings and loan holding company that:
Senate Eiii 807
D-2
a. . Has its principal place of business in the
State of North Carolina;
b. . Has total dt^posits of its Southern Beciion
association subsidiaries and North Carolina
association subsidiaries that exceed eighty
percent (80%) of the total deposits of all
association subsidiaries of the savings and
loan holding conpany other than those
association subsidiaries held pursuant to
Section 123 of the Garn-St Gernain Depository
Institutions Act of 1982 (12 0. S.C. 1730a(B) )
or coaparable state law.
(11) "Principal place of business* of an association
means the state in vhich the aggregate deposits of
the association are the largest. For the purposes
of this Article, the principal place of business of
a savings and loan holding conpany is the state
where the aggregate deposits of the association
subsidiaries of the holding company are the
largest. .
(12) •Savings and loan holding company' means any
coBpany which directly or indirectly controls an
association or controls any other company which is
a savings and loan holding company.
(13) 'Service Corporation* means any corporation, the
majority of the capital stock of which is owned by
one or more associations and which engages,
directly or indirectly, in any activities which may
be engaged in by a service corporation in which an
association may invest under the laws of one of the
states or under the laws of the Onited States.
(14) •Southern Region association' means an association
other than a North Carolina association organized
under the laws of one of the Southern Region states
or under the laws of the Onited States and that:
a. , Has its principal place of business only in a
Southern Region state other than North
Carolina;
b. , Mhich if controlled by an organization, the
organization is either a Southern Region
association or a Southern Region savings and
loan holding company; and
c. More than eighty percent (80%) of its total
deposits, other than deposits located in
branch offices acquired pursuant to Section
123 of the Garn-St Germain Depository
Institutions Act of 1982 (12 O.5.C. 1730a(m))
or comparable state law, are in its branch
offices located in one or more of the Southern
Region states.
(15) 'Southern Region savings and loan holding company'
means a savings and loan holding company that:
a. . Has its principal place of business in a
Southern Region state other than the State of
North Carolina;
Senate Bill 807
D-3
b. Has total deposits of itr. Southern Ueqiori
association subsi <li nr i«v; and North carol in.»
association subs id La t i<^s that «'Kt:«'<'d <i<|h«y
percent (80%) of the total deposits of all
association subsidiaries of the savinqs and
loan holding conpany other than those
association subsidiaries held pursuant to
Section 123 of the Garn-St Geraain Depository
Institutions kct of 1982 (12 U. 5.C. 1730a(Bi) )
or coaparable state law.
(16) 'Southern Hegion states' i^eans the states of
Alabama, Arkansas, Florida, Georgia, Kentucky,
Louisiana, Maryland, Mississippi, North Carolina,
Sooth Carolina, Tennessee, Virginia, West Virginia,
and the District of Coluabia, ,
(17) 'State' laeacs any state of the United States and
the District of Columbia.
(18) 'State association' aeans an association organized
under the laws of one of the states.
(19) 'Subsidiary* means that which is set forth in the
Federal Savings and Loan Holding Company Act, 12
O.S-C. Section 1 730a (a) ( 1) (H) , as amended.
"5 54 B- 48. 3. Acquisitions by Southern Beqion savings and loan
holding companies and Southern Eegion associations. — (a) A
Southern Eegion savings and loan holding coopany or a Southern
Eegion association that does not have a North Carolina
association subsidiary (other than a North Carolina association
subsidiary that was acquired either pursuant to Section 123 of
the Garn-St Germain Depository Institutions Act of 1982 (12
D. S. C. 1 730a («)) , or coaparable provisions in state law, or in
the regular course of securing or collecting a debt previously
contracted in good faith) nay acquire a North Carolina savings
and loan holding coeapany or a North Carolina association with the
approval of the Ad ninistrator. . The Southern Eegion savings and
loan holding coapany or Southern Region association shall submit
to the Adninistrator an application for approval of such
acquisition, which application shall be approved only if:
(1) The Adainistrator determines that the laws of the
state in which the Southern Eegion savings and loan
holding coapany or Southern Eegion association
Baking the acquisition has its principal place of
business permit North Carolina savings and loan
holding companies and North Carolina associations
to acquire associations and savings and loan
holding companies in that state;
(2) The Administrator deteriaines that the laws of the
state in which the Southern Region savings and loan
holding coapany or Southern Region association
naking the acquisition has its principal place of
business permit such Southern Region savings and
loan holding company or Southern Region association
to be acquired by the North Carolina savings and
loan holding company or North Carolina association
sought to be acquired;
Senate Bill 807
(3) The Adninistrator deteLoines either that the North
Carolioa association sought to be acquired has been
in existence and continuously operatinq for more
than five years or that ail ol the as:;<)<:iat loii
subsidiaries of the North Carolina savings and loan
holding coapany sought to be acquired have been in
existence and continuously operating for aore than
five years: Provided, that the Administrator may
approve the acquisition by a Southern Rotjion
savings and loan holding conpany or Southern Region
association of all or substantially all of the
shares of an association organized solely for the
purpose of facilitating the acquisition of an
association that has been in existence and
continuously operating as an association for more
than five years; and
(4) The Adainistrator aakes the acquisition subiect to
any conditions, restrictions, requirements or other
liaitations that would apply to the acquisition by
a North Carolina savings and loan holding company
or North Carolina association of an association or
savings and loan holding conpany in the state where
the Southern Begion savings and loan holding
coapany or Southern Region association making the
acquisition has its principal place of business but
that would not apply to the acquisition of an
association or savings and loan holding company in
such state by an association or a savings and loan
holding coapany all the association subsidiaries of
which are located in that state;
(5) With respect to acquisitions involving the merger
or consolidation of two associations resulting in a
Southern Region association, the application
includes a business plan extending for an initial
period of at least three years from the date of the
acquisition which shall be renewed thereafter for
as long as nay be required by the Administrator.
The association aay not deviate without the prior
written approval of the Ad ainistrator froa the
business plan which shall address such matters as
the Administrator may deem appropriate for the
protection of the depositors and menbers of the
acquired North Carolina association and the general
public. The business plan shall address, without
limitation:
a. insurance of depositors' accounts.
b. limitation of services and activities to those
permitted under this Chapter to North Carolina
associations.
c. conversion of corporate form or other
fundamental changes.
d. closing, selling or divesting any or all North
Carolina branches.
e. . protection of the voting rights of North
Carolina aeabers.
Senate Bill 807
D-5
(b) A Southern Region savinqs and loan holdinq coapany or
Soathern Begion association that has a North Carolina association
subsidiary (other than a North Carolina association subsidiary
that was acquired either pursuant to Section 123 of the Garn-St
Germain Depository Institutions Act of 1982 {12 0. S. C. 1730a (b)),
or coaparable provisions in North Carolina law, or in the regular
course of securing or collecting a debt previously contracted in
good faith) Bay acquire any North Carolina association or North
Carolina savings and loan holdinq company with the approval of
the Administrator. . The Southern Begion savings and loan holding
conpany shall submit to the Administrator an application for
approval of such acquisition, which application shall be approved
only if:
(1) The Administrator determines either that the North
Carolina association sought to be acquired has been
in existence and continuously operating for morp
than five years or that ail of tho association
subsidiaries of the North Carolina savings and loan
holding coapany sought to be acquired have been in
existence and continuously operating for nore than
five years: Provided, that the Administrator may
approve the acquisition by a Southern Region
savings and loan holding company or Southern Region
association of all or substantially all of tho
shares of an association organized solely for the
purpose of facilitating the acquisition of an
association that has been in existence and
continuously operating as an association for more
that five years; and
(2) The Administrator makes the acquisition subject to
any conditions, restrictions, requireaents or other
limitations that would apply to the acquisition by
the North Carolina savings and loan holding company
or North Carolina association of an association or
savings and loan holding company in the State where
the Southern Begion savings and loan holdinq
company or Southern Begion association making the
acquisition has its principal place of business but
that would not apply to the acquisition of an
association or savings and loan holding company in
such state by a savings and loan holdinq coapany
all the association subsidiaries of which are
located in that state.
(3) aith respect to acquisitions involving the merger
or consolidation of two associations resulting in a
Southern Begion association, the application
includes a business plan extending for an initial
period of at least three years froa the date of the
acquisition which shall be renewed thereafter for
as long as aay be required by the Administrator. .
The association may not deviate without the prior
written approval of the Adainistra tor from the
business plan which shall address such matters as
the Administrator aay deea appropriate for the
protection of the depositors and aembers of the
6 senate Bill 8 07
D-6
acquired North Carolina association and the qeneral
public. The business plan shall address, without
liBitation:
a. insurance of depositors' accounts.
b. . limitation of services and activities to those
pernitted under this Chapter to North Carolina
associations.
c. conversion of corporate form or other
fundamental changes.
d. . closing, selling or divesting any or all North
Carolina branches.
e. protection of the voting rights of North
Carolina members.
(c) The Administrator shall rule on any application submitted
under this section not later than 90 days following the date of
submission of a complete application. If the Administrator fails
to rule on the application within the requisite 90-day period,
the failure to rule shall be deemed a final decision of the
Administrator approving the application.
"6 54&-t»8.4. Exceptions. — A North Carolina savings and loan
holding company, a North Carolina association, a Southern Hegion
savings and loan holding company, or a Southern iJegion
association may acquire or control, and shall not cease to be a
North Carolina savings and loan holding company, a North Carolina
association, a Southern Region savings and loan holding company,
or a Southern Region association, as the case may be, by virtue
of Its acquisition or control of:
(1) An association having branch offices in a state not
within the reqion, if such association has been
acquired pursuant to the provisions of Section 123
of the Garn-St Germain Depository Institutions Act
of 1982 (12 D.S.C. 1730a (m)), or comparable
provisions of state law;
(2) An association which is not a Southern Reqion
association if such association has been acguired
in the regular course of securing or collectinq a
debt previously contracted in good faith, and if
the association or savings and loan holding company
divests the securities or assets acguired within
two years of the date of acquisition. A North
Carolina association, a North Carolina savinqs and
loan holding company, or a Southern Region
association may retain these interests for up to
three additional periods of one year if the
Administrator determines that the required
divestiture would create undue financial
difficulties for that association or savinqs and
loan holdinq company.
nc.!!! •*.!'*?" u^*!* Prohibitions. — (a) Except as may be expressly
permitted by federal law, no savinqs and loan holdinq company
tbat IS not either a North Carolina savings and loan holding
company or a Southern Region savinqs and loan holding company
snail acquire a North Carolina savings and loan holdinq company
or a North Carolina association.
Senate Bill 807
D-7
(b) Except a:; L<fquired by f »m1<;i.<i.L IdW, a North CaLolina
savings and loan holding coapany or a Southern Region sawinqs and
loan holding conpany that ceases to be a North Carolina savings
and loan holding company or a Southern Region savings and loan
holding coapany shall as soon as practicable and, in all events,
within one year after such event divest itself of control of all
Morth Carolina savings and loan holding coapanies and all North
Carolina associations: Provided^, however, that such divestiture
shall not be required if the North Carolina savings and loan
holding conpany or the Southern aegion savings and loan holding
company ceases to be a Horth Carolina savings and loan holding
coBpany or a Southern Begion savings and loan holding coapany, as
the case aay be, because of an increase in the deposits held by
association subsidiaries not located within the region and if
such increase is not the result of the acquisition of an
association or savings and loan holding company. Provided
further that nothing in this irticle shall be construed to permit
interstate branching by associations nor to require the
divestiture of a North Carolina association or a North Carolina
savings and loan holding coapany by a savings and loan holding
coapany which acquired its subsidiary North Carolina association
or North Carolina savings and loan holding conpany prior to the
effective date of this Article. Nor shall anything in this
Article be construed to prohibit any savings and loan holding
coapany which has acquired a North Carolina association or North
Carolina savings and loan holding company prior to the effective
date of this Article froa acquiring additional North Carolina
associations or North Carolina savings and loan holding
coapanies. Nor shall anything in this Article be construed to
liait the authority of the Administrator pursuant to G. S. SUB-U^. _
"§ 54B-U8.6. Applicable laws, rules and regulations. — (a) Any
North Carolina association that is controlled by a savings and
loan holding coapany that is not a North Carolina savings and
loan holding coopany shall be subject to all laws of this State
and all rules and regulations under such laws that are applicable
to North Carolina associations that are controlled by North
Carolina savings and loan holding coapanies.
(b) The Administrator aay proaulgate rules, including the
iaposition of a reasonable application and a dninistration fee, to
implement and effectuate the provisions of this Article.
••§ SUB- 48.7., Appeal of Administrator* s decision. --
Notwithstanding any other provision of law, any aggrieved party
in a proceeding under G. S. . SIB-aO.J or G. S- 548-48. I (2) aay,
within 30 days after final decision of the Adainistrator and by
written notice to the Adainistrator, appeal directly to the North
Carolina Court of Appeals for judicial review on the record. In
the event of an appeal, the Administrator shall certify the
record to the Clerk of the Court of Appeals within 30 days after
filing of the appeal.
"* 54 B- 48.6. Periodic reports; interstate aqreeaents. — (a)
The Adainistrator may from time to time require reports under
oath in such scope and detail as he nay reasonably determine of
each Southern Region savings and loan holding coapany or Southern
Begion association subject to this Article for the purpose of
Senate Bill 807
assuring continuing couplianco lith the pro^risions of this
Article. .
(1)) The Adoiaistiator Bay enter into coopeirative aqreeoents
■itli other savings and loern regulatory authorities for the
periodic eiaaination of any Southern Begion sayings and loan
holding company oj: Southern Region association that has a North
Carolina association subsidiary and nay accept reports of
examination and other records fron such authorities in lieu of
conducting its own ezaninations. The Administrator may enter
into joint actions with other savings and loan regulatory
authorities having concurrent jurisdiction over any Southern
Begion savings and loan holding company or Southern Region
association that has a North Carolina asj.ociat ion subsidiary or
nay take such actions independently to carry out his
responsibilities under this Chapter and assure conpliance with
the provisions of this Article and the app].icabl3 laws of this
State. .
»* 5aB-48.g.. Enforcement. —The Adsinistrator shall have the
pover to enforce the provisions of this Article, including the
divestiture requirement of G. S. . 54B-48. 5 (b) , through an action in
any court of this State or any other state or in any court of the
United States for the purpose of obtaining an appropriate remedy
for violation of any provision of this Article, including such
criminal penalties as are contemplated by G. S- 5 4B-6 6. !*
Sec. 2.. G. S. . 7A-29 (a) is amended by inserting the words
"the Administrator of savings and loans pursuant to Article 3A of
Chapter 54B of the General Statutes," after the words "the North
Carolina Utilities Commission".
Sec. . 3. Nonseverability. It is the purpose of this
Article to facilitate orderly development of thrift organizations
that have branch offices in more than one state within the
Southern Region. . It is not the purpose of this Article to
authorize acquisitions of North Carolina savings and loan holding
companies or North Carolina associations by savings and loan
holding companies that do not have their principal place of
business in this State on any basis other than as expressly
provided in this Article. Therefore, if any portion of this
Article pertaining to the terms and conditions for and
limitations upon acquisition of North Carolina savings and loan
holding companies and North Carolina associations by savings and
loan holding companies that do not have their principal place of
business in this State is determined to be invalid for any reason
by a final nonappealable order of any North Carolina or federal
court of competent jurisdiction, then this entire Article shall
be null and void in its entirety and shall be of no further force
or effect from the effective date of such order: Provided,
however, that any transaction that has been lawfully consummated
pursuant to this Article prior to a determination of invalidity
shall be unaffected by such determination. .
Sec. U, G. S. . 548-261 (c) is rewritten to read as
follows:
"(cj A savings and loan holding company may invest in any
investment authorized by its Board of Directors, except as
limited by regulations promulgated by the Administrator pursuant
to this Article. "
Senate Bill 807
D-9
Sec. "j. A new subsection (d) is added to G- S. 51B-26 1
to read as follows;
"(d) any entity which controls a state stock association, or
acquires control of a state stock association, is a savings and
loan holding company."
Sec. 6. Article 11 of Chapter 54B of the General
Statutes is repealed.
Sec. 7, Section 6 of this act is effective upon
ratification. Sections 1 through 5 shall become effective on the
earlier of:
(1) the date on which legislation becomes effective in
one of the states listed in G. S. 54B-48.2(16) which authorizes
regional acquisitions of savings and loan associations and
savings and loan holding companies on a reciprocal basis and
which applies to savings and loan associations and savings and
loan holding companies in Horth Carolina; or
(2) July 1, 1986. .
In the General Assembly read three times and ratified,
this the 5th day of July, 1984.
JAMES C. GREEN
James C. Green
President of the Senate
LISTON B. RAMSEY
Liston B. Bamsey
Speaker of the House of Representatives
10 Senate Bill 807
D-10
3§ " 1
=!;•::
11 j.l
S tS S u- s
APPENDIX F January 11, 1984
A liKIII IIIMIJHY HI SIAII HANK MJI'I HV I '■ I I'N |N NIIKIII lAKllllNA
BY: James S. Currie, Commissioner of Banks
Ihe duty of the State to supervise banks was not recognized by the Grneral
Assembly until 1887, at which session banks operating in North Carolina were
required to make reports to the State Treasurer at least twice each year, and
r.omo limited authority was given to make special examinations to determine a
bank's solvency.
The first consolidated statement of the banks of the State was made by
the State Treasurer in 1887, and the total resources were slightly more than
$3, DUO, 000.
At the session of 1899 the Corporation Commission was created, and the
supervision of banks was placed under its jurisdiction. Prior to creation of
the Corporation Commission all corporations, including banks, were chartered
by the General Assembly,
In rj(J3 the tcMjisiaturo cjavc the Corpuriition Commission authority to make
rules to govern banks, provided such rules were not inconsistent with the banking
law.
The General Assembly of 1921 enacted the first real statutes with reference
to SLjpervision and examination of banks, including discretionary powers to refuse
hank rhartcr:;, prnvidinq for tlie organization of a Rankincj Department witliin
the Corporal iort Comini :;;;iun , and the naming of a Chief State Bank Lxaminer.
placing tlie
on. This method
factory.
riic General Assembly of 1927 passed the Liquidation Act,
lujuidntion of all closed banks under the Corporation Commissi
of liquidating closed banks has been proved to be very satisfa
The Seawell Bill passed by the 1931 General Assembly and ratified on April 2,
1931, created the position of Commissioner of Banks, and gave him the duties,
power and authority to supervise and liquidate all State Banks which had been
exerc-iscd by the Corporation Commission since 1899. This Bill also provided
for an Advisory Commission to consist of the State Treasurer, Attorney General,
two practical bankers and one business man.
The authority to license banks to do a trust business was transferred
from ttie Insurance Commissioner to the Commissioner of Banks at the 1931 session,
and provision was made for a closer supervision of trust business in the future.
fhe 1939 session of the General Assembly created ttic State Banking Commis-
sion \iyhich superseded the Advisory Commission to the Commissioner of Banks,
l)L"i-iiniinq effc^ctive April 1, 1939. This Commission consisted of the State Treasurer
af\d tlie Attorney General as ex officio members, the State Treasurer to serve
as Chairman of the Commission, and five members appointed by the Governor, four
of whom were practical bankers and one a business man who is not an executive
officer of any bank, the appointive members serving for a period of four years.
Since May 27, 1931, there have been eight Commissioners of Banks, including
ttie present Commissioner, James S. Currie, who has served since September 1,
1978.
F-1
Ihe Sl.yLo liankiruj Commission is today comprised of 15 members cjs folio\i/s:
(a) Stale Treasurer, Chairman and ex officio member.
(b) tiqht public members. Seven appointed by ttic Governor niul
one appointed by the General Assembly upon recommendation
of the Speaker of the House of Representatives.
(c) Six practical banker members. Five appointed by the
Governor and one appointed by the General Assembly upon
recommendation of the President of the Senate.
The Commissioner of Banks is appointed for four-year terms by the Governor
subject to confirmation by the General Assembly in joint session.
Attached is a list of the State Banking Commission as it is presently
constituted.
Today, in addition to supervision over state banks, the Commissioner of
Banks is responsible for licensing and supervising consumer finance companies,
tlie sales of checks and money orders, and funeral and burial trust funds. [here
are 90 consumer finance licensees operating at 573 locations in North Carolina.
There are 372 funeral and burial trust fund licensees.
There are presently 20 National banks with 869 branches in North Carolina,
and the 30 State banks have 918 branches. We also have two state trust companies
which do not accept deposits.
Attached is a listing of all banks in North Carolina, both National and
Stale. These schedules show the banks ranked by assets and by deposits as of
September 30, 1983, which is the latest date available. You will note that
the three largest banks, NCNB, Wachovia and First Union National, have b^ .kl%
of all deposits and 60.58?o of all commercial bank assets in North Carolina.
These banks are National banks which are not under the jurisdiction of the
Commissioner of Banks or the General Assembly.
F-2
STATK BANKING COMMISSION
Tlu' Hon(.r,)l)lo llail.in E.
( li,\ i nn.m , St ;U c IVniking
325 North Salisbury Stre
Raleigh, North Carolina
Ilovlos
Commissior
27611
Mr. John C. Roll , Jr.
