TESTIMONY OF GEORGE E. BURNS COMMISSIONER FINANCIAL INSTITUTIONS DIVISION STATE OF NEVADA S.B. 81. Savings & Loan Statute Modernization.

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1 TESTIMONY OF GEORGE E. BURNS COMMISSIONER FINANCIAL INSTITUTIONS DIVISION STATE OF NEVADA On S.B. 81 Savings & Loan Statute Modernization Before the NEVADA LEGISLATURE

2 Page 2 of 5 INTRODUCTION Existing law (NRS 673) provides for the chartering of Nevada savings and loan associations. The statute was enacted in 1959 and last revised in With the collapse of the savings and loan industry in early 1990 s and the failure of the Federal Savings and Loan Insurance Corporation (FSLIC), the surviving savings and loans were converted to federal savings banks (FSBs) under the Office of Thrift Supervision (OTS) and federal insurance of deposits transferred to the FDIC. Nevada has not had a state-chartered savings and loan since the mid-1990 s. Senate Bill 81, which I will refer to as the S&L Modernization bill, is intended to take a dormant Nevada statute and modernize it to create a savings bank statute that would give current FSBs and other institutions an opportunity to convert from a federal charter to a Nevada state charter with substantially similar rights and responsibilities as a commercial bank. Consistent with the actions taken by other states, Senate Bill 81 eliminates the existing state savings and loan association charter, which has become obsolete largely as a result of the elimination of the Office of Thrift Supervision (OTS) and incorporation of it into the Office of the Comptroller of the Currency (OCC) that regulates national banks by the Dodd-Frank Act, and authorizes a Nevada savings bank charter. SB 81 preserves the benefits of charter choice by making available a Nevada savings bank charter that generally enjoys the same powers and authorities available to commercial banks organized and licensed pursuant to Chapter 659, including fiduciary powers comparable to a Nevada chartered commercial bank. In this regard, SB 81 amends NRS 673 by eliminating authorization for chartering of Nevada savings and loan associations and replacing it with authorization for chartering of Nevada savings banks. SB 81 also retains the existing reciprocal authority (i.e., for Nevada savings and loan associations) for a Nevada savings bank to convert to a federal savings association (including a federal savings bank) to the same extent that a federal savings association (or federal savings bank) can convert to a Nevada savings bank. Currently, there are no Nevada

3 Page 3 of 5 savings and loan associations chartered pursuant to NRS 673 and the proposed amendments have the support of financial institutions throughout the nation seeking a meaningful charter option under Nevada law. By eliminating an obsolete savings and loan charter and making available a desirable savings bank charter choice, the S&L Modernization bill enhances the benefits of chartering a financial institution in the State of Nevada. SB 81 The S&L Modernization bill is an extensive revision of NRS 673 in order to effect the statutory change from a savings and loan charter to a savings bank charter. Provided with this testimony is a section-by- section explanation of Senate Bill 81 revisions to NRS 673 as amended in the Senate. Given the revisions to NRS 673 will give savings banks rights and responsibilities substantially similar to commercial banks, it may be asked what the difference is between a savings bank and a commercial bank. Historically, commercial banks have a broader charter mandate enabling them to engage in retail, small business, commercial and mortgage lending. In contrast, savings banks have a more focused charter requiring a significant commitment to mortgage lending, but also providing certain incentives for engaging in mortgage lending. While the differences between the two charters have largely diminished over the years, all federal and most state savings banks continue to meet the qualified thrift lender (QTL) test under the Home Owners Loan Act, thereby maintaining a commitment to mortgage lending (generally by maintaining at least 65% of assets in mortgages and mortgage-related products). Given that there is not much of a difference, it may be asked why Nevada would want a savings bank charter. While there may not be much difference in regard to the powers of savings banks and commercial banks due to legislative and regulatory modernization over the years, separate charters are still maintained at the federal level and, as described above, continue to have some meaningful differences that impact the operations of savings banks and their holding companies.

4 Page 4 of 5 Holding companies of savings banks meeting the QTL test can be registered as savings and loan holding companies and be supervised and regulated under the Home Owners Loan Act, rather than under the Bank Holding Company Act. Savings and loan holding companies represent a diverse range of less traditional banking enterprises. Types of business models that are typical for savings and loan holding companies include: Securities brokers or dealers (Charles Schwab and E*Trade) Insurance (USAA) Manufacturing firms (John Deere) Retail companies (Nordstrom) Many of these enterprises use their federal savings bank institution to diversify their operations in order to offer their customers an array of financial products insurance policies, savings accounts, mortgage loans, credit cards, and trust services within the same corporate structure. Pursuant to the modernization changes proposed in SB 81, Nevada would be joining other state legislatures that have recently updated their banking laws. Due to changes facing savings and loan associations, legislatures in several states have engaged in similar modernization efforts including eliminating the savings and loan charter while creating a savings bank charter. For example, in 2014, the Illinois General Assembly repealed the Illinois Savings and Loan Act after the last savings and loan association in that state converted to an Illinois savings bank. Further, Utah and Illinois amended their banking laws to modernize the authority governing state savings banks. It may be asked if a savings bank charter will create competition for Nevada s current commercial banks and/or credit unions and/or thrifts, to what degree, and if this would good or bad. SB 81 is intended to ensure that Nevada remains a competitive jurisdiction for financial institutions evaluating federal vs. state charter choice options. The primary aim is to encourage new depository institutions to come to Nevada, thereby increasing administrative revenue, creating jobs in the financial services sector, and attracting and retaining capital and wealth.

5 Page 5 of 5 A secondary aim of the bill is to promote healthy competition among other existing Nevada depository institutions (commercial banks, credit unions, and industrial banks) to consider the Nevada savings bank charter. While there may not be much immediate interest in converting to a savings bank charter given the associated cost of doing so, it nonetheless may be an option that some institutions may wish to consider at some point in time. For additional detailed information regarding this S&L Modernization Bill, please see the SB 81 Section-By-Section Explanation submitted with this testimony. Conclusion Senate Bill 81 is an important step for the State of Nevada to maintain an effective and competitive financial institutions system that is safe and sound, protects consumers and defends the overall public interest, and promotes economic development by providing Nevada the opportunity to expand and grow its financial institutions industry. Modernizing the dormant Nevada savings and loan statute by adopting the amendments to NRS 673 set forth in SB 81 has the potential to attract financial institutions and other financial service businesses to the State, which will increase administrative revenue, create jobs in the financial services sector, and attract and retain capital and wealth for Nevada. I welcome any questions the Committee may have.