The Banking Regulatory Efficiency Act (BREA)

March 15, 1996

The Banking Regulatory Efficiency Act (SB 494) is a recodification of state banking law (chapter 221, Wisconsin Statutes). In addition to recodifying the chapter, BREA also makes substantive changes to the Wisconsin banking law. These changes include the following.

ORGANIZATION OF BANKS

BREA lowers the minimum number of bank organizers from 7 to 3
The bill also eliminates the minimum required signatories on bank articles of incorporation, and requires only that a majority of organizers sign articles of incorporation and those who sign must be residents of the state
Any action of the incorporators of a bank must be approved by a majority of the incorporators
The bill repeals the provision in current law that limits the ability for anyone to directly or indirectly receive any commission, compensation, bonus, right of privilege of any kind for organizing any banking corporation in this state, or for securing a subscription to the original capital stock of any banking corporation

ARTICLES OF INCORPORATION AND BYLAWS

BREA allows articles of incorporation to be amended by a simple majority of stockholders unless the articles of incorporation or bylaws require a greater number of votes
Similarly, bank shareholders may adopt or amend bylaws with a majority vote, unless the bylaws require a greater percentage of votes
The bill incorporates provisions of Wisconsin corporate law. These provisions allow banks to restate their articles of incorporation, either with, or without amendment, by filing the restated articles with the division along with a certificate that states certain information regarding the manner in which the restated articles were adopted
The bill also allows a bank board-of-directors to amend or repeal the bank bylaws, or adopt new bylaws, subject to certain limitations. All changes made to bank bylaws by the board-of-directors must be specifically allowed in the articles of incorporation

FILING REQUIREMENTS AND FEES

BREA allows the division of banking to establish fees for:

state bank organization;
filing articles of incorporation;
reorganization of a national bank to a state-chartered bank;
transfer or establishment of a branch bank;
application to exercise trust powers;
consolidation or merger.

The bill does away with the requirement that certain bank documents, articles of incorporation; amendments to articles of incorporation; and applications to exercise trust powers; be filed with the register of deeds in the county where the bank does business. Now these documents need only be filed with the banking division.

ISSUANCE OF CAPITAL STOCK, PREFERRED STOCK AND NOTES AND DEBENTURES

The bill only requires a simple majority vote of stockholders, and approval of the banking division, to increase capital stock of a bank for certain specified purposes
The bill repeals certain specific shareholder voting requirements in order for a corporation to subscribe for, take or hold more than 10% of the bank's stock
The bill also repeals certain specific restrictions on the ability of a state-chartered bank to grant stock options
The bill modifies the provisions governing the issuance of preferred stock by a bank. BREA requires only a simple majority vote to change the original provisions in the articles of incorporation regarding the issuance of preferred stock
BREA eliminates the current law that provides a bank having a capital stock of less than $100,000 may not issue preferred stock unless it has outstanding capital stock in an amount equal to the minimum capital stock
Approval of the banking division is still required before a bank may issue preferred stock
The bill allows the banking division to establish limits on the issuance of notes and debentures for a particular bank, so the bank is not required to seek division approval for each issuance of notes or debentures if the amount is within the pre-determined limits
Notes and debentures may be considered capital of the bank if approved by the division

CAPITAL DEFINITION AND REQUIREMENTS; RESERVE REQUIREMENTS

BREA eliminates statutorily specified minimum capital requirements for a new bank
The minimum capital requirements will now be determined by the banking division, subject to review by the banking review board
The bill also changes the definition of capital to include undivided profits and to exclude intangible assets
BREA repeals the current provision that, if the division finds that the average deposits for a fiscal year exceed an amount equal to 15 times the unimpaired capital and undistributed surplus of the bank, the division is required to order the bank to increase it's capital or surplus or both

DIRECTORS, OFFICERS AND EMPLOYEES

The statutory requirement that at least two thirds of the five members of a bank's board of directors reside in the state is repealed. Although state residency may be required by the articles of incorporation or bylaws
BREA allows a bank board to serve staggered terms
If a bank has issued classes of shares, the bill allows the articles of incorporation to authorize all, or a specified number of directors to be elected by the holders of one or more authorized classes of shares
The restriction on the number of vacancies the bank's board is authorized to fill by appointment is repealed. Now a bank board is authorized to fill vacant director positions even if a quorum does not exist, by a majority vote among the directors remaining in office
The specific requirement for 3 directors to serve on a bank loan committee is eliminated. The bank board will now be allowed to make its own determination as to the composition of these committees, although the committee must be comprised of at least two members
The bill repeals the requirement that bank officers be elected every year
The bill provides that any document that is required to be signed by a bank officer shall be signed by the officer designated by the bank's bylaws or board of directors
The bill repeals the requirement that any loan in excess of $25,000 made to an officer, director or employee of the bank be fully colateralized. Further, bank board approval is only needed for director and officer loans if these loans are in excess of $25,000 or 5% of the bank's capital, whichever is greater. Board approval is required on all loans in excess of $500,000

POWERS OF BANKS

Under current law, a bank is permitted to contract with other depository institutions to provide banking and financially related products or services, subject to the review of the banking division. BREA modifies the provision so that no contract is required for the acceptance of customer deposits at affiliated banks
Banks will be allowed to purchase stock of any kind issued by a state or federal agency, or a similar institution with the approval of the division
The bill grants banks the authority, with the approval of the division, to securitize assets for sale to the public in accordance with the rules promulgated by the division
The bill removes the statutory limitations on the amount a bank may invest in bank building corporations and furniture, equipment and fixtures, although BREA sets a maximum limit for investment in fixed assets at 60% of a bank's capital
The bill repeals the current provisions regarding investment in real estate to provide parking and remote facilities. The bill replaces those provisions with a general authorization for banks to acquire real estate for such other purposes as may be approved by the division