Member, State Banking Commission
r-'st 01 f ice Box 6^1
Wilson. North Carolina 27893
Mr. W. Frank Coiner
Member. State Ranking Commission
»(U Blessing Drive •
Dobson. North Carolina 27017
Ml . Puna Id A. iJ.ivis
Member, State Ranking Commission
Post Office Box 1007
Raleigh, North Carolina 27602
Mr. Robert H. Gage
Member, State Banking Commission
Id Ci^l lege Street
Morganton, North Carolina 28655
Mr. C. 1 rank Cr i I I in
^lember, State Banking Commission
Tost Of f ice Drawer 99
Monroe, North Carolina 28110
D. "Zander" Guy
. State Banking Commission
Post 01 t ice Box 'iUO
511 New Br idge St reet
Jacksonville, North Carolina 28540
■ Mr. Steven A. Hockfield
Member, State Banking Commission
Suite loo Civic Plaza
801 E. Trade Street
Charlotte, North Carolina 28202
■•■ Mr. Paul L. Jones
Member, State Banking Commission
Post Office Box 3334
Kinston, North Carolina 28501
•• Mr. Jop I . Marshal 1
Member, State Banking Commission
Post Office Sox 610
Madison, North Carolina 27025
" Mr. Robert V. Owens, Jr.
Member, State Banking Commission
Route 1 , Box 729
Nags Head, North Carolina 27959
"•'■■ Ms. Helen Ann Powers
Member, State Banking Commission
Crowfields Drive CC-2
Asheville, North Carolina 28803
"■ Mr. J. J. Sansom, Jr.
Member, State Banking Commission
Post Office Box 1932
Durham, North Carolina 27702
Mrs. Kitherine Harper
Member, State Banking Commission
r(^sL Of f ice Box 1 1411
Charlotte, North Carolina 28220-1411
•■•-■ Mr. E. Rhone Sasser
Member, State Banking Commission
Post Office Box 632
Whiteville, North Carolina 28472
^s 4-1-85
^s 4-1-87
December 21, 1983
F-3
ilNSTON-SftLIM
c:'ARLo:r:
NORTH tflLKSSB
RAIEUH
V I IS ON
vvHITEVILLE
lUMBZRIDM
P.OCKy ^O'JNT
SA.NFORD
SALISPURr
"IJ^ POINT
ifxin:-tom
fuc'jay-varin^
davidson
^■CUr'i OIIVE
BANK N/».ME
A'ACHOVIA BANK ANE TR
ilZlh NATIONAI BANK 0
FIRST UNION NATIONAL
TBE NORTHVESTEHN BAN
FIRST-CITIZENS BANK
BRANCH BANKING ANT T
UNITED CAROLINA BANK
SOUTHERN NATIONAL BA
OEMTRAL CAROLINA BAN
PEOPLES BANK 5. TRUST
THE PLANTERS NiTIONA
THE CAROLINA BANK
SECURITY BANK AND TR
HIOH POINT BANK AND
LEXINiTCN STATE BANK
THE FIDtLIT'f BANK
FIECi'^ONT BANK AND TR
SOUTHERN BANK AND TR
/DEPOSITS
SHARE
CL
4:
737,600
20.23
N
4
752,^62
20.12
N
3
,104,534
13.12
f!
1
950,573
8.24
N"^
1
,644,120
6.95
NM
1
,449,531
6.12
NM
854,221
3.51
NY,
319.129
3.45
N
699,691
2. £5
N
493,333
2.11
Nr.
437,052
1.55
N
210,135
3.39
NM
133,512
0.80
m
142,997
3.52
N^
123,353
0.54
NM
110,071
0.47
NT''
108,493
0.46
SM
97,435
0.41
N^'
5950
y?
ORANIIE FALLS
4910
NC
3-'EL3Y
4379
"C
ASHE50R0
?^3?1
NC
RALEIOti
2017
NO
INOELHARC
2^537
NC
CHARLOTTE
4905
NC
REIDSVILLE
1^013
NC
OXFORD
5955
NC
CATAVBA
15019
NC
T = OY
4333
SC
CONCORD
12255
NC
EUR HAM
14 54i
NC
3ATESVILLS
2035
^!C
SRAM HE OUARR
p^ccp
NC
SAN FORE
15117
NC
ROCKINSRA^
312
NC
CONCORD
'3145
NC
OREENSBORO
375
NC
rflNIERVILLE
BANK OF uRANITE
TEE FIRST NATIONAL B
THE FIRST NATIONAL E
STATE BANK OF RALEIJ
THE EAST CAROLINA EA
REPUBLIC BANK 5. TRUS
FIRST NATIONAL TANK
TBE UNION NATIONAL B
PEOPLES BANK
BANK OF MONTGOMERY
TBE CONCORD NATIONAL
MECHANICS ^ FARMERS
TARHEEL BANK S. TRUST
FARMERS ■; MERCHANTS
MID-SOUTH BANK AND T
RICHMOND COUNTlf BANK
CITIZENS NATIONAL 3A
COMMUNITY BAN!^ OF CA
FIRST STATE BANK
36,762
0
37
NM
75,230
0
32
N
71,095
0
30
N
59,753
0
29
NM
69,232
0
29
NM
67,573
0
29
NM
63,364
0
27
N
53,199
0
25
N
54.142
0
23
NM
51,209
e
22
NM
49,094
0
21
N
49,473
0
.20
NM
46,250
0
23
NM
45,273
0
19
NM
44,436
0
.19
NM
42,449
3
.lb
NM
42,093
0
.15
N
42,333
0
.18
NM
40,291
3
.17
NM
'A'/i-CiS30R3
PUCr MOUKTAI
*'INSr3N-SUFM
S^irtiFIELIJ
rllCT .'iOUNTAI
3RAHA^
:"E?.RlfVTLLE
3f?EtN3BOf?n
A.SFFE03 3
'^HIPFVILLE
'■IJKLANCS
?OLIR OAfS
LA.KDIS
I^ARMERS BAN-< OF S'JNB
THE FIRST NATIONAL B
THE HERITAGE BAf.K
BAN'K OF PILOT MCUNTA
CITIZENS NATIDNAL BA
FIRST NATIONAL BANK
FARRIERS BANK
THE BANK OF CQRRITUC
BANK OF ALAMANCE
CHERRYVILIE NATIONAL
YADKIN VALLEY BANK A
TRIAD BANK
CANAL TRUST COMPANY
RA\'DCIPS BANK 5. TRQS
COLUMBUS NATIONAL BA
CAROLINA MOUNTAIN ^^A
AVERY COUNTY BANK
BANK OF FOUR OAKS
MERCHANTS i FARMER'S
*3.233
0.17
NM
38
36.965
e.ie
N
39
36.330
2.15
NM
40
35,251
0.15
NM
41
31,159
3.13
N
42
31,110
0.13
N
43
?B,724:
0.12
NM
44,
25,774
0.11
NM
45,
24,471
0.10
NM
46,
24,392
3.10
N
47.
23,125
0.10
NM
48,
22,B22
0.10
NM
49,
22,522
0.10
M
52.
22,234
0.09
NM
51.
18.932
0.09
N
52.
lB,37e
0.09
NM
53.
ia,22?
0.05
NM
54.
17,230
0.07
NM
55.
15,229
2.35
NM
56.
D'MHAM
^■:i^H POIf.T
CHAPEL HILL
ASH?VILLE
CHARLCriE
P ? M '^ R C r' E
PINE EFVET
"^OREHI'ilD CITY
CANTOR
BI ACt'i'^?Rj
MNCOINTON
B'JRLINJIDN
KAYFTTEi/IIIE
SPApi^SVILLE
^■■;rphy
f^FFMDAFL I'JDE^ =^0.11:
^JARANIY, STATE BANK
CENTRAL SAVINGS BANK
ISE VILLAGE BANK OF
CREFNSEORO NATIONAL
FIRST COMMERCIAL BAN
^ETROLINA NATIONAL B
LL'MBFE BANK
BANK OF FINE LEVEL
COUNTY BANK fi TRUST
THE BANK OF CANDOR
TPE BAN'^ 0? BLAEENBO
LINCOLN BANK OF NORT
TiE MORRIS PLAN INDU
•JNIIEC NATIONAL BANK
TRE BANK OF IREDELL
CITIZENS BANK
14,696
14,271
14,138
11,900
13,246
10,111
9,653
S,452
3,553
7,651
7,231
5,061
4,411
4,051
3,992
3,117
0.05
0.06
0.05
0.05
0.24
2.04
0.04
0.04
0.04
3.23
0.03
0.22
0.22
0.02
3.22
0.01
23,669,500 TOTAL
NM
NM
NM
NM
N
NM
NM
NM
NM
NM
NM
NM
N
NM
NM
57
55
59
60
51,
62,
63,
54,
65.
66.
67.
69.
69.
70!
71.
72.
F-5
CFRT
3^
CITy
i992
N'C
CH^RLCrii
917
f^C
*nST0N-3ftLE^1
4?35
n:
CHASLorrs
15535
\'C
NORTH ilILKESB
11^53
NC
RALCIJH
934e
"■Z
*II.SCN
2325
NC
*'HIT£VILLE
4393
n:
Lay,?SRr:N
2035
V3
d'Jrp.a:^
59i2
NG
RCCKr YCQNT
43f"7
\'C
RvCCY HC-JNI
2^29
NC
5/i.NFORD
9355
n:
SALISBJRr
122?7
N'C
Hi:.H PC I NT
5953
NC
CAVILSOiN
17793
NC
LFxrr.rcv
11527
NC
F-JO'JAI-VARINA
15359
NC
^j-JiNT DLI7i.
BANK NAMi
NCNB NATIONAL BANK 0
■rfACHOVIA BANK AND TR
FIRST -JNION NATIONAL
THE NORTKirfESTERN BAN
FIRST-CITIZENS BANK
BRANCH BANfCINa ANE T
UNITED CAROLINA BANK
SOJTHERN NATIONAL BA
CENTRAL CAROLINA BAN
PEOPLES BANK S. TRUST
T'ei PLANTERS NATIONA
THE CAROLINA BANK
SEC'JRITr BANK AND TR
EISE POINT BANK ANE
PIEE^Cin BANK AND TR
LiXirJCrCN STATE BANK
TRE FIEELITYBANK
SOUTHERN BANK AND TR
RC/ASSiTS
SHARE
CI RA:
7,274,332
22.40
N
6,407,731
19.73
N
5,392,734
18.45
N
2,415,300
7.44
NM
1,95^,573
5.79
NM
1,544,944
5.27
NM 1
939,355
3.05
NM
931,327
2.73
N
797,192
2.45
N
533,125
1.79
NM 1
521,397
1.55
' N 1
256,399
0.79
NM 1
213,713
2.55
NM 1
151,335
2.52
NM 1
152,333
0.47
SV 1
144.550
2.45
NM 1
124,173
0.33
NM 1
113,331
0.34
NM 1
5952 -JC
4312 NC
''Ties? VC
4S79 NC
P:?9S1 N'C
201? NC
4925 NC
1?013 NC
5955 NC
1521? S'C
4935 fJC
12255 NC
14544 NC
2235 NC
21652 \'C
15117 *1C
312 NC
22145 NC
375 NC
CRANITL FALLS
S^ELBif
C il A R L 3 r r E
ASHEBORO
RAIEna
FNCELHARE
REIDSv'ILLE
OXFORD
CATAaBA
TROy
CONCORD
DURHAM
CATKS^ILLE
CRAM IE 3UARR
3ANE0RD
ROCKINCHAM
CONCORD
aREENSEORC
aTNTERVILLE
BANK Of GRANITE
THE FIRST NATIONAL B
REPUBLIC BANK ^ TRUS
THE FIRST NATIONAL E
STATE BANK OF RALEIG
THE EAST CAROLINA EA
FIRST NATIONAL BANK
THE UNION NATIONAL 3
PEOPLES BANK
BANK OF MONTGOMERY
TH^ CONCORD NATIONAL
MECHANICS i FARMERS
TARHEEL BANK ^ TRUST
FARMERS & MERCHANTS
MID-5CUTH BANS AND T
RICHMOND CCUNT'f BANK
CITIZENS NATIONAL BA
C3MMUNITY BANK OF CA
FIRST STATE BANK
F-6
93,563
e.30
NM
95,160
3.33
N
33,523
0.26
NM
P.2,271
0.25
N
75,737
0.24
NM
76,136
0.23
NM
73, 332
0.22
N
63*. 467
0.21
N
52,534
0.19
NM
57,337
0.1c
NM
55,90?
0.17
N
54,315
0.17
NM
5 2,857
3.16
NM
52.473
2.16
NM
49,759
0.15
NM
49,132
0.15
NM
47,392
0.15
N
47,156
0.15
NM
45,351
0.14
NM
373 VC
4?1? H2
S'JNBURY
' AE ESBORO
riLOT\-.OJ^TAI
SMirKFlELC
A'IN'3T0^--SALZM
FILOr MD'JMAI
iRAHAM
C'U"?RlfVILLE
?LKTN
NIVIANC
A^irSVILLE
FOUR Z^KS
LANCI3
FARMERS BANfC Of SUN'*
TFIE FIRST NATIONAL B
THE HEHITAaE BANK
EANK OF PILOT MOUNT&
FiaST NATIONAL BAN^:
CITIZENS NATIONAL Bh
FARMERS I3ANK
IKE BANFC CF CURHITUC
BANK CF ALAMANCE
CHIRRyviILE NATIONAL
IfADKIN VALLEY BANK k
TRIAD BANK
CANAL TRUST COMPANY
RANCOLPH 3ANK S. TRUS
A Vary COUNTY EANK
COLUMBUS NATIONAL BA
BaV^ OF FOUR OA^'"^
CAROLINA MOUNTAIN EA
MERCHANTS i FARMERS
43,234
42,153
41,952
39,45G
37.B33
35,374
32,123
29, £33
C3,757
27,291
25,214
26,140
25,142
25,44?
22,417
21,559
20,094
1£,=22
17,701
e.l3
0.13
0.13
0.12
2.12
0.11
0.10
0.09
0.09
0.03
2.ZS
0.03
0.09
0.03
0.07
0.07
0.05
0.25
0.05
NM
N
NM
NM
N
N
NM
NM
NM
N
NM
NM
NI
NM
NM
N'
NM
NM
NM
38
39,
.40,
41,
42.
43.
44,
45.
46.
47.
49.
49.
50.
51.
52.
53.
54.
55.
56.
Zh!i?ll HILL
RIaH POINT
DURHAM
CHARLOTTE
-RZENSBCRO
ISHEVILLE
Pi^BROKE
PINE LEi'EI
''CREKESD CITY
PIAD^NBORO
CANDOR
DUCOLNTON
SrAIfS^-ILLE
BURLINCTON
MURf Hr
FAYETTE-^IILE
,^„„ 09/30/93
■E^i;E\'DA;iI INDEX = 0.n7
THE VILLAGE BANK OF
CENTRAL SAVINJS BANK
GUARANTY STATE BANK
METROLINA NATIONAL B
^REENSBBRO NATIONAL
FIRST COMMERCIAL BAN
LUMBEE BANK
BANK OF PINE LEVEL
COUNTY EANK S TRUST
IBE BM.f OF BLAD5NB0
THE BANK CF CANDOR
LINCOLN BANK OF NORT
THE BANK OF IREDELL
TiiE MORRIS PLAN INDU
CITIZENS EANK
UNITED NATIONAL BANK
16,933
16,612
ie,3S3
14,432
13,457
13,392
10,908
10,348
9,402
3,599
3,e58
5,535
5,995
5,397
4,332
4,213
0.25
0.05
0.05
0.04
0.04
0.04
2.03
0.23
0.e3
0.03
0.23
0.02
0.02
0.02
0.01
0.01
32,473,177 TOTAL
NM
NM
NM
N
N
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
N
57.
53.
59!
60.
61.
62.
53.
54.
65.
66.
67.
58.
59 ,
70!
71.
72.
F-7
APPENDIX G ^ ^ ll_-
COMMENTS TO THE LEGISLATIVE RESEARCH COMMISSION
ON THE
STUDY OF THE REGULATION AND TAXATION OF
BANKS, SAVINGS & LOAN ASSOCIATIONS, AND CREDIT UNIONS
JANUARY 12, 1984
Chairmen Edwards and Warren, Members of the Commission:
Gentlemen, thank you for inviting me to appear before you today.
As Administrator of Credit Unions, I will try tc provide you some
information about state chartered credit unions as it might relate
to the questions of taxation and regulation.
I believe, however. Secretary Hope (Secretary of Commerce, C. C.
Hope) has just provided you with the Commerce Department's thoughts
and comments in regard to the specific areas on which I was asked
to make comments. Therefore, I will not take up your time to
repeat them. His comments and the information he gave you should
provide some comparisons between the three regulatory agencies.
I was asked, however, to outline the history and jurisdiction of
the Credit Union Commission. Before I do, I would like to give
you a few facts about our Division and the number, size, and types
of state-chartered credit unions we regulate.
THE DIVISION
The Credit Union Division is a Special Fund agency and our operation
G-1
is supported entirely by supervisory and examination fees paid by ^
the state credit unions. Absolutely no General Fund monies are ^|
involved in our budget. But since the funds are invested by the
State Treasurer, the General Fund does receive the interest earned
on our cash balances. Our 1983-84 budget is $526,856. Although
we have 13 budgeted positions, we have operated the last three
years with 11 filled positions — Administrator, Deputy, seven
Examiners and two administrative-clerical positions.
During the reorganization of state government in 1971, the Credit
Union Division was transferred from the N. C. Department of
Agriculture to the Commerce Department as a type II transfer.
The Administrator and the division exercises all of their prescribed
statutory powers independent of the Secretary of Commerce, but
the general administration and management functions are performed V
under the direction and supervision of the Secretary.
NUMBER AND SIZE OF CREDIT UNIONS
Presently there are 202 state chartered credit unions and 125
federal credit unions located in North Carolina. As of December,
1982, total assets of state chartered credit unions were just
over $1 billion or $1,054,000,000, compared to assets of approximately
$550,000,000 for the federal credit unions.
Less than one-tenth of the population or approximately 530,000
people are members of the 202 credit unions. It is estimated that
over one-third of the federal and state chartered credit unions
have less than one full-time employee; and there are approximately M
there are various state-wide religious association credit unions,
church credit unions, and credit unions for handicapped groups such
as an association of all blind people in North Carolina. There are
.i|>|ii oxiiiijt.i> ly IwctWy i uiiii-comniuru t y lyi>(' cjodil union;'..
CREDIT UNION COMMISSION
In regard to the history and jurisdiction of the Credit Union
Commission, it was established in 1971 and had its first meeting
in 1972. It is made up of seven members appointed by the Governor;
four from the public sector and three from the credit union industry.
The Commission usually meets three times each year. During the
last five years, the average Commission cost per fiscal year has
been approximately $1,550.00.
Since 1971, the Commission has functioned primarily in a review
and advisory capacity. Although the Administrator has statutory
powers to issue various rules and regulations, the Commission is
vested with full power and authority to review, approve, or modify
any action taken by the Administrator of Credit Unions in the
exercise of all powers, duties, and functions vested by law and
exercised by the Administrator under the credit union laws of the
state.
Therefore, since they have review power, most rules are adopted
during a public hearing and in conjunction with a Commission meeting
so that the Administrator has the opportunity to receive the
G-3
5,000 non-compensated, volunteer credit union directors and officials.
Some 1982 data from the National Credit Union Administration (NCUA)
indicates that for all of our state chartered credit unions, the
average savings per member in our 202 credit unions is approximately
$1,910.00 and the average loans outstanding per member is $2,192.00,
This illustrates that the vast majority of the credit union loans
are the small consumer-type. There are other statistics which
indicate that out of the total savings on deposit in all the
financial institutions in North Carolina, the savings on deposit
in the 327 credit unions make up about 4-5% of the total.
So in terms of total assets, percent of total deposits, average
size of a member's savings account, and average amount of a member's
loans outstanding, these figures for credit unions would probably
appear relatively small when compared with those of the other
financial institutions.
TYPES OF CREDIT UNIONS
There are about as many different types of credit unions as there
are credit unions (202) . These are primarily occupational or
employer types, or associational , residential or community types.
In the employer type, there are credit unions made up of employees
of governmental units (state and local) ; employees of the postal
service; newspaper companies; textile and manufacturing companies;
farm, meat, dairy business; insurance companies; public utilities;
hospitals; paper and tobacco companies; etc. Under associational.
Commission's advice and concurrence. There are a few rules
which can ^lot be adopted without the advice and consent of
the Commission.
The Commission has provided a needed link between the Credit
Unions and the Administrator and vice versa.
This concludes my remarks. Thank you for inviting me to iippear.
The Credit Union Division and the Commission will be glad to
provide you with any information which we ha\e, or which we dire
abiia to provide.
G-5
APPENDIX H
COMMENTS TO THE LEGISLATIVE RESEARCH COMMISSION
ON THE
STUDY OF THE REGULATION AND TAXATION OF
BANKS, SAVINGS & LOAN ASSOCIATIONS, AND CREDIT UNIONS
JANUARY 12, 1984
Chairmen Edwards and Warren, Members of the Commission:
I appreciate the invitation to appear before you today.
Secretary Hope has covered several of the specific areas that I
was asked to make comments about and I see no reason to restate
them.
The Savings and Loan Division regulates a total of 82 state
chartered savings and loans with total assets of about $5.5
billion. One year ago, we had 90 state chartered associations
with combined assets of just over $5 billion. To give you more
perspective, 7 years ago there were 138 state chartered
institutions with $4.8 billion in assets. At the end of 1979, the
number increased to 157, with $6.5 billion in assets. Industry
consolidation has brought us back to our present number of 82.
At year end 1983, there were 68 ftderally chartered savings
and loans located in North Carolina representing combined assets
of just over $9.3 billion. This compares with 48 associations and
total assets of $4.9 billion at the end of 1979.
The Savings and Loan Division is a special fund agency and
our operation is supported by supervisory and examination fees
plus various application fees paid by the state chartered
associations. No general fund monies are involved in our budget.
H-1
Our 1983-84 budget is $761,181. I am appointed by the Seccetacy
of Commerce and sprve at his pleasure. Our staff consists of a
Deputy Administrator, Chief Examiner, nine Field Examiners, Legal
Specialist, Administrative secretary, and Clerk Typist. Our main
statutory duty is the protection of the investing public by
assuring the safety and soundness of the state chartered
associations.
The Division was placed in the Department of Commerce as a
Type II Transfer in the reorganization of state government that
took place in the early 1970 's. The Division exercises all of its
prescribed statutory powers independent of the head of the
Department of Commerce, except that managem^int functions are
performed under the direction and sui srvision of the Secretary of
Conmerce.
The Savings and Loan Commission is composed of seven memberfj
appointed by the Governor to four year staggered terms. A
majority of the members must be public members and cit J east two
members must be active managing officers of stats chartered
associations. The Commission may review, approve, disapprove, or
modify any action taken by the Administrator. Quarterly meetings
are required for the Savings and Loan Commission,
The changes that have and are continuing tc taKe place
throughout the financial industry have been responded to by the
Division and the General Assembly. The General Assembly , approved
a complete recodification of the statutes regulatirui yLale
chartered associations in the 1981 session. Significant changes
and additions to the new statutes were made by the General
Assembly both in the short session of 1982 and the session just
completed. These modifications were necessary in order to keep
3 -
pace with the rapidly developing new approaches in the financial
institution regulatory environment.
The statutory changes I have briefly mentioned have allowed
the state chartered savings and loans the additional flexibility
and powers to enable them to better meet the competitive forces in
the marketplace. The associations are nfi#e able to serve their
market and can offer a wider range of services than was possible
three years ago. In spite of all this, we continue to see today
a savings and loan industry that is still predominantly gearing
its investments and business to real estate lending. A number of
our associations are being innovative in their approaches to real
estate lending and as a result, are better able to meet the
public's needs in this very important area.
I think we will continue to see the savings and loan industry
in a consolidation and growth posture that has been prevalent for
the last two years. Although our final statistical information is
not complete for 1983, we have had eight mergers take place during
the year and the real deposit growth just for state chartered
associations will be in the $500 to $600 million range. We
anticipate that the new charter activity will begin to show life
after several years of being dormant. W3 do not, however, expect
the level of new charter application activity we experienced in
the 1978-1980 time period.
Again, I thank you for your invitation to appear here today.
We will be glad to provide whatever information you would want and
are capable of providing.
H-3
APPENDIX I
RIMARKS OF JOHN R. JORDAN, JR., LEGISLATIVE COUNSEL NORTH CAROLINA BANKERS
ASSOCIATION, TO A MEETING OF THE LEGISLATIVE RESEARCH CCWUSSION STUDY
CCtWITTEE ON THE RBGULATICN AND TAXATION CF BANKS AND OTHER FINANCIAL
iNSTnuriONS
Senator Edwards, Representative Warren, distinguished itenters of the Study
Cottftdssion. I appreciate the opportunity to speak a brief word on behalf of the
North Carolina Bankers Association. First, let me say that it is the position
of the banking industry of North Carolina that the structvire of providing
financial services to the people of North Carolina is sound. Indeed, as to the
portion of the structure relating to banks, I can tell you that the banking
system of North Carolina is the envy of many other jurisdictions to which my
practice takes me.
Nevertheless, we deem it appropriate that you further concern yourselves
with the topics set out in your notice of 16 December 1983. They are:
(1) whether there should be a single state regulatory agency to
regulate and supervise all financial institutions in North
Carolina;
(2) whether there are state statutory and regulatory provisions
resulting in inequitable treatment of different types of
financial institutions and whether the provisions ought to be
changed; and
(3) whether there are inequities in the state taxation of different
types of financial institutions, and to indicate specifically how
these inequities should be remedied.
As is known to most in this roan, these are areas of interest vduch have
already received much study in the past. Nevertheless, we welcome the
opportunity to assist you in every way as you begin further consideration of
them.
I-l
First, as .^ - :- concept of a single state regulatory agency. The North
Carolina Bankers Association has not taken a specific position on this issue at
this tims. S have asked me to express my personal opinicn on the
single regulatory agency' concept and I am glad to do so. I wculd offer a word
of cautio" "' '-^^^ ..o^^^.io^ hour. Banking tluroughout the nation is in a
transitic _ seen the sweeping changes which have taken place
within the last few years. Even others lie immediately ahead. Therefore, it is
ity view that we should
regulator^' o;-,-,,,--^,- r-
will able
decision might take.
As to the second a:
Txit a while before changing the existing
Lna. Nevertheless, you may be sure that we
aneral Assentoly regardless of what form that
ems set out m your notice, T will address
them together. The taxat^^.. ^^ ^^.ancial institutions has been undergoing study
and change continuously for scms 13 years now beginning with the legislative
session of 1369 .
w
m
^^
triie as to savings ana
Ls is particularly
jiations who sought and obtained from this
I- 2
General Assenbly the right to pay incxme taxes on the basis of a business
cx)rporation. In this particular light exenption fran Intangibles Tax of savings
accounts in savings cind loan associations becomes glaringly inequitable.
You have been very patient here today in hearing out a series of speakers.
I will not iitpose upon your time further. I have, as evidence of our good faith
and our desire to cooperate with you fully the NCBA has created a special task
force which has been assigned to this Study Committee. The menibers of this task
force stand ready to provide you with any information you require of us to
assist you in every way possible. I would like to introduce them at this time
as all four members of the task force are present. They are:
Mr. Joseph Sandlin, of Southern National aank
Mr. Larry Hazeltine, of NCNB National Bank
Mr. Thanas Sanders, of Wachovia National Bank
Mr. Jim Early, of First Union National Bank
New, Mr. Chairman, I again thank you for your courtesy and stand ready to
respond to any questions I can answer.
I- 3
APPENDIX J
Presentation on Behalf of the
NORTH CAROLINA LEAGUE OF SAVINGS INSTITUTIONS
by
Gordon P. Allen, Legislative Agent
January 12, 1984
Chairmen Edwards and Warren, Members of the Committee:
My name is Gordon Allen and I serve as Legislative Agent for the
North Carolina League of Savings Institutions. We appreciate the opportunity
to appear before you today to respond to the questions asked by your staff
and to make suggestions as to those issues which the League feels merit
consideration by this Committee.
If I may spend a moment to share with you some recent history con-
cerning regulation and taxation of savings and loans, I will be better able
to address your specific questions. During the 1981 Session of the North
Carolina General Assembly, two major pieces of legislation were passed
which will have a dramatic impact on our industry in the years ahead.
First, the entire body of law governing the organization and operation of
state chartered savings and loan associations was rewritten. The result of
a year long study ably guided by Senator Edwards and former Representative
Ruth Cook, this rewrite accomplished a change in philosophy in the regulation
and supervision of savings and loans. It considerably broadened the oper-
ational latitude for S&L's while providing for regulators the tools necessary
to assure that any new powers were exerci<^3d in a manner designed to
preserve the safety and soundness of the institution and thus protect the
funds of the depositors. The second piece of legislation revised the method
of taxation of S&L's to one which parallels that applicable to business corpo-
rations generally in North Carolina. These two acts were ratified within an
economic environment of excessively high interest rates which saw virtually
the entire savings and loan industry losing substantial sums of money.
That state of economy made clear the need to permit S&L's sufficient diversity
of investments to remain viable throughout any economic cycles. It also
J-1
underscored the unfairness of the then current system of taxation which,
because it was not tied to income, became confiscatory in nature as taxes
remained high while the taxpaying S&L's were losing money.
Over the past several years, the laws and regulations governing the
organization and operation of federally chartered S&L's have also been
greatly modified, primarily by two Congressional Acts: the Depository
Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St
Germain Depository Institution Amendments of 1982. As the 1981 state law
did for state chartered savings and loans these two acts broadened consider-
ably the investment authority of federal S&L's. They also deregulated
completely, for all practical purposes, the rates which financial institutions
could pay for savings deposits. As with the state law changes, the primary
impetus behind the federal enactments was the need to assure that federal
S&L's had sufficient investment flexibility to assure that they would be
viable even during severe economic cycles of high interest rates.
One comment is in order regarding what was not accomplished by these
changes in state and federal law. Savings and loans were not magically
converted to banks. The major component of our industry's investment
portfolios continues to be residential mortgages. More importantly, despite
the breadth of new investment authorities, S&L's in North Carolina continue
to invest the vast majority of new deposits in residential mortgages. The
role our industry was created to fulfill has not changed at all. The new
powers were intended, and have been used, and will continue to be used,
to assure our ability to remain the primary provider of home mortgage
financing.
With this background in mind, we can turn to the specific questions
posed in the Committee's letter requesting our appearance today.
(1) Should there be a single state regulatory agency to regulate and
supervise ail financial institutions in North Carolina?
We believe the current regulatory structure to be adequate and efficient.
There are substantial functional and structural differences among banks,
J- 2
savings and loans, and credit unions. Properly so, as these different
types of institutions pUiy different roles in our state's economy. Ihis is
not to suggest that there is no overlap in those roles. That overlap,
however, serves only to create healthy competition which inures to the
benefit of the consuming public. This competitive overlap should not obscure
the fundamental differences which define the different types of financial
institutions and which warrant separate regulators. If an effort were made
to consolidate the regulatory function; we believe it would then become
necessary to establish separate divisions within that new agency to deal
with each type of institution. We would, in effect, be right where we are
now, with three separate agencies in a single departmnt.
The savings and loan industry has just emerged, is still emerging,
from the most devastating period in its history. During that period, the
Savings and Loan Division was extremely effective in dealing with any
potential problems before they became critical. Other financial institutions
were impacted differently by the high interest rates which caused so much
trouble for our industry. There is no reason to believe that a single
agency could have responded better, or indeed as well, to the traumas of
the past few years. The North Carolina League of Savings Institutions
opposes consolidation of the state's financial regulators.
(2) Are there state statutory and regulatory provisions resulting in
inequitable treatment of different types of financial institutiorts
and should such provisions be changed?
As noted above, the statutes governing regulation and taxation of
savings and loans were substantially rewritten in 1981, with the tax changes
effective in 1982. Our industry's lack of experience with these new laws
makes it very difficult to judge the existence of inequities which might
warrant the consideration of this Committee. As a general matter, however,
the General Assembly has traditionally treated financial institutions differently
when, in that body's collective opinion, the different roles played by the
various types of financial institutions made such different treatment appro-
priate. This Committee may wish to consider whether or not such a functional
approach retains its basic fairness. If not, the approach should be changed.
J- 3
If it is still fair, differences in treatment should continue to be assessed
with respect to the different functions performed by financial institutions.
(3) Are there inequities in the state taxation of different types of
financial institutions, and how specifically should these inequities
be remedied?
Our comments to the second question are equally applicable here.
Certainly, differences in taxation exist. Whether such differences are
inequitable, however, can only be determined by the General Assembly in
light of the reasons which may exist for perpetuating those differences.
Once again I would like to thank the members of the Committee for
inviting us to appear today. With me is Paul Stock, Executive Vice President
and Counsel for the League. Paul and I would be happy to try to answer
any questions you might wish to ask.
J- 4
LEGISLATIVE RESEARCH COMMISSION
COMMITTEE ON THE TAXATION AND REGULATION
OF BANKS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS
Presentation of Mr. Gordon P. Allen
North Carolina League of Savings Institutions
November 9, 1984
J-B
Mr. Chairman and Members of the Committee:
On behalf of the North Carolina League of Savings Institutions, thank you
for the opportunity to appear before you today and for the considerable amount
of diligent effort you have already devoted to fulfilling the charge given you
by the General Assembly.
In his letter to us, Mr. Sullivan stated that this Committee had chosen to
"turn its attention once again to the issue of taxation of. . . financial
institutions and their depositors." He requested that we present "our specific
beliefs and their underlying reasons as to what inequities, if any, exist re-
garding differing state tax treatment of the various types of financial insti-
tutions. . ." He asked that we relate the burdens imposed by such inequities
and any legislative recommendations for eliminating them.
With respect to the general taxation of savings and loan associations by
the state, as most of you know, the General Assembly rewrote Article 8D of G.S.
Chapter 105 during the 1981 Session. Prior to that revision, S&L's paid a tax
based on total deposits that was unrelated to the institutions' profitability or
ability to pay. In support of our contention that such a method of taxation was
unfair and could even prove to the confiscatory during periods when our members
were losing money, we presented a study and analysis of the taxation of savings
and loan associations prepared by the accounting firm of Peat, Marwick, Mitchell
& Co. The 1981 revision was intended by the General Assembly to result in a
method of taxation comparable to that imposed on other businesses in North
Carolina. When we received this Committee's request to appear today, we asked
Peat Marwick to analyze the current state tax structure for S&Ls to see if that
legislative intent has been realized. The results of their analysis are attached
to the copies of our written presentation which have been distributed to the
members of the Committee. Without taking time to review their entire report,
let me just say that the revisions appear to be working as intended.
In turning next to briefly address the Committee's question about inequi-
ties in the taxation of financial instiutions and their depositors, please allow
me to restate some of the points made by the League when you first discussed
these same issues. Differences in treatment of the various financial institu-
tions are not rendered inquitable merely because they are not the same. Where
those differences are founded on valid distinctions among the entities being
taxed and are consistent with a valid goal or policy to be fostered, it would,
in fact, be inequitable to treat those institutions alike. Credit unions pay
no state taxes. This treatment is clearly a benefit our membership would like
tc share. Credit unions, however, are afforded this benefit because they are
seen as being different from other types of financial institutions in that
they are not free to deal with the public generally, but are restricted to a
membership sharing a common bond or community of interest. The services they
can offer are limited to those which are consistent with that limited member-
ship. The Congress of the United States and the North Carolina General Assembly
have identified this "different" type of institution as deserving of "different"
tax treatment. We would not presume to suggest that merely because this treat-
ment is different, it is also inequitable.
Contrary to a frequently expressed misconception, savings and loan associ-
ations have not become commercial banks, nor will they. Some of the differences
which previously distinguished these two types of entities have disappeared, it
is true. Very fundamental differences, however, continue to exist. Foremost
J-6
among these differences is the continuing conunitment of the thrift industry to
the financing of residential estate. Having witnessed the devastating impact of
downturns in the real estate market coupled with high costs of deposits created
by deregulation of savings accounts, both Congress and the General Assembly have
moved to broaden the investment authority of savings and loans. This was not
done to lure thrifts away from making home loans, but rather to provide suffi-
cient tools to retain sufficient financial strength to continue to make home
loans. These broadened powers have greatly increased the direct competition
between banks and S&Ls for establishment of relationships with retail con-
sumers. In marketing many of these services, like interest bearing checking
accounts, thrifts have encouraged the blurring of the lines of distinction
between themselves and commercial banks as a means of penetrating a market which
has belonged exclusively to the banks in years past.
But when you examine the other structural differences which have tradi-
tionally distinguished banks from thrifts, little has changed despite all the
deregulation which has taken place. The wholesale or commercial market is still
the domain of the commercial banks. Commercial demand deposit authority, the
cornerstone of the relationship between a bank and its business, as opposed to
consumer, customers remains the exclusive province of the banks. The lending
patterns of commercial banks do not have the home mortgage emphasis which con-
tinues to characterize the savings and loan industry. If the importance of this
distinction is unclear, let me point out that the difference in investment
portfolios resulted during 1981, when interest rates were at unprecedented
levels, in record earnings for the commercial banking industry and record losses
for the savings and loan industry. Even at today's much lower levels, 1984 will
probably be a break-even year for our industry in North Carolina. I do not
know, but suspect, that the banking industry will fare somewhat better.
If I might make one more brief point in closing. The last time you
addressed this subject, a member of this Committee asked if S&Ls would remains
S&Ls or if they would all become banks. To some extent, the answer to that
question rests heavily on the actions taken by Committees such as yours and
the entire General Assembly. If you continue to place a high priority on home
finance; and if you adopt policies that foster and encourage that priority; S&Ls
will continue to be home lending specialists. If policies are adopted that
encourage a change in emphasis to more lucrative forms of investment, our
industry may well be deprived of any choice in the matter.
Although each type of financial institution is treated somewhat differently
by the state, we believe these differences Lo be based on value judgments made
by the General Assembly and can identify no inequities which we feel must be
elminated.
J-7
TAXATION OF NORTH CAROLINA SAVINGS AND LOAN
ASSOCIATIONS BY THE STATE OF NORTH CAROLINA
Prepared for che
North Carolina League of Savings Institutions
by
Peat, Marwick, Mitchell & Co.
Raleigh, North Carolina
J-8
Taxation of North Carolina Savings and Loan
Associations by the State of North Carolina
The purpose of this report is to present an analysis of the taxation of
North Carolina savings and loan associations by the State of North
Carolina and to compare this tax structure with that of other North
Carolina business corporations. This study also compares present law
with prior law to illustrate that several prior inequities between
savings and loan associations and general business corporations have
been remedied.
I. Applicability of Various State Taxes to Savings and Loan Associations
and Other Business Corporations
The following table lists the types of state taxes to which savings
and loan associations and general business corporations are subject.
Type of Tax
Income
Franchise
Intangible personal property
Sales and use
Real property
Tangible personal property
This study will focus only on franchise, income and intangible
personal property taxes because the other taxes are comparable for
savings and loan associations and general business corporations.
II. Description of North Carolina Taxes
A. Income Tax
Under prior law, savings and loan associations and general business
corporations were both taxed on net income. The tax on savings and
loan associations was called an excise tax. The rates assessed on
net income were as follows:
1. Savings and loan associations 7*2%
2. General business corporations 6%
As a result of a previous study of North Carolina taxation of savings
and loan associations, the law was changed effective for taxable
years beginning on or after January 1, 1982 so that savings and
loan associations are now subject to the income tax at the same
6% rate as general business corporations.
J-9
The major difference in the determination of net income for savings and
loan associations and general business corporations is the computation
of the bad debt deduction. Savings and loan associations are entitled
to partial relief from federal income tax by use of a bad debt deduction
computed by statutory formula. Because North Carolina taxable income is
computed by starting with federal taxable income and making certain
adjustmants thereto, this bad dabc deduction also reduces North Carolina
taxable Income. Savings and loan associations are entitled to a bad
debt deduction computed under one of three methods. The percentage-of-
eligible-loans method allows a deduction for the amount required to
raise the loan loss reserve to 0.6% of eligible loans. A second method
allows savings and loan associations to write-off the actual losses
incurred during the year with respect to these loans. Alternatively, a
savings and loan association may claim a bad debt deduction equal to 40%
of its taxable income.
Under the Tax Equity and Fiscal Responsibility Act of 1982, the bad debt
deduction computed, under the percentage-of -eligible- loans method or the
percentage-of-taxable-income method must be reduced by 15% of the amount
by which the deduction exceeds actual losses incurred, effective for
taxable years beginning after 1982. The Tax Reform Act of 198A increased
the cutback in the deduction to 20% effective for taxable years beginning
after 1984.
B. Franchise Tax
The franchise tax is computed at the rate of $1.50 per $1,000 of taxable
value and is now assessed against all corporations other than exempt
organizations. It is assessed on the highest of the following three
values:
1. Total of capital stock, surplus and undivided profits
(net worth) ;
2. Investment (generally book value) in tangible property,
real and personal, located in North Carolina;
3. Total assessed value of all property located in North
Carolina including the net value of all property subject
to North Carolina intangible tax.
Both savings and loan associations and general business corporations are
now subject to the franchise tax. Under prior law, savings and loan
associations were liable for the share and deposit tax rather than the
franchise tax.
The old share and deposit tax (known as the capital stock tax prior to a
1979 law change) was assessed against savings and loan associations at
the rate of $.75 per $1,000 of the aggregate amount of savings deposits
held by such associations. This tax was similar to the franchise tax
assessed against general business corporations, in that it is a tax for
the privilege of doing business in North Carolina. However, the franchise
tax is assessed either on asset value or net worth; the net worth base
reflects the association's profitability because it includes undivided
profits. The share and deposit tax was assessed on liabilities and did
J-10
not relate to the association's profitability. This tax was assessed on
both stock associations, which are owned by shareholders, and on mutual
associations in which the depositors are considered to be the corporate
shareholders. Again, as a result of a previous study showing that the
savings and loan industry paid a disproportionate share of taxes to the
State of North Carolina, the law was changed effective December 31, 1982
to make savings and loan associations liable for the franchise tax
rather than the share and deposit tax.
C. Intangible Personal Propency Tax
This tax is assessed on the following classes of intangible property at
the rate specified:
Rate
1. Money on deposit based upon the
average of bank deposit balances
at February 15, May 15, August 15,
and November 15 $.10 per $100
2. Money on hand at the end of the
taxable year $.25 per $100
3. Excess of accounts receivable over
accounts payable at the end of the
taxable year- $.25 per $100
4. Excess of notes, bonds, mortgages
and other written evidences of
debt over similar types of debt
payable $.25 per $100
5. Shares of stock based upon market
value at December 31 $.25 per $100
Savings and loan associations are required to pay intangible tax
on deposits in banks and money on hand. However, they are exempt
from taxation on accounts receivable; notes, bonds, mortgages and other
evidences of debt; and shares of stock. Also, customers of savings and
loan associations do not have to pay intangible tax on their deposits in
savings and loans.
Conclusion
According to a previous tax study. North Carolina savings and loan
associations paid a disproportionate share of state taxes under prior
law. However, savings and loan associations are currently taxed by the
State of North Carolina in basically the same manner as general business
corporations, with the exceptions noted above.