BREA redefines the legal liability limit. The new liability limit is 20% of capital
The bill increases the maximum percentage limits for equity investments from 10% of capital to 20%
The bill allows banks to make investments directly, or through a subsidiary
Investments may be made in other financial institutions under the provisions of BREA
The maximum percentage of a bank's purchase of it's own capital stock is raised from 5% to 10%
The bill allows greater latitude for banks to secure or collateralize repurchase agreements with customers
Repeals a provision which limits a bank's ability to make charitable contributions

INCORPORATION OF PROVISIONS FROM CORPORATE LAW

BREA incorporates a number of provisions from corporate law with minor modifications, and specifically applies them to banks. These provisions do the following:

specify how notice may be provided to and by a bank, and specifies the date on which certain notices are effective;
prohibits a bank from using a name that is indistinguishable from the name of another bank except in the case of mergers, acquisitions or reorganizations;
establishes quorum requirement for voting;
provides methods of counting shareholders;
requires banks to have outstanding, at all times, shares that together have unlimited voting rights and are entitled to receive the net assets of the bank upon dissolution;
offers specific guidelines on governing the issuance of classes of stock and different series of stock within a class. The bill also contains provisions regarding the issuance of fractional shares and the issuance of share dividends;
offers specific regulation regarding the content of share certificate;
permits certain restrictions on the transfer of the shares and other securities of a bank;
specifies when preemptive rights exist for bank shares and specifies how those rights may be exercised, waived or lapsed;
regulates annual and special meetings of a bank's shareholders, including provisions regarding required notices and disclosures to shareholders, and allowing for action to be taken without a meeting in certain circumstances;
establishes the record date for determining the shareholders entitled to vote or take other action and requiring the preparation and inspection of shareholder lists prior to shareholder meetings.
governs the use of proxies at shareholder meetings, including the method of appointing and revoking a proxy, the effective date of proxy, the effect of proxy and the effect of death or incapacity of a shareholder on the proxy; the recognition of shares registered in the name of as nominee; the use of voting trusts and agreements;
governs the acceptance of instruments showing shareholder action;
governs cumulative voting for directors;
governs indemnification and insurance of directors, officers and employees; and governs director conflict of interest;
governs the resignation and removal of directors, notice requirements for board meetings, waiver of notice, board of director quorum and voting requirements, and committees of the board;
permits directors and officers to rely on certain information, unless they have knowledge that makes the reliance unwarranted. The provisions cover information supplied by certain officers and employees, experts and board committees;
allows directors to consider certain factors, other than shareholder interests, in taking action;
allows officers to hold more than one office simultaneously, govern the resignation and removal of officers, and their duties; and
governs share exchanges and dissenters' rights. The dissenters' rights provisions govern the creation of these rights, the applications of these rights to beneficial shareholders and after-acquired shares, the manner of exercising the rights, dissenters' notices, demands for payment, methods of payment and valuation, and appeal procedures.

MERGER, CONSOLIDATION, DISSOLUTION, LIQUIDATION AND FORFEITURE OF CHARTER

The bill provides that a majority vote is needed to approve a merger or consolidation unless a greater percentage vote is required by the articles of incorporation
BREA removes the 30 day notice requirement for meetings to vote on mergers and consolidations
More specific dissenters' rights provisions are incorporated from corporate law
The bill requires the banking division to simply dissolve the charter of a bank that has been absorbed by another bank through a merger
Specific guidelines on the creation of interim banks during consolidation or merger are provided
Unless a greater percentage vote is required in a bank's articles of incorporation, a majority vote of shareholders is adequate to approve dissolution of a bank
Similarly, the two-thirds vote formerly need to approve liquidation of a bank is changed to majority vote

OTHER CHANGES RELATING TO STATE BANKS

The prohibition against a bank carrying any assets on it's books at a valuation exceeding actual cost to the bank, without prior written consent of the division has been eliminated
BREA retains current law requiring banks to provide customers with copies of residential real estate appraisals if the customer has previously paid for the appraisal
The bill also retains current law regarding disclosure of affiliated relationships with other banks, bank holding companies or subsidiaries
The bill allows banks to recuperate costs connected with extensive record search requests, but requires that governmental entities be exempted from this provision
BREA repeals the requirement that banks publish their call reports
The bill expands the scope of services permitted to be provided by bank-owned banks to include certain correspondent banking services
The bill repeals a provision in current law that allows shareholders to file a declaration with the banking division agreeing to be individually responsible for the debts and liabilities of the bank

TRUST COMPANY BANKS AND TRUST ACCOUNTS

A number of changes to current law were made in BREA relating to trust company banks and to trust accounts. These changes include:

Modifying the provisions governing the liquidation of failed banks to permit the division to transfer trust accounts of failed banks to successor organizations without having to assume liability for the past acts of the failed bank
Repeal of the specified statutory minimum capital requirements for trust company banks, allowing the division to establish, with the approval of the banking review board, minimum capital requirements for trust company banks
Provisions that prohibit trust company banks from accepting any other deposits than trust deposits
Elimination of a trust company bank's ability to transfer to trust estates any mortgages or other securities owned by the trust company bank
Allows trust service offices to be established at any insured depository institution, not just state or national banks as under current law
Allows trust company banks to maintain adequate errors and omissions insurance coverage in lieu of making an indemnity fund deposit

OTHER CHANGES

The bill modifies the definition of a public depository to require that public depositories have a main or branch office in this state
The bill modifies the current statute regarding the regulation of pre-payment, escrow accounts, late payment charges on installments, interest imposed after acceleration or maturity of loan and required disclosures of residential mortgage loans. The bill provides that these regulations do not apply to loans that are primarily for agriculture