J-11
APPENDIX K
Gentlemen :
It is a pleasure to appear before you and to state the
position for the credit unions in North Carolina in connection
with your consideration of the question of regulatory and
taxation provisions as they apply to commercial banks, savings
and loan associations and credit unions.
We are, and have been, well aware of the 1981-82 annual
report of the State Treasurer and his premise for his recommen-
dations and agree that during the past several years there have
been many changes of great magnitude in the commercial banking
business and the savings and loan industry. While he may be
right in his conclusion that in the eyes of the public, these two
types of institutions are all financial institutions offering
similar or identifiable services, the hard fact is that credit
unions are neither commercial banks nor savings and loans. The
historical distinction between commercial banking business, the
savings and loan industry on the one hand, and credit unions on
the other, has not, as a practical matter, disappeared and we are
here Concerned primarily with retaining the uniqueness of the
credit unions in North Carolina and preserving the ability of
these institutions to effectively carry out the purposes for
which they were organized.
K-1
The Treasurer suggested Chat the regulatory process
should be made uniform and standardized if these institutions
(including credit unions) are to compete fairly and equitably.
Historically, these financial institutions have not been
homogenized and, in our opinion, and especially for the survival
of credit unions, they should not be homogenized into a single
group.
We oppose any change in the present regulatory and tax
provisions as they relate to credit unions and don't wish to be
involved in problems that may or may not exist in connection with
the commercial banking or the building and loan industries. We
do wish, however, to point out that there has been no basic
change in philosophy or structure or, if you please, the
uniqueness of the credit union and its role as a financial
institution .
IVhat is a credit union? A credit union might best be
defined as groups of people within identifiable boundaries who
save their money together and make low cost loans to each other
from the accumulated funds. G.S. §54-109.1 defines a credit
union and states the purposes of a credit union as follows: •
"A credit union is a cooperative, non-
profit association incorporated under
Articles 14(a) to 14(1) of this Chapter
for the purposes of encouraging thrift
among its members, creating a source of
credit at a fair and reasonable rate of
interest and providing an opportunity
for its members to use and control their
own money in order to improve their
economic and social condition."
K-2-
The credit union was born out of a real need of people
of average means - many of them wage earners, employee groups,
and some of them community groups, mostly minority groups - to
obtain credit for consumer goods, a void that existed in the
early days and which, without credit unions, would exist today.
People saving their money together and helping each other - a
truly cooperative effort. As time has passed, this objective has
not changed and the credit union philosophy is the same today.
As you will see, these groups are not in the public domain making
commercial loans, they have and still remain a source of consumer
credit for their members and in addition to providing this
consumer credit, credit unions encourage systematic thrift and
educate members and their families in the prudent management of
their own money.
In North Carolina we have 327 credit unions. 202 or
61.87o of these are State chartered, and 125 or 38. 2% are
Federally chartered. More than 165 or 50.51 of these credit
unions have less than $500,000 in assets. Over one-third of the
credit unions have less than one full-time employee and there are
approximately 5,000 volunteers, non-compensated, who provide the
services of the credit unions to members.
How is the credit union unique? Unlike any other
financial institution today, the credit unions do not serve the
general public. They are limited to accepting savings and making
K-3-
loans to those who are within the credit union's defined field of
membership. They are mutual, non-profit organizations whose
activities are confined to its members. No one may obtain a loan
or other benefit unless he falls within the defined field of
membership and has savings in the credit union. The members own
and control the credit union and they share in its distribution
of earnings as well as in the retained reserves in the event of
dissolution. Each member, unlike in ordinary stock corporations,
has one vote regardless of the number or size of his accounts.
All income after expenses and required reserves ultimately is
returned to the members in the form of dividends. These divi-
dends are fully taxable as interest and there are no exemptions
or exclusions such as the exclusion allowed by stock dividends
under the Internal Revenue Code.
The non-tax status insofar as income tax is concerned
is well established by the Federal government and has been well
reasoned and supported by the State governments.
In this presentation to you the Committee to study the
regulation and taxation of these three separate and distinct
types of institutions, I would like to point out in outline form
the following:
K-4-
UNIQUENESS OF CREDIT UNIONS
Credit Unions are non-profit, member-owned cooperative
financial institutions. Membership is limited to persons within
a well-defined field of membership -- general employment, assoc-
iation, or geographic in nature. Credit unions are democratically
controlled with each individual member of the credit union having
one vote, regardless of the number of accounts or of dollars on
deposit at the credit union. As democratically controlled
financial cooperatives, the consumer orientation of these
institutions is insured. These unique financial institutions
return to their owner -members every penny of money earned in
excess of operating expenses and required reserves.
STATUTORY FRAMEWORK
The North Carolina Credit Union Act and the Federal
Credit Union Act establish a statutory framework that ensures the
unique character of credit unions. The key features common to
credit union statutes include:
1. A well defined field of membership.
2. Volunteer leadership.
3. Democratic control with each member having one vote
regardless of the number of dollars they have
deposited with the credit union.
K-5-
4. Non profit status and no capital stock.
5. Statutory reserves.
6. Exemption from federal and state income taxation.
During the past half century, the fundamental purposes,
goals and objectives of credit unions have remained unchanged.
INCOME TAX
Under the present law, credit unions, both federally
and state chartered, are and have been exempt from federal income
tax since 1917 as result of a ruling of the Attorney General and
later by specific statutory provisions and North Carolina
likewise has exempted credit unions from corporate income tax,
OTHER TAXES
G.S. §105-122 is not applied to credit unions because
they do not have any capital stock. Intangible taxes paid by the
institution under G.S. §105-199 is not collected from credit
unions because the credit union itself has no ownership interest
in money on hand. As to the exemption from the other intangible
taxes, accounts receivable, notes receivable, shares of stock,
under G.S. §§105-201, 202 and 203, respectively, this is valid
because a credit union obtains money from its members to lend to
its members and it makes these loans, mostly small consumer loans
only to its members. With respect to intangibles tax paid by
K-6-
depositors, this exemption was a concession made when the
administration or regulation of credit unions was made self
sufficient and supported solely by fees from credit unions. More
than two-thirds of the credit unions, both state and federally
chartered, do not have automated data processing and maintain all
of their record keeping manually. The cost of handling such an
item would be prohibitive.
If we go to a system which would assess some taxes
against our state chartered credit unions, and not against
federally chartered credit unions, we would soon have no more
state chartered credit unions as all would immediately convert to
federally chartered credit unions. On the other hand, if it is a
question of imposing these additional taxes on credit unions so
as to weaken the position of these institutions, then we can
assume that we would eventually do away with the majority of the
credit unions in existence in North Carolina today.
The license tax provisions of G.S. §105-102.3 is a
special provision applying only to banks or banking institutions
and was worked out in an overall scheme of taxation applying
uniquely to commercial banks.
State chartered credit unions do pay all sales and use
taxes and all ad valorem taxes.
K-7-
CHARACTERISTICS OF CREDIT UNIONS
FIELD OF MEMBERSHIP
Credit unions are not open to the general public. In
North Carolina 8A.5% of the state chartered credit unions are
occupational or governmental onployee related (64.5% or 129
credit unions have occupational fields of membership; 20% or 40
credit unions are made up of governmental employees, federal,
state or local fields of membership). Of the total credit
unions, federally and state chartered in North Carolina, 67.9% or
220 credit unions are occupational fields; 17.3% or 56 credit
unions are government employee fields (either federal, state or
local). The remaining are limited to associations or community
groups. It is easy to see that the vast majority of credit
unions are perceived to be an employee benefit supported by the
employer .
Credit unions continue to rely on member savings to
generate funds for loans. Nationally, credit union membership
has grown from approximately 5 million in 1951 to now more than
47 million individuals. However, despite this growth the
percentage of deposits in credit unions in relation to those of
all financial institutions has remained about 4% in the last
decade. Response to changing economic conditions and the use of
new technology have not altered the uniqueness of credit unions
either in structure or basic savings and lending services.
K-8.
VOLUNTEERS
North Carolina and federally chartered credit unions
rely heavily on the use of volunteers to run credit unions. By
statute board members and committee members may not be
compensated for their service as such. As stated earlier, in
North Carolina, over one-third of the credit unions have less
than one full-time employee. We have already referred to the
democratic control and mutual ownership not for profit but for
service philosophy to its members posture of credit unions. And
while there have been changing member needs from the original low
cost consumer loans to, in some cases, share draft accounts and
mortgage loans available, this has been done without changing the
structure or philosophy of the credit unions (the opportunity of
its members to use and control their own money). Credit unions
have not become banks, lending is still restricted to its members
and while credit unions are authorized a fairly broad range of
consumer lending powers, credit unions offer only those loan
services sought by their members . Only a small percentage of
credit unions engage in mortgage lending and only 14 of the 202
North Carolina State chartered credit unions offer share draft
accounts. Clearly, credit unions today remain a reflection of
their members' wishes.
K-9-
REGULATION
A dual chartering system of credit unions has worked
well in North Carolina; sixty-one point seven (61.77o) percent of
the credit unions operating in North Carolina are state
chartered. Our credit union division, a part of the Department of
Commerce, headed by a competent administrator, has done a good
job in assuring the survival of the credit unions in North
Carolina and has done a lot to preserve the very valuable
services rendered to the members of the credit unions. The
Credit Union Commission, which is vested with the power and
authority to review, approve or modify actions of the
administrator, is appointed by the Governor, whose administration
is basically responsible for the overall policy as regards all
financial Institutions and the Banking Commission, Savings and
Loan Commission, as well as, the Banking Commissioner and the
Savings and Loan Administrator, are all under the Department of
Commerce and responsible to the same administration. Credit
unions are entirely different and unique-type institutions, large
and small, and should remain so in order to preserve the valuable
services rendered by the members to themselves through this
unique opportunity.
SUMMARY
From the standpoint of credit unions, it is certainly
true that this type financial institution has maintained a
K-10-
historical distinction between either the commercial banking
business or the savings and loan industry. It has today retained
that distinction and should not be homogenized into a group as
suggested by the State Treasurer. The credit union offers very
distinct services to its members and only its members and to
place them under the same regulatory body as the other commercial
financial institutions and to upset the balance that now exists
would be to destroy the whole concept which has so well served
the people of our State.
K-U
APPENDIX L .^?«^ '^''^^ ^-r^...t:^
*W'.
'^
»tatc of ^'ortl] Carolina
LEGISLATIVE OrriCE BUILDINC.
_ , , CLYDE SMITH
Di'ji;irfmi'nt uf tlir J^crrrtanj of JMate deput. sicreiahv of siAif
» I ■ I '.',,• t , BRENOACCIMS
Klllnjlll 27hll COI.POI.*T,ON..TTO»N|v
THE CAPITOL F DANIEL BELL HI
DEPUTY SECURITIES ADMINISTBATOR
THADEURE Charles w moore
SECRETARY OF STATE . DEPUTY UCC FILING OCFICEB
JOHN L CHENEY JR
DIRECTOR OF PUBLICATIONS
LUDELLE R HATLEY
NOTARIES PUBLIC DEPUTY
M E M O R A
TO: The Committee on Regulation and Taxation of Banks, Savings
and Loans, and Credit Unions
FROM: F. Daniel Bell, III
Deputy Securities Adminis
RE: Regulation of Money Market Funds
DATE: March 15, 1984
I. BACKGROUND
Money market funds are defined in the NASAA glossary of
securities terms as follows:
"Also called a liquid asset or cash fund, it
is a mutual fund whose primary objective is
to make higher interest securities available
to the average investor who wants immediate
income and high investment safety. This is
accomplished through the purchase of high
yield money market instruments such as U.S.
government securities, bank certificates of
deposit and commercial paper."
Inc . or
"NASAA" is an association of the Securities Administrators of the
fifty states, Canadian providences and territories, Mexico, Puerto
Rico, and District of Columbia dedicated to the cause of investor
protection
L-1
Money market funds, are a type of mutual fund (open-end, manage-
ment investment companies) which invest in short-term money
kTtarket instruments such as commercial paper, certificates of
deposit and United States Government obligations. There are
mutual funds designed for every sort of investment objective -
mutual funds invested in common stocks, or invested in corporate
bonds - in addition to money market funds.
Mutual funds provide an economical way by which an investor
of modest means cam obtain the same professional advice and
diversification of investments as an institution or a wealthy
individual. Mutual funds enable thouseinds of investors to
pool their resources in a fund which invests in a large nvunber
of securities under the supervision of a professional investment
adviser. The shareholders of the fund are its owners and are
entitled to all of its net income, which consists of the gross
income generated by the fund's investments less operating
expenses such as investment advisory, custodial and accounting
fees. A fund is required to buy back (rede«n) a share whenever
requested to do so by a shareholder.
II. FEDERAL REGULATION OF MOWEY MARKET FUNDS
A. Securities Act of 1933;
Unlike other corporations, money xaarket funds and
other mutual funds offer their shares to the public on
a continuous basis. Therefore, fund shares must always
be registered for sale with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933.
Consequently, a money market fund must provide potential
investors with a current prospectus which makes detailed
disclosures about the fund's management, its investment
policies and objectives and its investment activities.
These prospectuses are reviewed by the SEC staff to
L -2-
determine their adequacy and completeness. The Securitier.
Act of 1933 also limits the types of advertisements which
may be used by a money market fund.
Under SEC rules, money market funds must include a
yield quotation in their prospectuses, and this quotation
must be computed by use of a standardized method in accord-
ance with SEC rules. In order to provide comparability
and uniformity in advertising, money market funds which
advertise yield must also utilize this method in their
advertisements.
Securities and Exchange Act of 1934;
The purchase and sale of money market fund shares,
as with all securities, are subject to the anti-fraud
provisions of the Securities and Exchange Act of 1934,
most notably Rule lOb-5. Rule lOb-5 meikes it unlawful
in connection with the purchase or sale of any security,
for any person, directly or indirectly by the use of any
means or instrumentality of interstate commerce, or of
the mails, or of any facility of any national securities
exchange :
1. to employ any device, scheme, or artifice to
defraud;
2 . to make any untrue statement of a material fact
or to omit to state a material fact necessary in
order to make the statements made, in light of the
circumstances under which they -"re made, not mis-
leading; or
3. to engage in any act, practice, or course of
business which operates or would operate as a fraud
or deceit upon any person.
Investment Advisers Act of 1940;
Investment advisers to money market funds must register
L -3-
with the SEC under the Investment Advisers Act of 1940.
The Advisers Act prohibits advisers from engaging in
various transactions which would constitute conflicts
of interest, and requires them to maintain and preserve
various books and records which are subject to SEC
inspection.
Investment Company Act of 1940;
Moreover, the money market fund itself, unlike other
corporations, must be registered with the SEC under the
Investment Company Act of 1940. In addition to requiring
periodic reports to shareholders and the SEC, the Invest-
ment Company Act of 1940 contains numerous provisions
designed to prevent self-dealing and other conflicts of
interests, to maintain the integrity of fund assets and
to prevent the payment of excessive fees and charges by
the fund and its shareholders.
Among other requirements, the Investment Company Act
of 1940:
1. requires that at least 40% of a funds' directors be
independent of its investment adviser;
2. requires that the fund's investment advisory contract
be approved by a majority of these independent direc-
tors;
3. sets forth broad provisions prohibiting transactions
between the fund and its investment adviser or any
"affiliated" person;
4. provides for judicial remedies with respect to the
level of compensation received from the fund and its
shareholders by fund affiliates;
5. prohibits a fund from deviating from its fundamental
investment policies without shareholder approval;
L -4-
6. requires the bonding of fund officers and employees;
7. requires that fund shares be valued daily to assure
a fair price for both sales and redemptions; and
8. authorizes the SEC to bring action against affiliated
persons who have engaged or are about to engage in
any act or practice constituting a "breach of fiduciary
duty involving personal misconduct."
The Investment Company Act of 1940 spells out requirements
for the custodianship of mutual fund assets and pursuant
to its rulemaking authority the SEC has adopted detailed
regulations relating to the custodianship of such assets,
which also are subject to periodic audit. The Act also
contains provisions permitting criminal prosecution for
any serious violation of that statute.
Money market funds are also subject to SEC examina-
tion and each money market fund has been inspected on at
least three separate occasions since late 1979. These
inspections focus upon compliance with specific require-
ments of the federal securities laws summarized above.
STATE REGULATION OF MONEY MARKET FUNDS
A. Regulation of the Issuance:
Chapter 78A of the North Carolina General Statutes,
commonly referred to as the North Carolina Securities Act
is based upon the Uniform Securities Act and was adopted
April 13, 1974, effective April 1, 1975 replacing the
predecessor Securities Act. The State of North Carolina
has regulated the securities industry since the 1920 's.
G.S. 78A-24 provides that it is unlawful for any per-
son to offer or sell any security in North Carolina unless
Data provided by the Investment Company Institute ("ICI") , a
national association of the American mutual fund industry.
L -5-
the security is registered under Chapter 78A of the
General Statutes or the security or transaction is exempt
pursuant to G.S. 78A-16 or 78A-17. A money market fund
unit or share is a security as defined in G.S. 78A-2(11)
and due to the absence of an applicable exemption, regis-
tration with the Securities Division, Department of the
Secretary of State is required.
The registration requirements are prescribed by G.S.
78A-26 as coordinated process in conjunction with federal
registration of the securities with the SEC pursuant to
the Securities Act of 1933. The applicant is required to
file with the Securities Division the following documents
and information; along with a consent to service of process
naming the Secretary of State as service agent:
1. an application for registration of securitias;
2. a copy of the latest prospectus filed under the
Securities Act of 1933;
3. a copy of any indenture or other instrument governing
the issuance of the security;
4. all future amendments;
5. appropriate filing and registration fees; and
6 . any other information or copies of any other documents
filed under the Securities Act of 1933 as the Adminis-
trator may request.
Upon review of the documents and information submitted,
the Administrator may issue a stop order denying effective-
ness to, or suspending or revoking the effectiveness of
any registration statement pursuant to G.S. 78A~29 if he
finds that there are deficiencies or problems with the
money market fund and that such an order is in the public
interest. Circumstances giving rise to such an order include;
L-6-
1. The registration statement, or any amendments thereto,
is incomplete in any material respect or contains any
false or misleading statements;
2. The person filing the registration statement, the
issuer - including any partner, officer, director,
or any person directly or indirectly controlling or
controlled by the issuer - or any underwriter has
willfully violated any provision of the Securities
Act or any rule, order, or condition thereunder;
3. The money market fund is the subject of an adminis-
trative stop order or preliminary or permanent in-
junction entered by any court of competent jursidic-
tion under any State or federal act which applies
to the offering;
4. The money market fund's method of business includes
any illegal activities;
5. The offering has worked or tended to work a fraud
upon purchasers;
6. The offering has been or would be made with unreason-
able amounts of underwriters' and sellers' discounts,
commissions, or other compensation, or promoters'
profits or participation; and
7. The issuer failed to file any amendments to the
prospectus.
The securities laws of North Carolina also provide
for regulation of advertising and contains antifraud pro-
visions similar to the federal Rule lOb-5 minus the inter-
state commerce requirement. Whenever it appears to the
Administrator that any person has engaged or is about to
engage in any act or practice in violation of the state
securities laws, the Administrator may seek a court ordered
injunction. The court may appoint a receiver or conservator
for the defendant or the defendant's assets. The Adminis-
trator is equipped with investigatory powers and may refer
any willful violation of the securities laws to the
appropriate district attorney for criminal prosecution.
A willful violation is a felony punishable by fine up to
$5,000 and/or imprisonment up to 5 years. Additionally,
civil remedies are provided to any investor aggrieved
due to the defendants violation of the Securities Act.
Regulation of the Seller:
A second level of investor protection is provided by
G.S. 78A-2(2) and 18 NCAC 6.1305 in the requirement that
all mutual funds, including money market funds, in excess
of $500,000 or 100 purchasers be sold by a registered
securities dealer other than the issuer. G.S. 78A-36{a)
also requires that every applicant for a securities
dealer license be registered with the SEC and that any
person representing or proposing to represent a dealer in
effecting transactions in securities be licensed as a
securities salesman. G.S. 78A-39 provides the Adminis-
trator a process of screening all dealer or salesman
applicants by providing the ability to deny an applica-
tion for certain reasons where denial is within the public
interest. Also the Administrator may issue public censures
or suspend or revoke, in whole or in part, a dealer or sales-
man's license where certain violations have occurred and
such action is within the public interest.
Dealers are subject to both federal and state minimum
net capital or bonding requirements, record keeping re-
quirements, antifraud provisions, supervisory responsi-
bilities, prohibitions against unethical or dishonest
practices in the securities business; civil remedies and
criminal sanctions. Salesmen applicants must pass federal
and state examinations and are likewise subject to federal
and state antifraud provisions, prohibitions against un-
ethical or dishonest practices, civil remedies and criminal
sanctions.
L-8-
Dealers and salesmen are federally regulated by the
National Association of Securities Dealers, Inc. ("NASD"),
a self regulatory organization chartered by the SEC in
addition to regulation by the SEC.
REVIEW OF MONEY MARKET FUI'JDS BY 1981 GENERAL ASSEMBLY
On April 1, 1981, Senate Bill 353 entitled "An Act to
Amend Chapter 53 of the General Statutes to Require that Money
Market Investment Programs Offered By Persons Who Are Not
Banks, Savings And Loan Associations, Industrial Banks or
Credit Unions Shall Hereafter Be Regulated Under the State
Banking Laws" was introduced by Senator Robert Jordan. The
effect of the proposal would have been to bring money market
funds under the definition of banks, subjecting them to all
statutory provisions of Chapter 53 and the rules thereunder.
The Secretary of State opposed the bill because, since such
funds cannot qualify as a bank, the effect would have been to
prohibit the sale of such funds to residents of this State
thereby precluding North Carolina investors from seeking the
higher yield provided by these funds. Further the Secretary
of State asserted that the problems with these funds as perceived
by competing financial institutions are best addressed by
Congress as a national policy rather them a regional prohibi-
tion.
Senator Jordan subsequently offered a substitute Senate
Joint Resolution to the Senate Banking Committee entitled "A
Joint Resolution Memorializing Congress to Study the Expansion
of the Jurisdiction of the Federal Reserve Board to Include
Money Market Funds for the Purpose of Implementing National
Economic and Monetary Policy". Although the resolution passed
the Senate, its passage failed in the House.
L -9-
INCOMPATABILITY OF BAI^KING LAWS
Investment companies are organized and structured pursuant
to the Investment Company Act of 1940. Current State banking
regulation is not designed for an entity of this nature. The
imposition of Chapter 53 upon- investment companies offering
money market funds would have the effect of eliminating such
funds as an investment opportunity for North Carolina residents
whereas the State's banking laws may be suitable for bank
deposits which create a debtor-creditor relationship, they
are inappropriate for money market funds offering equity
shares.
For example, G.S. §53-80, requires that a least three-
quarters of the directors of a bank be residents of North
Carolina. G.S. §53-2 requires that a bank have its principal
office in North Carolina. Compliance with these provisions
would be virtually impossible for nearly all funds. Similarly,
G.S. §53-50 of the banking laws requires a bank to maintain
reserves. The maintenance by money market funds of such non-
interest bearing reserves would reduce the investment return
to fund shareholders, not only in North Carolina but throughout
the nation. In order to protect the rights of fund shareholders
in the other 49 states, the funds would probably be forced to
cease offering their shares in North Carolina.
The North Carolina banking laws also contain a variety
of restrictions on the capital structure of banks. In addition
to the reserve requirements, shareholders must pay into a
surplus fund 50% of the value of their common stock, and
increases and decreases in capital stock require special
approval of shareholders. These requirements are appropriate
for banks because two groups of persons "invest" in a bank:
one or more classes of shareholders who own the bank and share
in its profits, and its depositors who are guaranteed a specific
rate of return. Money market funds, on the other hand, under
federal law may have only one class of investors, their share-
L-10-
holders, and the rights of all shareholders must be identical.
The shareholders of a money market fund own 100% of the fund
and under federal law are entitled to their proportionate
share of a fund's assets and undistributed income when they
redeem their shares.
The primary thrust of both federal and state securities
regulation is to provide full and fair disclosure to investors.
Thus all prospective investors in money market funds must be
provided with a prospectus, prepared and delivered pursuant to
both federal and state securities laws, to provide adequate
information upon which a potential investor may bass his or
her investment decision. Federal and North Carolina banking
laws do not impose similar disclosure requirements.
In addition, under the Internal Revenue Code, money
market funds must pay at least 90% of their income as dividends.
G.S. §53-87 and G.S. §53-88 contain restrictions on the payment
of dividends which are inconsistent with federal law.
DISTINCTIONS BET^^ffiEN MONEY MARKET FUNDS AND BANK DEPOSITS
A money market fund share is a share of common stock upon
which dividends are declared only to the extent of the fund's
net income which varies from time to time. The value of an
investor's interest in a fund can also fluctuate as the value
of the fund's portfolio rises or falls. On the other hand,
a bank deposit creates a debtor-creditor relationship and
represents a liability of the bank to the depositor, provid-
ing a fixed rate of return in the form of interest, and deposit
insurance up to specified amounts.
Notwithstanding this fundamental distinction, many who
have attempted to equate money market funds with bank deposits
have focused on the so-called "check-writing" feature offered
by the funds. Today money market mutual funds and other mutual
L -11-
funds offer investors expedited methods of redemption, thai
is, methods by which an investor may obtain part or all of
the current value of his investment in the fund.
Because the customary mutual fund share redemption proce-
dures can be cumbersome and time consuming, money market funds
have devised methods of expedited share redemption. For
example, many money market funds have entered into arrangements
with banks whereby fund shareholders can write checks against
their fund account. When an investor writes a check, the
bank verifies that the customer's account is sufficient and
obtains the funds from the account to cover the check.
According to ICI, the check redemption system has been
examined by several regulatory authorities, including the
Comptroller of the Currency, the Assistant Attorney General
of the U.S. Department of Justice, the General Counsel of the
Federal Reserve Board, SEC Commissioners and Attorneys General
in several states, who have unanimously concluded that check
redemption procedures do not cause a money market fund to be
engaged in the business of banking.
LL-12
,C^£ly^ <.^<U.C^ ^yi*.-^ c^^*i-X
'/
ifrtHtr of ^\irtl| Carolina
DrpartmrnJ nf tlii- S'l-rn-tari) of Jfrhitr
Kalcinb 2 7 till
l.EGlSLATIve OFFICE HulLDlNC.
BRENOA E GIBBS
CORPORATIONS ATTQ
F DANIEL BELL III
DEPUTY secuRiTies <
CHARLES V» MOORE
JOHN L CHENEY JR
niRtCTOR OF PUBLIC
LUDELLE R HATLEY
NOTARIES PUBLIC DC
MEMORANDUM
TO: The Committee on Regulation and Taxation of Banks,
Savings and Loans, and Credij^ Unions
FROM: F, Daniel Bell, III
Deputy Securities Admi:
RE: Merrill Lynch Cash Management Account
DATE: March 15, 1984
I. INTRODUCTION;
Although practically every major brokerage firm and
many regional firms now offer a program similar to Merrill
Lynch 's Cash Management Account ("CMA") , this memo will
describe the structure and regulation of the CMA since this
program was the first of its kind having originated in 1977
and beccuse the CMA has served as the basic freimework for
the establisliment of competing programs. The CMA is in
actuality not an account but rather a service that links
together several accounts. The component parts have been
linked together by utilization of computer technology. The
three components are as follows:
II. SECURITIES ACCOUNT
A. Description:
The initial component, the securities account is a
traditional brokerage account that allows a customer
to buy securities on a fully paid or margin basis. Each
customer's securities account is insured up to $500,000
from the Securities Investors Protection Corporation
L-13
("SIPC") . Some brokerage firms secure additional
insurance coverage. Purchase of securities on a margin
basis is a means where the customer may leverage the
account or purchase securities on credit. The brokerage
firm will advance credit to the customer secured by the
securities in the account. The credit limits are regu-
lated by the Federal Reserve Board but generally amount
to 50% of the value of the securities in the account.
The interest rate on margin loans ranged from 11 1/4%
to 12 3/4% for Merrill Lynch on August 2, 1983, for example.
In other words for every present dollar of value in
securities the customer may purchase another dollar of
securities on credit or may receive fifty cents in cash.
The end result is that no more than 50% of the securities
account may be purchased on credit and that credit
amount is secured by securities in the account. Should
the value of the securities decline such that the extended
credit exceeds 50%, the customer will receive a "margin
call" for the deposit of additional funds.
Regulation;
The extension of credit on margin is regulated by
the Federal Reserve Board under Regulation T. The bro-
kerage firm, the stockbroker, and the handling or main-
tenance of the account is regulated by the Securities and
Exchange Commission ("SSC") under the Securities Exchange
Act of 1934; the National Association of Securities Dealers,
Inc. ("NASD") a self regulatory associatioi of all bro-
kerage firms, supervised and chartered by the SEC, the
New York Stock Exchange and the Securities Division of
the North Carolina Department of Secretary of State.
Such federal and state regulation includes the licensing
of brokerage firms and stockbrokers which may be suspended,
revoked or restricted; record keeping requirements;
minimum net capital or bonding requirements of brokerage
firms; examination of stock brokers; prohibitions against
-2-
L-14
unethical or unfair practices of both brokerage firms
and stockbrokers; audits of brokerage firms; and anti-
fraud provisions. Additional federal and state laws
provide for censure, cease and desist orders, court
ordered injunctions, receiverships, civil remedies
and criminal sanctions.
III. MONEY MARKET FUND;
NOTE: Refer to memo encaptioned "Regulation of Money
Market Funds" for a description and discussion
of the regulation of such funds.
Within the context of the CMA, the money market fund is
maintained at a value of $1.00 per share, thereby the total
of shares ovmed by the customer also represents dollar value.
Dividends are declared daily, after allowance for expenses,
and automatically purchase additional shares. Also any free
credit balances in the securities margin account (i.e. any
cash that may be transferred out of the securities account
without giving rise to interest charges) are automatically
invested in the money market fund. Free credit balances
may arise from the proceeds of the sale of securities or
from accumulated dividends paid on the securities deposited
in the account. For free credit balances less than $1,000,
the sweep in the money market fund is weekly and for amounts
of $1,000 or more, the sweep is daily. The daily declaration
of dividends by the money market fund and the sweeping of
free credit balances into the fund are designed to maximize
earnings for the customer. These purchases of money market
fund shares do not generate a sales commission for the
brokerage firm. A customer may redeem shares upon request.
Daily dividends continue until settlement which is usually
five days.
-3-
L-15
The money market fund is not held by the brokerage firm
but rather the funds are wired through the banking system
to a bank serving as custodian. Therefore the fund is not
insured by SIPC nor is it insured by FDIC at the bank since
the bank serves as custodian rather than a depository. The
question of safety of such funds in the custody of the bank
should be directed to banking regulators, however the SEC
does exercise audit powers over a bank in its performance
as custodian for a money market fund.
Due to the success of the money market fund CMA, Merrill
Lynch has made available under essentially the same freunework
a CMA Tax Exempt Fund for investment in tax exempt securities,
a CMA Government Securities Fund for investment in govern-
ment securities, and a CMA Insured Savings Account Program
which is an insured savings account. The customer is free
to choose one of these funds in lieu of the money market fund.
ZERO BALANCE CHECKING ACCOUNT;
This checking account is maintained at the bank and is
provided to mutual customers of the bank and the brokerage
firm. The account is opened with the bank; however the
checks are printed by the brokerage firm. The customer
does not make an initial deposit into the checking account
but rather is provided a line of credit. The authoriza-
tion limit is computed as the total of the uninvested free
credit balance in the security account, the net assets
value of the money market fund shares, and the available
margin loan value of the securities in the securities
account as determined pursuant to Regulation T. The author-
ization limit will fluctuate daily and therefore is
"refreshed" daily. The authorization limit is not based
upon credit rating but rather a measure of real value.
-4-
L-16
The customer may use this line of credit to make purchases
of merchandise and services or to receive cash advances.
The checking account has two access vehicles: a
Visa charge card and a check book. Unlike standard credit
card account procedures where bills are rendered monthly,
the bank will notify the brokerage firm daily as to the
amount of any Visa card or check charges that have been
received and paid by the bank. The brokerage firm will
promptly make payment to the bank, thereby avoiding interest
payments to the bank, to the extent that sufficient funds
can be provided: first from the free credit balances, if
any, held in the securities account; second, from the proceeds
of redemption of money market fund shares; and third, should
these sources prove insufficient, the brokerage firm, within
the available margin loan value, will advance such moneys
to the bank. Any such advancement by the brokerage firm is
secured by securities in the securities account and interest
is charged the customer by the brokerage firm from the day
the brokerage firm makes payment to the bank at the same
rate and in the same manner as the interest charged by the
brokerage firm for other margin loans.
Should the sources of funds noted above prove to be
insufficient to satisfy all amounts owing the checking account,
the bank may advance the balance and will impose a charge of
up to 18% per annum. Also should the customer enter a
stop payment or have a check returned for insufficent funds,
the bank will charge its customary fee.
PERIODIC REPORTS AND VARIOUS FEES:
Each month the customer receives from the brokerage firm
a statement detailing all securities bought or sold in the
customer's securities account, whether on margin or on a
fully paid basis; margin interest charges, if any; the number
of money market fund shares that were purchased or redeemed
and all purchases of merchandise and services and cash
advances that were made with the checking account.
-5-
L-17
The customer also will be billed for an annual CMA fee,
presently $50. This fee partially defrays the costs of
maintaining and servicing the CMA accounts, including the
processing charges of the bank which is paid by the broker-
age f m. The brokerage fi^in also receives a distribution
fee from the money market fund and a deposit brokerage fee
from the depository institutions with respect to deposits
in the money market deposit accounts available through CMA
Insured Savings Account Program.
The customer will receive a periodic billing statement
from the bank which will detail any overdrafts honored by
the bank plus finance charges thereon, payments, credits and
the balance due.
CONCLUSION
The Merrill Lynch CMA is a packaging of three regulated
accounts linked together by computer. The securities account
and money market fund as discussed above are subject to
regulation by the Securities Division of the Department of
Secretary of State. It is my opinion that the State's
securities regulation of these two components is sufficient
particularly when considered in conjunction with the applicable
federal securities regulation. The third component, the
zero balance checking account, is provided by a bank through
the brokerage firm. The question of adequacy of banking
regulation of this component should be directed to banking
regulators. Further in view of the fact that the CMA is
a packaging of services, each of which have been independently
available for some time, the CMA has provided a vehicle to
deliver these services to a customer in a convenient manner
that minimizes time delays and cost, and at the same time
seeks to maximize earnings for the customer. In my view, I
see no reason for further state regulation and I have not
witnessed any groundswell of securities regulatory concern
over CMA type programs. Due to the national character of
L-18
the securities industry and specifically the activity
discussed herein, any regulatory concern is more
appropriately a matter for Congressional action.
L-19
state of Wisconsin \
APPENDIX M
OFFICE OF THE COMMISSilO
i-EH OF SECuhTIE!
\nthony S. Earl
iovamor
Vctmni R. Malmgren
"ammissloner of Securttlea
Stephen L. Morgan
deputy Commissioner
Mr. Terrence D. Sullivan
Director of Research
State of North Carolina
Legislative Research Commission
State Legislative Building
Raleigh, North Carolina 27611
Dear Mr. Sullivan:
80X1788
|(^I«DN, Wt^•O^I8IN 53701
April 20, 1984
QENERAL (808) 288.3491
GENERAL COUNSEL (808) 288^888
REQISTRAT10N (8M) 28U431
UCENSINQ (808) 288-3883
FRANCHISE (808) 288^9384
Re: NASAA Questionnaire Data Regarding Cash Management
Accounts
This letter will serve to provide both a final summary of the
information received in the above-referenced matter, and to confirm
information previously communicated to you by telephone in March while
Questionnaire data was still being received. Enclosed for your
information is a copy of the Questionnaire as distributed by the NASAA
Financial Institutions Sub-Committee to all NASAA member states seeking
information as to whether any state was aware of legislation,
rule-making, administrative proceedings or court cases in their state
regarding so-called "cash management accounts."
This will confirm that:
(1)
(2)
At the time of our initial telephone contact on March
13, 1984, the Questionnaire had been distributed
(approximately 2 weeks previously) and the first
responses were coming
It was indicated to you that
12 responses had been received as of that date and none
indicated they were aware of any developments regarding
CMA's. I indicated to you I would give you a follow-up
call in approximately two weeks with updated
information .
On April 2, 1984, I indicated to you by telephone that
an additional 12 responses had been received since our
initial conversation and that only one
state--Arkansas — stated that there had been developments
regarding CMA's (see attached copy of this returned
Questionnaire with my notes beneath question 2). The
Arkansas Questionnaire (received March 28, 1984) did not
enclose any draft legislation, etc. regarding the
particulars of the CMA developments in Arkansas, and as
I mentioned to you I then called Arkansas Commissioner
M-1
Lee Thalheimer on that day regat'ding specifics. As I
confirmed to you, Ccmmissioner Thalheimer stated that he
was aware that a bill had been introduced in their
legislature a year or so previously by a bankers group
requiring CMA cash to be invested in Arkansas. However,
for a number of reasons (the sponsoring legislator was a
very "junior" legislator without much clout and the form
and language of the bill was not put together
well--apparently the bill was introduced with a page
missing) the legislation never got out of committee and
nothing subsequent has been heard on the issue. I had
asked Commissioner Thalheimer if he could track down a
copy of the legislation and forward a copy. I have not
received a copy yet but did make a follow-up call to him
last week on the matter. I will forward you a copy as
soon as I receive it.
(3) As of the date of this letter, an aggregate of 30 NASAA
member states have responded, with Arkansas being the
only one which indicated an awareness of CMA related
developments.
Inasmuch as only one Questionnaire has been received in the
last week, I anticipate that the above-summarized information
represents the "bottom line" data on this matter, and that this seems
like an appropriate point at which to wrap up this study (however, if
any subsequent Questionnaires come in indicating CMA activity in a
state, I immediately will give you a call). In summary, the
Questionnaire data received indicates that there does not seem to be
any current activity, and little prior activity, on this subject at the
state level — activity of any visibility, that is.
I trust that this information has been of help to you and
your state's Legislative Research Commission, and if NASAA or this
Sub-Committee can be of assistance to you on future matters, please
give us a call.
Randall E. Schumann
On behalf of the
NASAA Financial Institutions
Sub-Committee
RES:nj
Mr. Franklin Tom, Committee Chairperson
Mr. Daniel Bell
M-2
ir
To;
OHktn/Dir
'eldncer FROM:
RE;
North American Securities Admlnlstrato^^^i«lation. Inc.
im K/,!^OI AM IP 19
All NASAA State Securities Admiriii€rators
NASAA Financial Institutions Sub- Commit tee
Cash Management Accounts
RD R. MALMCREN
I 1768
1, Wuconfin S370I
5 COTE
One of the NASAA member state has requested that this
. committee prepare and forward to all NASAA member states a Questionna
seeking information as to whether any state is aware of legistaUon
rule-makmg administrative proceedings or court cases in their
state regarding so-called "cash management accounts." These are
arrangements sponsored by certain securities brokerage firms by
which cash deposits are accepted from clients, deposited in money
.^^Ii!infn"^';-^"^°'K^^' °' withdrawal from the clients are honored.
».J^,*. information is being sought by the member state in connection
.*a^th an inquiry by its state legislature into the regulaSSn of
banks and other financial institutions. xatxon or
"it is r.on2^i-^;^?i^.°^ ^^^ ^^^^ Financial Institutions Committee,
i^i%h!^rf I ^ ^°" ''^''^^'' ^"^ complete the enclosed Questio;inai
1r^.., "^th the information you are able to provide, and return it as soon
;.s._.n„„B„^^s practicable to the member of the Committee addressed below who
ct;:J°So9 "^^1 correlate the response data - "
and assistance.
Thank you for your cooperatic
[. -BoMtr- S
Mil of S>L '
Are you aware of any legislation,^rule-making or administrative
hearing proceedings in your state regarding cash management
accounts? Yes ^ No ^
If your answer to Question 1 is yes, please describe it, its
present status and enclose a copy of any written materials , ,
available ^^(^,w.^c^..,/^t^vvw^, C^A ..-/ ^- ^ ^ ]^ /. /
Regarding the form of any legislation o^ rule-making,
(a) Would any regulation of^ such accounts be by bank
regulators? Yes ^ No
(b) Did the legislation/rule try to restrict the way
funds could be invested? Yes ^y^ No
4. Has there been any litigation on the subject that you are
aware of? If so, please provide case citations and copies of
^ ^ ^"y decisions or pleadings you have in your possession.
L „. c L;^ [c, |r^] ^he litigation has ended» what was the result?
:^b^34 (if 4he li
tigation has not ended what is the current status?
OFFICE OF "the"
^MISSIONER OF SECURITIES
M-3
7. With regard to Questions 1 and 4, who is/was the moving party?
8. Is there any movement towaj^s future legislation or litigation?
Yes No V
9. If the answer to Question 8 is Yes, by whom?
This questionnaire and any accompanying information should be
returned to :
Randall E. Schumann
Office of the Wisconsin Commissioner of Securities
P.O. Box 1768
Madison, Wisconsin 53701
RES :nj
M-4
Ichard R. Malmgren
ommissloner of Securities
tephen L Morgan
eputy Commissioner
State of Wisconsin \ office of the commissioner of securities
K r la r I L ^ 11 1*«ST WILSON STREET
■ ^ "^ *- ' * ' 80X1788
MADISON. WISCONSIN 63701
^■Pf^ 27 oiiMMu. ,808,28^1
QENERAL COUNSEL (808)288-9888
REGISTRATION (808) 28M431
April 23, 1984
Mr. Terrence D. Sullivan
Director of Research
State of North Carolina
Legislative Research Commission
State Legislative Building
Raleigh, North Carolina 27611
Dear Mr. Sullivan:
Re: NASAA Questionnaire Data Regarciing Cash
Management Accounts
Supplementing my April 20, 1984 letter on the
above-referenced subject, enclosed is a photocopy of the
Arkansas legislation as received today.
Ver
Randall/E. Schumann
General/ Counsel
RES:sk
cc: Mr. Franklin Tom, Committee Chairperson
Mr. Daniel Bell
M-5
.SI;ilr of ArkHiiiJi-s r^^.-.-.-.. .->
', 73rd Criiir:.! Assiinl.lv
,IUKiil:ir Sission. 1981
bill ^ HOUSE BILL 584
Fil
By: Representative G. Wilson . , , . - . ,
For An Act To Be Entitled
1 "AN ACT TO PROVIDE FOR THE FILING OF A COMMUNITY REINVESTMENT
2 STATEMENT BY PERSONS l>niO SELL SECURITlC INTERESTS IN MONEY MARKET
3 FUNDS, AND FOR OTHER PURPOSES."
4
5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF ARK.AJJSAS :
6
7 SECTION 1. Definitions and use of Terns. As used in this Act, un-
8 less the context otherwise requires:
9 (a) "Security" means any note; stock; treasury stock; bond; debenture;
10 evidence of indebtedness; certificate of interest or participation in any
11 profit-sharing agreement; collateral trust agreement; collateral-trust
12 certificate; preorganization certificate or subscription; transferable
13 share; investment: contract; variable annuity cont-act; voting-trust certi-
14 ficate; certificate of deposit for a security; certificate of interest or
15 participation in an oil, gas, or mining title or lease or in payments out
16 of production under such a title or lease; or. in general any interest or
17 instrument commonly known as a "Security" or any certificate of interest or
18 participation in, temporary or interim certificate for, guarantee of, or
19 warrant or right to subscribe to or purcliase, any of the foregoing.
20 "Security does not include any insurance or endowment policy or annuity
21 contract or variable annuity contract issued by any insurance company.
22 ^ - — 7><b) The Commissioner may apply to the Circuit Court of Pulaski County
23 for the enforcement of any order pursuant to this section and such court
24 shall have jurisdiction and power to order and require compliance therewith.
25 (c) Any person who shall violate any provision hereof shall be guilty
26 of a misdemeanor and, upon conviction thereof, shall be subject to a fine
27 not to exceed Five Thousand Dollars ($5,000.00). Each day or part of a day
28 during which such violation is continued or repeated shall constitute
29 separate offense.
30 .
31 SECTION A. Regul
32
gulations. The Conraiss loner shall have the power to
enact and promulgate such regulations as he deems necessary or appropriate
M-6
.64
to carry out. the provisions of tliis Act.
SECTION 5. If any provision of this Act or the application thereof,
is held invalid, such invalidity shall not affect other provisions or
applications of this Act which can be given effect without the invalid
provision or application, and to this end the provisions of this Act are
hereby declared severable.
SECTIOK 6. All laws and parts of laws in conflict herewith are
hereby repealed.
M-7
JU-Iuh.r ScsMon. 1981 .*-^-Jai.3 HOUSE BILL OOO
By: Representative J. Gregory Wilson
For An Act To Be Entitled
1 "AN ACT TO PROTECT DEPOSITORY FINANCIAL INSTITUTIONS
2 /VND DEPOSITORS THEREIN FROM MISLEADING ADVERTISING;
3 TO PROHIBIT THE USE OF CERTAIN TERMS BY PERSONS OTlUiR
4 TH^v:^- DEPOSITORY FINANCI.\L INSTITUTIONS; TO PROVIDE
5 PENALTIES FOR VIOLATION; AND FOR OTHER PURPOSES."
6
7 BE IT ENACTED Bf THE GENERAL ASSEMBLY OF THE STATE OF ARKANSAS:
8
9 SECTION 1. Definitions and Use of Terns. As used in Lh±3 Act,
10 unless the context otherwise requires:
\l (.i) "Coiiunissioner" means the Bank ConniLSS Loner of th. St.'ie or'
12 Arkansas or his designee.
J 13 (bX "Person" means any individual, business assoc iar : .>n , coriKTeLion
14 trust where the interests of beneficiaries <^rc evidenced by a seceriry,
15 f.-.-o or n'lro persons having a joini or common interest, or an-' f^thsr I'-f^al
15 or corrxiercial entity.
17 (c) "Depor. itory Financial Institution" means any ban.., trM.iC ■OTpariy
13 or savings bank chartered under the banking laws of chf Sua*:e in.', a
lO national bankinc; association chartered n:ider the bai'.king laws of the
20 UnitLrd States; any ravings and loan association chartered iiiuier the Lj.vfs
21 of this State or the United States; and any credit union ch.Ttered under
22 the laws of this State or the United States.
23
y^ V 24 SECTION 2. No person other than a bona fiee depository financiil
j' 25 ! institution sh.ill in any manner directly or Indirectly in wriuten o.
' 2G vt'thal advertising or description of its services/ruike nse of the terms_])
27 savings account, sa>.'lngs deposit, certificate of deposit, savin-, s certifi-
28 catc, roney market certificate, or passbook or chrcltin;; accoant.
29
1 30 SECTION ^. Cease and Desist Order; Enforcer.ient -, Penalty
31 ''n) Whenever it shall ap|)ear to the Commissioner that any per.-.on has
32 violated this Act, the Comjniss J oner may issue and servj u(-.>n suc.li pers>.u
M-8
„.B. 5S5
a notice, by registered mail, containing a statement of the facts - ^^k
constituting the alleged violation or violations, and fixing a tine and ^^
place at which a hearing with such person will be held to determine whether
an order to cease and desist therefrom should be issued. If the alleged
violator faits. to appear at the hearing it shall be deemed to have con-
sented to the issuance of a cease and desist order. In the event of such
consent, or if after the hearing the Commissioner shall find that any
violation has been established, the Commissioner may issue and serve
upon such person an order to cease and desist from any such violation.
e
2 -
M-9
APPENDIX N
MEMORANDUM
RE: INSURANCE OF INVESTMENTS BY NORTH CAROLINIANS IN MONEY
MARKET MUTUAL FUNDS
DATE: March 30, 1984
The question has been raised whether the North Carolina
Legislature should be the only state in the country to adopt a
statutory requirement that any investment in shares of a money market
mutual fund made by a state's investor be insured. For the reasons
set forth below, the North Carolina Legislature should not impose
such a requirement and may even lack the authority to do so.
Constitutionality. It is possible that any attempt by North
Carolina to require insurance of money market fund shares will be
found to be unconstitutional as an impermissible burden on interstate
commerce. The Supreme Court has said that "[w]here uniformity is
essential for the functioning of commerce, a state may not interpose
its local regulation". Morgan v. Commonwealth of Virginia, 328 U.S.
373, 377 (1946) quoted in State Ex Rel. Util. Com'n v. So. Bell Tel.,
217 S.E.2d 543 (N.C., 1975) at 549.
Make Funds Unavailable. An insurance requirement would force
money market funds to stop offering their shares to citizens in North
Carolina and non-insured shares in the other forty-nine states would
be in violation of the federal Investment Company Act of 1940. The
Act, which was specifically enacted to protect mutual fund
shareholders and to regulate mutual funds, does not permit money
market funds to have more than one class of shareholders. If a money
market fund sought to offer insured shares in North Carolina and
N-1
uninsured shares in the other forty-nine states, two classes of
securities would be created. This two-class structure would be in
violation of the Investment Company Act. Moreover, the boards of
directors of money market funds would not decide to avoid this
problem by having all shares of the money market fund insured since
investors nationwide have indicated a clear preference for money
market funds which are not insured. Nationally, fewer than .0002
percent of shareholder accounts invested in money market funds are
invested in insured money market funds. Given the choices of
violating the Investment Company Act, purchasing insurance which is
not desired by the vast majority of investors, or ceasing sales in
North Carolina, money market fund directors will be forced to decide
to cease sales in the State.
It is unlikely that fund groups would create insured money
market funds specifically for North Carolina investors. The costs of
forming and operating a separate fund for North Carolina are likely
to make this approach economically unfeasible. This is particularly
true in this case since investors in North Carolina have also
demonstrated that they have little interest in investing in an
insured money market fund.
Conceptually Unsound. Money market fund shares are equity
investments in companies and, as such, need insurance no more than do
other equity investments in securities. Shares of money market funds
can only be offered to investors when accompanied or preceded by a
statutory prospectus, the content of which is specified by
regulations adopted by the federal Securities and Exchange Commission
2 -
N-2
(SEC) . These prospectuses are subject to review by the SEC and by
the North Carolina Securities Commission. They explain clearly the
nature of the investment as equity shares in a company. Furthermore,
advertisements for money market funds are subject to regulation by
the SEC and the North Carolina Securities Commission.
The Legislature would be requiring North Carolina investors to
obtain insurance which they have decided is not necessary. North
Carolinians have weighed the expense of investing in an insured money
market fund against investing in non-insured funds, and have
overwhelmingly determined to invest in non-insured funds.
Conclusion. An insurance requirement may well be
unconstitutional and is unnecessary, unwanted and inappropriate.
Enactment of the proposal would have one certain effect — making
North Carolina the only state to deprive its citizens from investing
in high-yielding money market funds.
The cost of insurance involves not only the cost of the
insurance premium, which may be as high as 45 basis points, but also
the reduced yield resulting from complying with the investment
restrictions imposed by the insurance company, which can be about 10
basis points. Thus the costs of insurance may reduce yields of money
market funds by over one-half of 1% (e.g., from 8% to 7 1/2%).
JDB208/F
- 3 -
N-3
APPENDIX 0
/ 3'
STATEMENT OF THE INVESTMENT COMPANY INSTITUTE
BEFORE THE NORTH CAROLINA COMMITTEE ON THE
TAXATION OF BANKS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS
I am Matthew P. Fink, Senior Vice President and General
Counsel of the Investment Company Institute. With me is Mary
Bellamy, Assistant Counsel of the Institute. The Institute is the
national association of the American mutual fund industry. Its
membership includes over 1,100 open-end investment companies, or
mutual funds, and their investment advisers and principal
underwriters. Of those mutual funds almost 300 are money market
funds.
We thank you for this opportunity to appear before you today.
Mutual funds, organized in corporate or trust form, are
companies which permit thousands of investors to pool their
resources to invest in a diversified pool of securities. ^Some
mutual funds invest in common stock, corporate bonds, or tax-
exempt state and municipal bonds. One type of mutual fund, a
money market fund, invests in money market instruments, such as
U.S. Treasury bills, bank certificates of deposit and commercial
paper. All of the net income earned by the fund from these
securities is distributed to its shareholders. A mutual fund
shareholder may cash in (redeem) his shares at any time and
receive his pro rata portion of the fund's investment.
Q-1
The legal structure of the money market fund and the
relationships among the parties are determined by federal and
state securities laws, particularly the Investment Company Act of
1940.
Mutual funds, including money market funds, have been
characterized as the roost strictly regulated business entities
under the federal securities laws. In the words of a former
Chairman of the United States Securities and Exchange Commission,
Ray Garret, Jr., "No issuer of securities is subject to more
detailed regulation than mutual funds."
At the federal level, the Securities Act of 1933 requires a
mutual fund to provide prospective investors with a current
prospectus containing detailed information about the fund and its
investment policies. The anti-fraud provisions of the Securities
Exchange Act of 1934 apply to the purchase and sale of fund
shares. Investment advisers to mutual funds are registered with
the SEC under the Investment Advisers Act of 1940 and are 'subject
to the restrictions in that Act. Most importantly, the mutual
fund itself must register with the SEC under the Investment
Company Act of 1940, which is a highly detailed regulatory '_
statute. In addition to requiring periodic reports to
shareholders and the SEC, the Investment Company Act contains
numerous direct regulatory provisions designed to prevent self-
dealing, to maintain the integrity of fund assets and to prevent
the payment of excessive fees and charges by the fund and its
0-2
shareholders. Finally, mutual funds are subject to inspections by
the SEC staff.
In addition to this extensive federal regulation, mutual
funds which offer their shares in North Carolina must also
register their shares in North Carolina and are subject to
regulation by the Securities Division of the Department of State.
There are many kinds of money market funds. Generally, money
market funds invest in all types of high quality money market
instruments, i.e., U.S. government obligations, bank certificates
of deposit and high quality commercial paper. However, some money
market funds invest only in U.S. government obligations, while
others invest only in tax-exempt short-term municipal securities.
Some money market funds are marketed to a wide variety of
individuals through advertisements. Other money market funds are
marketed to the customers of brokerage firms. Still other money
market funds are dedicated to specific purposes. For example,
some money market funds are sold only to institutional investors,
such as banks which sweep cash balances of their trust and other
accounts into money market funds. Other money market funds are
sold to insurance company separate accounts which use them to fund
variable annuity and variable life insurance contracts. Still
other money market funds are only sold to customers of securities
firms who have asset management accounts. Asset management
accounts are financial services which many securities firms offer
to investors. They link a customer's regular securities account
0-3
and zero balance checking account with money market fund shares
owned by that customer.
Most money market funds and many other mutual funds offer
investors expedited methods of redemption, that is methods by
which an investor may obtain part of or all of the current value
of his investment in the fund. Investors desire, and sometimes
require, that they receive their money on an expedited and
convenient basis. They also desire the ability to direct payments
to a third party to purchase, for instance, an automobile, or to
pay college tuition or to send money to a child in college.
The expedited methods of redemption, however, do not
transform a mutual fund into a bank. Federal and state officials,
including SEC Commissioners, the Comptroller of the Currency, the
Assistant Attorney General of the U.S. Department of Justice, the
General Counsel of the Federal Reserve Board, and state Attorneys
General, have stated that investors in money market funds, like
other mutual funds, are equity shareholders in a company, 'and are
not depositors. As the opinion of the Assistant U.S. Attorney
General stated: "It is patent. . .that a depositor is only a
creditor of his depository... It is equally patent that one who
invests in a money market fund is the owner pro tanto of the
fund."
Money market funds compete with some of the services offered
by banks and thrifts. To make that competition as fair as
possible. Congress has permitted banks and thrifts, since December
of 1982, to offer market rates of return on their Money Market
Deposit Accounts which Congress required to be "directly
equivalent to and competitive with money market mutual funds."
Banks and thrifts have been very successful in attracting
deposits with this new account: they currently have more than
$383.2 billion in Money Market Deposit Accounts. Meanwhile,
assets of money market mutual funds have declined more than $52.7
billion since November 1982 to less than $182.4 billion by mid-
September, 1984. Thus, the bank and thrift Money Market Deposit
Accounts now have more than twice the assets of money market
mutual funds and banks and thrifts hold another $43.3 billion in
the Super Now accounts. The total deposits of banks and thrifts
exceed $3.7 trillion.
In recent years committees in both houses of Congress have
held hearings on money market funds. Six federal regulatory
agencies concerned with some aspect of the regulation of money
market funds, including the Federal Reserve Board, the Comptroller
of the Currency, and the SEC appeared and testified that they were
satisfied with the current regulation of money market funds. They
recommended no additional regulation and Congress adopted none.
Similarly, legislation providing for additional regulation 'of
money market funds has been considered in over twenty states,
including North Carolina, but has not been enacted in any state.
We do not believe that there is a need for any additional
regulation of money market funds. That opinion is apparently
shared by the relevant regulators in North Carolina. When
legislation was introduced in North Carolina in 1981 to bring
0-5
money market funds under the definition of bank for purposes of
the state banking code, the Secretary of State opposed the bill.
More recently, when Daniel Bell, North Carolina's Deputy
Securities Administrator, testified before this panel, he did not
call for any additional regulation of money market funds.
We would be happy to answer any questions you may have.
0-6
APPENDIX P
<^^u.i/uu:^ -zz^
Financial Institutions Assurance Corporation
Statement Of
DONALD R. BEASON
President and Chief Executive Officer
FINANCIAL INSTITUTIONS ASSURANCE CORPORATION
Before
The Committee on Taxation and Regulation of
Banks, Savings and Loan Associations, and Credit Unions
Legislative Research Commission
NORTH CAROLINA GENERAL ASSFM«LY
March 15, 198A
'P-1
We appreciate this opportunity to present to you the information
requested in your letter dated January 30, 1984 for your study of the
important issues concerning the oversight and taxation of financial
institutions. The information you have asked us to present concerns; how
we regulate, how we are regulated, a comparison to other private insurers
(with emphasis on the Nebraska Fund), and a comparison to the FSLIC.
As the deposit insurer for 34 state chartered savings and loans and 25
credit unions in North Carolina, we have a concerned interest in your
activities and, we hope, some insights into the activities of our insured
institutions that will aid you in your study.
The FIAC, since its inception in 1967, has grown from insuring $50
million in deposits to nearly $2.8 billion in deposits at the end of
1983. In that time period, we have not incurred any insurance losses or
claims — a record unmatched by any other deposit insurer, public or
private.
This period of time encompassed a number of business cycles including one
of the most volatile swings of interest rate levels in recent years. For
example, from 1978-1983 the 3 month Treasury security rose from as low as
7.19% in 1978, to 14.03% in 1981, and back down to 9.3% in 1983 (Exhibit
1). This economic turmoil dramatically affected the industry as
illustrated by Exhibit 2 which shows the number of mergers and
liquidations experienced by the federal deposit Insurers. There are a
number of reasons that account for our record of safety during this
period. First, by signing our insurance contract, each member of our
corporation agrees to adhere to our Standards and Procedures. These
rules and regulations are very straightforward, concise, and speak
strictly to those safety and soundness issues which we feel are necessary
to insure the continued viability of our members. As a consequence they
do not contain references to various "social engineering" issues nor do
they impose burdensome regulatory requirements.
On the other hand, they do provide us with the powers that are needed to
properly perform the deposit insurance function — for example, special
examinations can be performed, or independent consultants can be retained
to address specific problem situations. We also reserve the right to
take more harsh actions if needed. Such actions, which could include the
removal of officers or board members, are not taken without consultation
with the appropriate state regulator. At the heart of our supervisory
oversight function is our Financial Analysis System which is based on the
monthly financial information sent to us by our members. Exhibits 3, 4,
and 5 are examples of the monthly information which is compiled by our
state-of-the-art computerized system. The reports we prepare are
designed to give us timely, accurate data about the financial condition
of each of our members.
Of course a system such as this would be virtually useless if it were not
analyzed and interpreted by competent staff. We are very proud of the
talent we have assembled for our supervisory staff which includes CPA's,
MBA's, former internal auditors, and former state examiners. They
perform detailed reviews from the monthly information and prepare a
monthly report for our Underwriting Committee.
-1-
P-2
The Underwriting Committee is composed entirely of public members of the
Board of Trustees in order to insure the confidentiality of our member
information. The Committee members Include Individuals with many years
of experience in various disciplines Including risk management, public
accounting, management of financial institutions, and business. The
Underwriting Coranittee, in effect, reviews the recommendations of staff
and makes their own recommendations concerning the appropriateness of
actions taken or contemplated. The monthly report prepared for their use
is quite detailed and contains many of the computer-generated statistics
and graphs that the staff has prepared to summarize financial
information. Exhibits 6 and 7 are the resumes of the Underwriting
Committee and staff.
The other part of our oversight function is the on-site visitation
program we employ to obtain additional information concerning the
operations of our members. In this program we are able to obtain
information of the type that does not necessarily show up in the monthly
reports we receive and analyze. Information concerning management's
planning process, their products and services are discussed and we are
used "as a sounding board" to discuss the financial and operating
ramifications of new ideas or plans. By making these visits and staying
attuned to what is happening in the Industry, we are able to act almost
as consultants to our members.
One of the services we provide to our members, the diagnostic review, is
a management consulting project that would cost $8,000 to $20,000 if
prepared by an independent consultant. The diagnostic review is an
operational audit. As a third party, we are able to bring our areas of
expertise In financial planning, productivity, and strategic planning to
bear in those areas we believe improvements can be made and profitability
increased. We believe these capabilities set us apart from other private
insurers and the federal insurers, and is partly responsible for the
national reputation we have acquired. A sample diagnostic review is
Included in Section 8 of this booklet.
External Regulation
The FIAC is regulated by the North Carolina Department of Commerce. The
examination itself is conducted jointly by a combination of savings and
loan and credit union examiners from that department. During the
examination process, our underwriting procedures, quality and liquidity
©f the investment portfolio, and condition of insured institutions are
reviewed as well as tests performed on our financial records. We feel
very strongly that one of the keys to our success is the strength of the
various regulatory authorities and the excellent level of communication
that we maintain with them. In fact, as a part of our planning process
we have adopted the position that we will not enter into a new state
until we have determined the adequacy of the regulatory process, the
quality of the examining staff, and our ability to maintain the lines of
contact and communication similar to those we built in North Carolina.
Regulatory oversight exercised by the other states in which we do
business is modelled on the North Carolina process. The key point in the
regulatory system is that we are examined by the regulators in the same
P-3
manner as they examine our insured members, with safety and soundness as
the driving forces.
Nebraska Situation
A detailed report on the Nebraska situation is included in this booklet.
In summary the Nebraska Guaranty Corporation was nothing more than a fund
of money with no professional risk management capabilities or powers. In
fact there was no management.
The fund made a practice of refunding to its insured members the excess
of its revenues over expenses each year. Its only employee was a
part-time clerk whose sole function was to collect the annual assessment
of members. Its Board of Directors consisted entirely of members
affiliated with insured institutions. As a consequence, there was no one
to monitor the financial condition of the entities other than the state
regulator, who was so concerned about the ramifications of a failure that
he was reluctant to take the stringent measures that were required.
When Commonwealth Savings and Loan got into financial difficulty, the
regulator allowed them to satisfy capital requirements by accepting real
estate contributed to the company by its owner. Exhibit 8 shows the
liquidity problems of the Commonwealth Company. The capital ratios
appear steady, when in reality it was a "pumping in" of capital which
really had no value. Exhibit 9 shows details of these problems and
indicates that problems were apparent as early as 1978.
Commonwealth was owned by one of the state's most well-known real estate
developers, whose reputation exceeded his business acumen. Many
questionable practices were uncovered when all the investigations were
completed, such as loans with no amortization requirements, insider
loans, questionable profit recognition of real estate sales, possible
illegal arrangements with the State Attorney General, and a host of other
unsound business practices.
At the time of closing, it was estimated that the company was the largest
single land owner in the city of Lincoln, owning enough undeveloped
residential lots to supply Lincoln's building needs for the next ten
years. It is our considered opinion that this situation could not
develop under the FIAC system.
Comparisons to FSLIC
Finally, we have provided some comparative information on FIAC and FSLIC.
The information assembled will show how we stack up as an insurance
company with FSLIC as well as compare certain information on the
institutions insured. Exhibit 10, the Comparative Balance sheet shows a
breakdown of each fund's assets and liabilities as a percentage of total
assets and liabilities respectively. It shows that FIAC's balance sheet
consists almost entirely of liquid assets while FSLIC has significant
amounts tied up in loans to failing institutions and "net worth
certificates". Exhibits 11 and 12 graphically shows this to be true.
-3-
P-4
As to the liability side of the balance sheet, FSLIC has recorded loss
reserves of $705 million which does not include $422 million in
contingent liabilities under existing contribution agreements with
successors to failed institutions.
Turning to the income statement in Exhibit 13, this chart shows how the
gross revenues of the two funds were distributed. In 1983, 62 cents of
every gross revenue dollar earned by FIAC, after paying administrative
expenses, was added to our general reserves. By contrast, in 1982, FSLIC
alter paying for the cost of assistance and liquidations, only added 12
cents of each revenue dollar to its reserves.
Our investment portfolio of December 31, 1983, had an average remaining
term of about 18 months. We believe it is very Important to keep a
prudent amount of liquid assets on hand to meet any unforeseen needs.
Exhibit 14 shows a break down of our investment portfolio as to maturity
date. These figures do not include over $8 million of cash that we had
at December 31, 1983. Because FSLIC does not present similar data in its
annual reports it is difficult to present comparable figures.
Wliile FSLIC' s reserves have remained relatively stable. Exhibit 15 shows
the increase in FIAC's reserves over the past five years. In 1979, FIAC
had approximately $18.9 million in available funds to cover losses. By
1981 the available funds increased to $42 million and by 1983, to over
$70 million in funds available to cover losses.
Of course, the insurer's net worth is only a secondary reserve from which
losses must be absorbed. The net worth of the insured Institution is the
primary source from which losses can be paid.
The contrast of our members' net worth to FSLIC-insured institutions is
graphically portrayed in Exhibit 16. FIAC institutions consistently have
maintained about one full percentage point higher net worth ratios over
the past five years.
It should be pointed out that for the FSLIC' s purposes, net worth could
consist of items in addition to that which is allowable under Generally
Accepted Accounting Principles (GAAP). FIAC uses GAAP in calculating net
worth. Under Regulatory Accounting Purposes (RAP) used by FSLIC, a
savings and loan is allowed to write off certain losses over a period of
years rather than immediately charging them against net worth. In
addition, under RAP a savings and loan may write up the value of its land
and buildings to their appraised values and add this write up to net
worth. FSLIC savings and loans may use so-called "net worth
certificates" issued by the FSLIC as net worth.
In addition to mandating the use of GAAP to determine net worth, FIAC
requires all its savings and loans to maintain a net worth of at least 5%
of savings. FSLIC uses a sliding scale to determine required net worth
levels based on the length of time the association has been operating and
generally allows net worth to fall below 3% of assets before beginning to
consider what actions to take. Additionally FIAC insured savings and
loans enjoy higher levels of liquidity ratios than FSLIC associations as
demonstrated in Exhibit 17. As to levels of fund balances to Insured
P-5
savings. Exhibit 18 presents those ratios for various insurers, both
private and government. FIAC enjoys one of the highest ratios of any of
these insurers.
With respect to the FSLIC ratios, two recent comments by Edwin Gray,
Chairman of the FHLBB, are worth noting. On January 31, 1984, Mr. Gray
commented that "a substantial part... "of the FSLIC' s reserves". . .will be
required to pay for liquidations and costly assisted mergers we can
foresee or expect in 1984 alone."
In the Wall Street Journal of March 7, 1984, Mr. Gray indicated that the
possibility existed for the FSLIC to increase premiums in 1984, due to
the dangers faced by the FSLIC. This increase could be as much as 1/8 of
1 percent of deposits, and if implemented could cost FSLIC-insured
savings and loans as much as $780 million annually — nearly one half of
the industry's total 1983 profits.
On the NCUA side of the coin, their present ratio of .03% of funds to
deposits has led them to propose a permanent deposit assessment of 1% of
savings. In order to get this approved, they will probably have to
provide for a rule that requires them to return to the members any fund
balances above 1.3% of savings, effectively prohibiting them from ever
Increasing the ratio above that level. Exhibits 19 and 20 show the
number of NCUA assisted liquidations and assisted mergers for the time
period 1978 through 1982 and effectively demonstrate the problems the
that deposit insurer is facing.
Summary
Since FIAC's inception in 1967, the combination of our financial
oversight and supervision, along with enlightened state regulation have
provided FIAC members the freedom to operate in a prudent, businesslike
fashion. In turn, our members have used the advantage of the dual system
of chartering to become effective and efficient competitors in today's
deregulated marketplace while operating with the highest levels of safety
and soundness.
-5-
P-6
INTEREST RATE HISTORY
Traaaury S«eurltl«*
INTEREST RATE HISTORY
1978
1979
1980
1981
1982
1983
7.19
7.58
7.74
10.07
10.06
9.75
11.43
11.37
10.89
H.03
13. SO
13.14
lO.&l
11.07
11.07
9.30
9.74
10.10
P-7
APPENDIX Q
Regional Reciprocal Interstate Transactions:
Authority over North Carolina Bank Holding Companies by other
Southeast Region States
If a North Carolina bank holding company (NCbhc) makes an acquisition
in Florida, Georgia or South Carolina, the NCbhc will find itself subject to
the jurisdiction of the banking regulator of any such state as shown in the
following summary.
1. Florida. Acquisition of a Florida bank (state or national) or of a Florida
bank holding company by a North Carolina bank holding company.
Application must be made to the Florida Department of Banking and Financce
which must make findings almost identical to those provided in the North Carolina
interstate law concerning reciprocity, mirror image test, etc. The target Florida
bank or bank holding company must have been in business for more than 2 years.
The Department must also make findings on the following:
(a) Whether or not the officers and directors of the North Carolina
bank holding company are qualified by character, experience and
financial responsibility to control and operate a Florida
institution.
(b) Whether or not the acquisition would be prejudicial to the
interests of the depositors, creditors and public of Florida.
2. Georgia. Acquisition of a Georgia bank (state or national) or bank holding
co-npony by a North Carolina bank holding company.
Application must be made to the Georgia Department of Banking and Finance
which must make findings almost identical to those provided in the North Carolina
interstate law concerning reciprocity, mirror image test, etc. The target Georgia
bank or bank holding company must have been in business 5 years or more.
The Department must also make findings on the following:
(a) Whether the acquisition will result in a monopoly.
(b) Whether the acquisition will substantially lessen competition.
(c) Whether the North Carolina bank holding company has adequate finan-
cial and managerial resources.
(d) The future prospects of the North Carolina bank holding company
and the Georgia institutions.
(e) Whether the transaction will promote the needs and convenience of
the community to be served.
Q-1
All Georgia bank holding companies and any North Carolina bank holding
company which acquires a Georgia bank or bank holding company must also:
(a) Register with the Commissioner.
(b) Hake reports as required by the Commissioner.
(c) Submit to examination by the Commissioner and pay costs for such
examination.
(d) Be "regulated, controlled and examined by the Commissioner to the
same extent that he regulates, controls, and examines state banks...
under his jurisdiction."
3. South Carolina. Acquisition of a South Carolina bank (state or national)
or bank holding company by a North Carolina bank holding company.
Application must be made to the State Board of Financial Institutions
which must make findings almost identical to those provided in the North Carolina
interstate law concerning reciprocity, mirror image test, etc. The target South
Carolina bank or bank holding company must have been in business for 5 or more
years.
The Board must also make findings on the following:
(a) Whether the acquisition will result in a monopoly.
(b) Whether the acquisition will substantially reduce competition.
(c) Whether the North Carolina bank holding company has adequate finan-
cial and managerial resources.
(d) The future prospects of the North Carolina bank holding company
and the South Carolina instftution.
(e) Whether the transaction will promote the convenience and needs of
the community to be served.
All South Carolina bank holding companies and any North Carolina bank
holding company which acquires a South Carolina bank or bank holding company
must also:
(a) Register with the Board.
(b) File reports as required by the Board.
(c) Submit to examinations by the Board and pay costs for such
examinations.
4y Virginia. Virginia has not yet adopted a regional interstate banking
"aw, A draft of a bill to be introduced next year in Virginia has been made
available to the North Carolina Commissioner of Banks. This bill is regional,
reciprocal and includes North Carolina in its region.
Q-2
In addition to the standard findings about reciprocity, mirror image test,
etc., found in the laws discussed, a North Carolina bank holding company acquirinq
a Virginia bank (state or national) or bank holding company would be subject
to further processing as follows;
(a) Findings that the acquisition would not be detrimental to the
safety and soundness of the North Carolina bank holding company
or the Virginia institution.
(b) Findings that the North Carolina bank holding company, its
directors and officers as well as those of the Virginia institution
are qualified by character, experience and financial responsibility
to control and operate a Virginia institution.
(c) Findings that the acquisition would not be prejudicial to the
interests of the depositors, creditors, beneficiaries of fiduciary
accounts or shareholders of the North Carolina bank holding company
or the Virginia institution.
(d) Findings that the acquisition is in the public interest.
The Virginia bill will also call for examination and reporting by North
Carolina bank holding companies as well as Virginia bank holding companies.
All of the Southeastern states including North Carolina which have allowed
interstate bank acquisitions have statutory provisions empowering the state
banking regulators to enter into cooperatiwe agreements concerning examination
and reporting by bank holding companies.
In a situation where a North Carolina bank holding company was acquiring
a Southeast regional bank in another state, the regulator in the target state
could rely on the information supplied by the North Carolina Commissioner of
Banks to make the findings described in this report if the North Carolina Com-
missioner of Banks had authority to examine North Carolina bank holding companies.
The North Carolina Commissioner of Banks could also supply the continuing exami-
nation of the North Carolina bank holding company that is required of the state
regulator where the acquired bank is located.
As matters stand now, out-of-state regulators have authority over North
Carolina bank holding companies which North Carolina statutes do not grant the
North Carolina Commissioner of Banks.
Q-3
APPENDIX R _ ^
Mark G. Lynch' s Notes for Comnents To
Legislative Research Commission's Committee on the
Regulation and Taxation of Banks, Savings and Loans, and Credit Unions
January 12, 1984
Thank you for the opportunity to appear before you to respond to
certain questions your Co-Chalrmen expressed to me through Terry Sullivan,
your Director of Research.
r^=Hasr#..r4^?^Eiefi^^^5j^&«^
prepared by the Department of Revenue. They are: -r-n .__ . —z-s:^.:^
1. Exhibit 1 - "Brief History of the Taxation of Banks & Savings V'-
i Loan Associations" '• ' M -^.y 'r^^^f^.
2. Exhibit 2 - "Differences in North Carolina Tax Treatment
of Banks and Savings and Loans Associations as of January 1,
1984"
3. Exhibit 3 - "Comparative Analysis of North Carolina Tax
Collections From Banks and Savings and Loans for the Years
Indicated" - specifically the past three fiscal years
Exhibit 3A - "Intangibles Tax Collected From Depositors on
Money on Deposit"
These exhibits are self-explanatory and it would take an
excessive amount of your time at this meeting for me to go through them
In detail. I hope you will study them later. Therefore, I will not
discuss all the details shown on these exhibits relative to the differences
in the tax treatment of these financial institutions.
You will note from the "History" schedule that there were major
changes in the taxation of banks in 1957 and 1974; of mutual savings
and loans in 1957 and 1982; and of stock-owned savings and loans in
1979 and 1982. Stock-owned savings and loans were first authorized
in 1977.
R-1
My comments will be directed principally toward the current
differences lf> taxation of these institutions.
Banks are subject to the same income and franchise taxes as regular
corporations. They are subject to intangibles tax the same as regular
corporations except that.they are exempt. from tax on money, on deposit ...
^3raa^^3^3335^Ston&3e£003nmT
$1 million of total assets on a quarterly average basis.
"WutuaT" and "Stock-owned" Savings and Loans are taxed the same.
They also are subject to income and franchise tax and to intangibles
tax on money on deposit and money on hand, but are not subject to tax
on other intangibles.
Credit Unions are exempt from North Carolina income, franchise,
and Intangibles tax.
The responsibility for collecting income and franchise tax from
mutual savings and loans and stock-owned savings and loans was transferred
from the Department of Commerce to the Department of Revenue in 1983.
It also was suggested that I comment on whether in rny view, as
Secretary of Revenue, there are inequities in North Carolina taxation
of different types of financial institutions, and to indicate specifically
liow these inequities should be remedied.
I have not attempted to respond to this question for several
reasons. Historically, the Secretary of the North Carolina Department
of Revenue has not taken a position on inequities of taxation between
categories of taxpayers. As we all know, this taxation has been a very
controversial and complex issue and has been studied previously In great
depth by many legislative committees and individuals. Also, I personally
believe that for me to express myself on this subject would not be an
appropriate iposture for me in that the Secretary of Revenue's primary
responsibility is to administer the revenue laws that the General
Assembly enacts, and in my opinion, it would greatly decrease the
R-2
- :r
Secretary's effectiveness in administering the laws i-t he involved
himself in taking positions as to inequities in taxation of different
segments of our taxpayers.
Department of Revenue personnel will, of course, be glad to try
to_fui»pisfr y«Fany='#«p*te^i*4**f<wwatiA^^ ^fejw^^^^evgBuo Law .^-^ :
101? -our^atft^ivtsttStTt ve ^r^ctic^Jas delated fo:ibarik£:.aiwl fsa'^ngssaiaiifel-iir^^^ :
loans associations.
I hope the four schedules we have prepared, and iny comments, will
be of assistance.
Again, I thank you.
R-3
'HM _ML,_. j<liiWiiWi__L_,,E,-, -WUiL- - l-J.. Ill
APPENDIX S
^
^o oS
in .
1_ _ X c —
— o ^^
■*- tu K ia (u
■axe
Jd v^ -o S o
■a e
^ ►- a. c ••-' 3
u —
O lU
c 22
O; lA ■^ >- =
^
OJ U O WO)
Cz.ti
!i°
S ■= <ui £ cj c;
— "mo
S i. a in
Odji- — ■= oooe
ui
?<Su
o — <u
-Plj = i0
— I. OJ
^ o. c
VI "O t.
" Bl S
■:i-'l
:r^
2IS|c.c^
i
«) = -o
4J ./■ <« — -O «l
c o
-— c
u«-o>.-a)e
■n ^-^ -u -3
• c -o
OP * *J c- <J 1- ■"
° y .-
o c _^ c
Ul = —
aj O— ^
ig^t|:=^l
ta ti
•o
«— a. c
^ U (U O ^ (U
'■^ o o o.
O X — >-o u c o
«. o
C\J
•/< « 3
«— <UJ3 = «>
i
o^
CO
q> 3 i<
01 m 1. 1)
CO 3 .B t. u OJ
<T-
c <u ?
o>
3zl--£--5
>l ^
... CTi *" ^
^"^
i
o
> C 0)
— 1- «l (U — U1
% U 1
«S _ 1. <L-
« ^ m >, 0) e
\» » 0) VI
C C -3
« j: o .J X *j
■"— «,
"D S —
m 4r o >.
u. u o c— 'O
o
■o ei
-O Ul <J
(NJ
uiBjo-'f— -Jai
O O X
c;
cr> »- -3 — u
c
3;
c £ «
= •" 9
m
C X vi-o J= »- J-
i
e>
?-"■
?35^
— M 0) C — •/! 0)
>_— 30in— =
T u ».
. -^ c
U .g Oi<.<
'srzslll
^ 01 01
Jt 3 - -O
|. = S
O e in
<j
o 3^
O 3 X
u — > o
— — O. C = t^ CO
c
£ 3 —
^ VtJH «
c j: « X
— j= «> o => «; i-'t-
g
c
«^ in o>
1/1 ra >< w
— 1- ./I 0)
<t u oo E ceu- o
r
^^
<
«"
J
ea
s
o
s
>, ^
<
r^ g s-
1
ts i ss
!i
si
ns en C ^
X — C o C 01
o <u o> 0)
c c </■
1- — ^ c c « = m
o a; o) o •» o c
i^2.=-g
m C vO O
u f 01 4-> '
UinVtWCWlQ W— WT3fc-
2 o 0.2 <u— ja 1. o — c c
3a.oJ3Cxoi 3a)X(Oog
« O. CO
w -o 41 c . a>-" r-l
(U— — -c C U- 00
U C OJ O ? *- Q.—
O 00 u> = i- <U
1-
c
01^
2 = g-s
o,-S:=
1^
.^ « X lO —
j3«. ■»! of — i-ie
Ol r~ -^ 5— "1 G V V
3 T3 Ul — C *J
O U Ta C lO J<
— 0> C O 2
55 — 5 2;Si:
.Q-aE 1- i-w o= —
O'O'O owu 5- CC
O— X -^ 0>^Xl» X —
C3 (/»*.»a)a>-o <b«ct>t::
" V « Sc'"o>.o '"owu
=1 s;-
o —
■o S u
— S 2 £'.o = ^ 5 Q. p
_ w o <U 3 O ? X CI U
O —CO
s ° = g .^
S >uj-o*^ a»w^ «* 'DC'
S-1
APPENDIX T
II
ii
III
I r
- - *
a s g
O A A
II
X3 ja I. iO
? 5
I 1 I ^ s
«? s
?i
APPENDIX U
§ !? §;
S 5
J SI
§
I
K
u ai
5|
s i
ii
ii
— — o
o o -^
"eg
o o m
— -,- <
^ S > .1= .tf
w o
•■->>>. 3 in
C C C U 4J
3 ^ ^ ^ 5
^5 1-2
APPENDIX V
O Ol •.-
3= 1 ai
I 01 3 C
l-D O ID
I
E
I ?
^ 00
i "
i
0)0 .-H
S«|iil
vOlO «
c ■ X cn n
<t •»- X> J-
■ li'i':
D.-D O
0> C CM
T> « I
— WO
SSI
01 « -M
APPENDIX W /^^7^U.,^J~ ^ z-^^-- ^<:l^
COMPARISON OF STATE TAXES IMPOSED ON BANKS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
This comparison presents in tabular form certain information on state
taxation of banks, savings and loan associations, and credit unions with
respect to the income and property of these institutions. It is appropriate
in reviewing these taxes to point out that for many years Federal law
determined to a great extent how the states taxed banks because of the
restrictions placed on the states to limit their ability to tax national
banks. Until 1969 there were very specific restrictions on the powers
of states to tax national banks. The amendment of the Federal law in 1969
removed these restrictions and today states may tax national banks as if
they were state banks. However, Federal law does require that national
banks must be taxed equally with state banks. Even though states have
been given greater freedom to tax national banks, state tax laws continue
to show traces of the old restrictions.
Briefly, prior to the 1969 amendment, states were limited to the
following options in taxing national banks:
(1) bank share tax
(2) corporate net income tax
(3) excise tax measured by net income
(4) personal income taxes on dividends received by bank shareholders
The states could impose option (1) or (2) or (3), with option (4)
being available for use with (2) or (3). Thus states could not impose
both a share tax and a tax on, or measured by, net income. In complying
with these restrictions, states usually taxed state banks the same as
national banks since legislators understandably were inclined to treat
the two groups the same.
W-1
2-
Our first table distinguishes between the application of the "regular"
corporation income and franchise taxes as opposed to specific taxes imposed
on financial institutions. The presentation draws attention to the difference
between a corporation net income tax that excludes from taxable income
the interest received from United States bonds and/or obligations and an
excise tax that is measured by net income including the interest from
United States obligations.
Our second table concerns property taxes and covers deposits in the
institutions and the shares of banks taxed to the shareholders or banks.
The tax on bank shares continues to be used as a significant form of bank
taxation by some states.
The principal source of the information presented in all tables is
the Commerce Clearing House State Tax Reporters. These reporters provide
considerable information, but can have serious limitations. Sometimes
editorial comments are out-of-date and contradictory and questions cannot
be satisfactorily resolved because the reprinted portions of the tax
statutes do not cover the matter in question.
Whenever tax information is condensed in tabular form, there is the
risk of misinterpretations. However, to include all the necessary footnotes
to assure complete reporting would make the tables cumbersome and less
readable. The additional comments in the succeeding paragraphs help clarify
the content of the tables and are provided in place of extensive footnotes.
Corporation Income Tax. This section of Table 1 indicates the presence
of a corporation net income tax whether or not applicable to banks or other
financial institutions. Under this tax, interest on United States obligations
would be deducted from income unless otherwise noted in the table. Maximum
rates have been listed where a state has a schedule of tax rates. The
notes have been used to afford additional rate detail.
W-2
-3-
Corporation Franchise Tax. This section contains information on both the
capital stock base (or related tax bases) and the net income tax base used
to levy privilege or excise taxes on corporations. Financial institutions
are shown as taxable in this section if there is no specific statute that
separately imposes the tax on them. A franchise tax on net income would
normally require the inclusion of interest income from United States
obligations.
Franchise tax Bases. The term "capital" has been used to denote bases
that include additional items over and above the more limited bases of
"issued and outstanding capital stock" or "authorized capital stock." The
latter type base is entered as "capital stock." The entry "capital" covers
a wide variety of approaches to taxing banks and was selected to avoid
having a larger number of cryptic notes that might not identify the
differences. Financial Institutions Tax. This section presents any type
of tax specifically imposed on financial institutions under separate
statutes, or imposed under the corporate franchise or excise tax law and
described as "in lieu" of other named taxes.
Notes. This section contains information which seems helpful in attempting
to describe the overall tax picture. The notes are not "all inclusive"
and do not necessarily cover all items or exceptions.
Property Taxes. Information on property taxes has been summarized in
Tables 2, 3, and 4. Table 2 contains information concerning those states
that tax deposits, shares and/or other intangibles. Table 3 lists states
that do not tax intangible personal property. Table 4 gives the tax
treatment of tangible personal property of the financial institutions and
points out the states that do not tax personal property.
The tables do not cover real property taxes since the old Federal
restrictions did not limit state taxation of real property. In reviewing
W-3
-4-
the states' property tax laws, we found no special exemptions for financial
institutions with regard to real property.
Table 2. This table shows the tax status of bank shares and deposits.
From the information in the State Tax Reporters it was not always clear
whether the institution or the shareholder pays the tax. In some cases,
state laws may require the institutions to pay the tax on shares of
nonresidents and the institutions may pay the tax for residents as well.
Table 4. In some states the exemption of tangible personal property for
banks does not extend to property the banks lease to others. The table
has not been noted as to when this condition applies.
Credit Unions. The institutions were not always Identifiable in the tax
laws. The tax status shown for some states is based on judgment concerning
the Implications of certain definitions or certain provisions. In addition,
we used another source other than CCH State Tax Reporters which we felt
was reliable. The alternate source was a tax summary published by Credit
Union National Association, Inc.
Current Federal Restrictions. Federal law presently requires that the
states and local governments tax Federal savings and loan associations
at no higher rate than they tax state associations. Federal law prohibits
the taxation of Federal credit unions except on their real and tangible
personal property.
Rates. Tax rates have been expressed as concisely as possible and not
necessarily as quoted in the law. For example, a rate of one dollar per
one thousand dollars is shown as one mill.
North Carolina Department of Revenue
Tax Research Division
March 15, 1984
V/-4-
II I I
I §
APPENDIX X
I I
Ij
I I
III
h
u
Is
3
^1- IE
33 If! I|
I
is
>i I
3ll »| t I
I
III
I
§
«^
flfifl
lal *
&&& &&&
.a I
&&a &&&
'I
Jill I -p i -p I *p 5 *P 1 -P I -P i -P ^ "P * -"p i *t
^pSrao SmcoG 5«ojB J x> to 5 ^meiB ^ n en B | » m B rj A n B o » m B on«G | "> " «
X-!
s
,1
.» ^ S» 3^ S
Is
« ?3^ ; J= ; S: il ! -8
ill »-l? 5 11 sj 1 II!
3|
Is
a !l^ -:,"5? 1 :? la - Isl -I
I
I ir' ll'i 1 ^^ si ^'1 ""^ ^3
So"' 13 e i 5| .-I Is Z.^
^ 3:11 1:11 : IH H H I'h '<
^1 : !itlll f Hi ^' I! m P
8S ^ * Sh ^.rttio 3 Sm-a ass a| _»?fc'b Ss
66
^3ll i i Fi !... L.a IP ||l a... |..« ill
li f « « £ « ! i
3 I
3|^ ^^-Sa _^5
S CO tOi-Of^ tsH
5 .1 i S I ^
^ Is^S i!a<9ja ^^& &&& &&& &&& &&&& fr'
isl .^ r^ 4 je >«• « » 5 J6 II
i
18 3„:b |„:8 |„:8 |„:b |«:8 |„:b |„;:b |„
,8 S<n«8
:a
r-" r
X-2
l^j Cne-fi ^He. ^S.H &&& &&& &&& &&& III &&& i II I
as
lis
]ii
|i!
1-3 3§
Is
tl
11
■sl3
III
99
•«
3.
IS
I L
E H
31
H
i!
lit ij
Hill
J^:
■898
3
ml '
I JO «; a
I ii'iyi
u
8i-
II
u\
3 -a
***
III !.„ L,. ill |ii ijjj i„^. 5
a 4S ^^& 1&&
I I i
,& ^uti &a& tilia
JS)S
III
el
BI e I&
a^l e.^A lii& &&& ^s
3 I ^
.«coe :«„B |««e |««b j«<,8 |-«8 j««b |.
I
. I.I.
;e f-;:B i„::8
X-3
II
if
In
•i 9.
k
Hi "Ii
III
h
as
^5
III
liitii m
^^ll&5 lis
1
Ii
||3
3 ^ ^ fi-oal aitSii
gas -rsiii I-?!
»s
Itlll
1 !
111
""3S
- - SI
nasi Ii3
II
ii
I'll I
^!ff I
ll I
il^! I
1111 I
Ii
!
I |§^
S ~ £ H
lais
i! '
?? iL
& Y
^
!..« i!i Iff i
i i I
I «
III aa& ,.,
I
3
.& &&& e<EH A
* I
Jit
ill ^L
a
I.I.I.
|««8 t.tn |Jg |Je |Jb
X-4
n
h
-" .3
n MO
|S8
11 ^ :| nil
ill- 3|
III Lis ?5 fit
■3-3
^%il ill i h.l i
3 II ;
Afl fi (-&&
If
11
9 2 <a ^ a a
,«e
x-5
APPENDIX Y
^a
! k
ij
i| ifif
I till
«
^1
Is
I*
li
3£l
II
ill fflflfl flflfl ^Hfl Iflfl dflfl ^a^ Htm HUH ^^fl a^
n\
flfl ^fl aa II flfl II li
II
lA la
II I
5 2 I
I I .1
«a«o o«„g |„„B g«»B |«co8 |«<»B |«„6 |„<„B |„„B :„„8
Y-1
ii ipli
I- k\ ', ft
■a p £ imaC is
il it ill
9 II
I! •
AH AM am ^ai ojtc flan •.•.<. a«a «a« eita aao
II
ill ^a |fi
IS ^,9
II I
S I
^1
8J
.A fi£S A
s s
, 1,1 I , .1
"I |„:8 l^tz i„tn t„tn i-i^e |„*6|«^B |„::b |„::g L^b|„;:
Y-2
APPENDIX AA
TABLE 3. STATES NOT TAXHIG IHTABGIBLE PEBSONAL PRO
Alaska
Arizona
Azkansas
Callfoxnla
Colorado
Connecticut
Delaware
Hawaii
Idaho
Illinois
New Mexico
New York
North Dakota
Oklahoma
Oregon
Bhode Island
South Carolina
South Dakota
Texas
Utah
Iowa
Maine
Massachusetts
Minnesota
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
Vennont
Virginia
Vashln^on
Wisconsin
Vjomiag
Note: The above states exempt intan^bles from the
property tax or tax only selected intan^bles
under another type of tax auch as franchise
or bankshares.
AA-l
IKBIB 4. TAXATION OF XANGIBLB PEH30JJAL PEDPERTY OF BANKS, 'ftuca.bl<
SAVINGS AND LOAN ASSOCUTIONS AND CSEDlt UHIOBS
Exempt
Tanslble
personal proaertv
State
Mnk«
Savings and Loans
Credit Unions
Alabama
T
T
Ex
Alaska
T
T
T
ArlBona
T
T
T
Arkansas
T
T
Bz
California
Ex
Sx
Sx
Colorado
T
T
Bx
Connecticut
T
T
T
Delaware
Ho personal property
tax
Florida
T
T
T
Georgia
T
T
T
Havaii
No personal property
tax
Idaho
T
T
ibc
Illinois
No personal property
tax
Ez
T
T
Iowa
T
T
T
Kansas
T
T
T
Kentucky
T
Ex
Ex
Louiaiana
Ex
T
Ez
Maine
T
T
T
Maryland
Ex
Ex
Ez
Massachusetts
Ex
Mo
reference
Ez
Michigan
Ex
Ex
Ex
Minnesota
Ex
Bx
Bz
Mississippi
T
T
T
Missouri
Ex
T
T
Montana
T
T
T
Nebraska
T
T
T
Nevada
Ex
T
T
New Hampshire
Ex
Ex
Bx
New Jersey
T
Ex
T
New MpxIco
T
T
T
New York
No :
personal property
tax
North Coi-ollna
T
T
T
North Dakota
T
T
T
Ohio
Ez
Ex
T
Oklahoma
Ex
T
Bx
T
Oregon
T
T
Pennsylvania
No personal property
tax
Ex
No reference
Rhode Island
South Carolina
T
Ex
T
Ex
South Dakota
No
personal property
tax
T
No. reference
T
T
Tennessee
Texas
Utah
Vermont
T
Ex
T
T
T
T
T
T
Virginia
Washington
T
T
T
T
T
T
T
T
T
T
West Virginia
T
T
Wisconsin
Wyoming
T
T
T
1 taxable
50
34
26
exempt
20
15
20
no reference
—
1
2
AA-2
APPENDIX BB yS^yfc . XJ.*.;..^^ ' ^
ANALYSES OF PROPOSALS TO REPEAL OR MODIFY THE INTANGIBLES TAX
The CoflinUtee's request asked for two malyses pertaining to the
Intangibles tax:
1) the effect on state tax revenues arising from complete repeal
of the Intangibles tax and
2) the effect of repealing only the tax applying to money on
deposit
The second of the two proposals Is quite limited In Its scope
and easiest to evaluate. The net decrease In revenue would be about
12.3 million dollars which Is the amount of tax paid on such deposits
by all taxpayers Including corporations, less the tax credits allowed
to corporations on their franchise taxes.
Individuals now pay the bulk of the 14.7 million dollars collected
on such deposits and corporations having sufficient franchise tax lia-
bility receive a complete offset for the tax by way of reduction of
their franchise tax. Due to the credit, the tax on money on deposit
has practically no Impact on corporations, and thus location decisions,
I.e., Industrial development, would be unaffected by such a change.
Individuals throughout the State would benefit by not having their
accounts at banks charged with the amount of their Intangibles tax.
The revenue loss for local governments would be felt evenly on
a per capita basis, since the tax collected on this particular type
of property is distributed on a per capita basis rather than according
to the county from which collected. The tax rate on this property
is the lower of the two rates applying under the intangibles tax. It
Is doubtful that retired persons would regard removal of the 10^ per
$100 as sufficient relief to change their views about the tax they
regard as so burdensome. Well-to-do retirees contemplating a move
1-1
-z-
to North Carolina Mould be more concerned with the ZSt rate Imposed
o.n stocks and bonds. In brief » no significant nan revenues would
likely be generated from repeal of the tax on deposits. State Income
tax revenue would Increase through the lesser Itenlzed deduction taken
taf taxpayers who claim intangibles tax as a personal deduction.
Outright repeal of the Intangibles i«x Is a much more serious
proposal measured In terms of lost revenue. Intangibles tax revenues
amounting to $60,616,000 were collected in fiscal year 1982-83. Local
govemnents received 93.3 percent of this revenue and the state retained
the balance to cover the following:
!) the tax credits allowed to corporations on their franchise
tax liabilities for the Intangibles tax paid on their bank
deposits
2) cost of collecting the tax
3) operating cost of the Ad Valorem Tax Division and the Property
Tax Comnlssion
4) expenses of the Property Tax Study Comal ttee
Our discussion of full repeal is divided Into three parts with
one part divided Into two separate sections. Our analysis covers the
burden of the tax and the corresponding relief upon removal of the
tax, the impact on local goverrments, and comments on the State's
Industrial development and on In-migration of retirees. Following
these three parts are a few brief concluding remarks.
The Burden of the Tax and the Relief Afforded by Repeal
The bulk of the intangibles tax burden falls on individuals.
About 65 percent of the tax is paid by individuals who file singly.
Jointly, or as partners. Their tax liabilities arise mainly from their
holdings of shares of stock and their deposits in banks.
-3-
Corporatlons pay their Intangibles tax principally on accounts
receivable and evidences of debt. Shares of stock and money on hand
are the next most Important types of property on which corporations
pay the Intangibles tax.
Both individuals and corporations can claim their intangibles
tax as a deduction in computing state and federal Income taxes. For
Individuals in the highest state and federal tax brackets, their Income
taxes could be reduced by more than 50 percent of the amotint of 1 n-
tangibles tax paid if they Itemize personal deductions. Corporations
paying the highest federal rate of 46 percent and the state 6 Percent
rate would reduce their Income taxes by about 49 percent of the
deduction.
Excluding those who pay tax only on deposits, approximately 145,000
individuals pay intangibles tax and about 26,000 corporations, other
than banks, pay the Intangibles tax. The remaining taxpayers filing
returns are primarily fiduciaries, either bank or non-bank.
The average amount of tax paid by individuals filing singly or
jointly was about $200 per return for fiscal year 1982-83. The average
amount paid on partnership returns was more than double this amount,
but we have no count of the nunber of partners represented by those
returns and thus cannot compute the tax per individual.
The average amount of tax paid by corporations was about $545
for fiscal year 1982-83, and thus corporations paid about 14 million
dollars in Intangibles taxes on returns. In comparison, corporation
income taxes amounted to 306 million dollars and franchise taxes on
business corporations (excludes public service companies) were 70
million dollars. The Intangibles tax paid by corporations was less
than 0.3% of their net taxable income.
J- 3
Admittedly these averages do not disclose the distribution of
the tax burden and shed no light on the ni^bars of Individuals who
may be paying substantial amounts of tax or the nunbers of corporations
paying large amounts of tax on their receivables. The available data
Indicate the total amounts of tax paid by type of property; the data
do not show how many taxpayers paid tax on each type of property. For
this reason the relief afforded by repeal can be described best In
terms of types of property. Corporate businesses would be relieved
of tax of about 7.5 million dollars on accounts re<%1vab1e. and about
3.7 million dollars of tax on their money on hand and their evidences
of debt. Further relief amounting to about 1.6 million dollars would
be realized by not paying tax on their holdings of shares of stock.
However, those corporations making a profit arK! Incwring state and
federal income tax liabilities would experience some increase in income
taxes, both state and federal, due to loss of the deduction.
For individuals, the tax relief would be related to their investments
in stocks and bonds and their deposits in banks. Individuals paid
over 20 million dollars on their stocks and bonds alone in 1982-83.
Repeal of the tax for these individuals would reeaove a particularly
distasteful levy imposed on them by their state government. However,
many of the taxpayers expressing their dissatisfaction in correspondence
with the Department of Revenue are apparently unawarte that the revenue
goes largely to the local goverrenents and is not a significant source
of revenue for the state.
Impact on Local Governments
The local goverrmients received 51.3 million dollars from the
intangibles tax distribution made in fiscal year 1982-83. When
-5-
related to total property tax levies, local sales tax, and amounts
received from shared taxes, the Intangibles tax revenue distributed
in fiscal year 1982-83 was 3 percent of their total revenues. If the
Intangibles tax revenue Is related to the property tax levies only,
it would be equal to about 4i percent for both the counties and the
cities.
The Importance of the Intangibles tax varies significantly between
particular counties and to a lesser degree between cities. In counties
with large property tax bases, the intangibles tax is less Important
percentagewise as a source of revenue. For small counties with low
personal income levels and fewer affluent residents, the tax is similarly
less Important.
Certain counties that have large numbers of retired persons realize
significant revenue from the intagibles tax. Moore County derives
revenue equal to 11 percent of its property tax levies; Henderson
County receives an amount equal to about 12 percent of its property
tax levies. Polk County's ratio is over 27 percent, making it the
highest county in percentage of revenue derived from the intangibles
tax.
The towns and cities located in counties with relatively large
Intangibles tax revenue also benefit since the counties share the
revenue with their cities. For example, small towns in Moore,
Henderson, and Polk Counties gain more revenue per capita from the
intangibles tax than cities in larger counties, such as Mecklenburg,
Wake, Durham, etc.
Local governments would probably need to replace the lost revenue
after repeal of the intangibles tax. If repeal was accompanied by
provisions for state aid, there would be no need for raising local
taxes unless the distribution of the aid did not reasonably conform
to the present distribution of the intangibles tax revenue.
BB-5
If there is no satisfactory state aid and local property taxes
are selected as the source of replacenent revenise, based on 1982-83
fiscal year data, county rate Increases would average about 4 J percent
with practically all counties falling within a range of 2 to 6 parcent.
Variation in city rate changes would probably be somewhat greater.
Industrial Development and In-Migration of Retired Persons
It seems reasonable to conclude that certain Industrial prospects
and retired persons would respond favorably to repeal by North Carolina
of a tax which they perceive to be burdensome and also avoidable by
locating in another state. To measure the real response to repeal
is difficult, if not impossible, because there are no data available
to show how many new plants were lost in the past or how many individuals
chose another state over North Carolina solely because of the presence
of the intangibles tax. If such data were available, possibly some
realistic estimates might be prepared so that a comparison of estimated
new revenues against lost intangibles tax revenues could be made to
help weigh the merits of the proposal to repeal the tax. Despite the
lack of specific data, an analysis of certain aspects may be helpful
in evaluating the proposal.
Industrial Develoianent. Clearly a manufacturer looking at our
state would soon become aware of the intangibles tax and react negatively
if he saw the tax as a real burden for his business. Even though we
cannot say what the prospect's perception of the burden will be, we
can try to determine how burdensome the tax is on our existing manu-
facturing industry. A sample of large manufacturing companies in North
Carolina shows their intangibles tax liabilities to be less than 0.1
of 1 percent of their net income before tax. If smaller manufacturing
companies have similar proportional liabilities, it seems doubtful
-7-
that industrial location decisions would hinge on this level of relative
tax liability. Our industrial development program, though not limited
to seeking manufacturing plants, does emphasize manufacturing and
repeal would have to Influence this category of development to achieve
substantial gains in State General Fund revenues.
Apart from manufacturing, there is another area of ecoromic
expansion the state seeks— headquarters locations of large manufacturing
companies and also of financial institutions or companies, such as
insurance and mortgage companies. Such large scale administrative
or white collar operations may indeed be avoiding our state because
of the intangibles tax, but the total tax revenue generated by these
office operations is not comparable to that flowing from a manufacturing
plant with the same nunber of employees.
To what extent would our Industrial development program have to
increase manufacturing employment to recover the lost intangibles tax
revenue? Using our 1982-83 tax data from corporate income and franchise
tax returns and insured employment data from the Employment Security
Commission, it is estimated that about 13,000 new jobs would have to
be added in one year to replace the annual Intangibles tax revenue
paid by corporations alone. To replace all the lost revenue through
increased industrial development would require more than four times
this nimber of new manufacturing jobs. The average number of new jobs
created annually over the past ten years through new plants and expansion
of existing plants has been about 26,500.
The 13,000 figure is based on rough estimates of the following
taxes paid to the state by the compar\y and its employees: Income
taxes, franchise taxes, and sales taxes. Other taxes were omitted
and no adjustment was made to compensate for low or no income tax
~8-
payments by corporations during the start-up pertod or early years
of operations.
Retired Persons. In addition to stimulating industrial development,
it has been suggested that 1n-ro1grat1o?i of retired persons would accelerate
follcMing repeal and thereby add n^ revenues which would help avoid
tax Increases. Census data from the 1980 Census Indicate that
approximately 26.680 persons over 65 residing In Ndrth Carolina In
1980 were living in another state in 1975. If this figure represents
the rate at which retirees are now moving Into our state, we are now
experiencing an annual in-mlgratlon of about 3,300 retirees over 65.
This In-migratlon consists mainly of couples rather than single
individuals and reflects about 3,000 new households annually.
Whatever Influx of retirees one may expect from repeal. It would have
to be evaluated by reference to the estimated current 1n-m1grat1on
to make some Judgment about revenua effects.
Without question, retired persons coming from other states where
they have paid no Intangibles tax, find our tax objectionable. And
they tell their friends back home about the tax. This word-of-raouth
network would have to serve as a posltve factor to swell the tide If
repeal became a fact and our new citizens would have to argue per-
suasively to get old friends to join them here In large nunbers.
What would happen if the in-migratlon doubled? Three thousand
new households would bring in additional state sales tax revenue,
income tax, cigarette, alcoholic beverage and soft drink taxes. The
estimated range of state revenue from these new households could be
from 4 to 5 million dollars^ If these estimates represent reasonable
expectations, obviously repeal would have to bring about a much greater
level of in-migration than the 5 to 6 thousand we now have coming in
-9-
each year. To sustain a much higher in-mlgration, the actual nijnber
of persons outside North Carolina who will be retiring each year over
the next several years would have to grow significantly and/or the
inclination of retired persons (in the populous northern states) to
move south would have to change markedly. The decision of a retiree
to relocate would seemingly be dependent upon several factors, not
just tax climate.
Concluding Remarks
From the foregoing analyses it is clear that replacement revenues
would be required. Local revenues from new Industry and retirees would
not be distributed evenly around the state to offset local losses of
intangibles tax revenues. State revenues sufficient to replace the
intangibles tax would not likely be developed in a short time, and
it is questionable whether or not repeal would have the necessary
dramatic effect on industrial development or on in-niigration of
retirees to develop large additional state revenues.
Intangibles taxes do not appear to be a serious burden on industry.
With regard to individuals, the tax is perceived by retirees as a sig-
nificant burden which is inequitable. Repeal could have a favorable
effect on retirees' decisions to locate In North Carolina. However,
North Carolina's personal income tax may be an equally discouraging
factor for tax-sensitive senior citizens. Other southern states with
which we compete have somewhat less burdensome personal income taxes.
North Carolina's present industrial development program is
attracting new plants from northeastern and midwestern states that
do not have intangibles taxes. At the same time we are competing
successfully with some southern states that do have intangibles taxes.
-10-
The question of equity arises whenever a particular tax Is to
be removed end the possibility is considered of either imposing new
taxes or raising rates on existing taxes. U111 repeal make our state's
tax structure more or less equitable, or in fact be neutral? The Indi-
vidual's answer to this question may be a decisive factor In determining
his personal position on repeal.
North Carolina Department of Revenue
Tax Research Division
March 15. 1984
^
1-10
Live Music Archive
Librivox Free Audio
Metropolitan Museum
Cleveland Museum of Art
Internet Arcade
Console Living Room
Open Library
American Libraries
TV News
Understanding 9/11