PROPOSED RULES
FINANCIAL INSTITUTIONS
Original Notice.
Preproposal statement of inquiry was filed as WSR 99-02-033.
Title of Rule: Increasing fees of the Division of Banks.
Purpose: To increase fees of the Division of Banks (DOB) in an amount up to the "fiscal growth factor" through July 1, 2001.
Statutory Authority for Adoption: RCW 30.04.030, 30.04.070, 30.08.095, 33.04.025, 43.320.040.
Statute Being Implemented: RCW 30.04.070, 30.08.095, 33.28.020.
Summary: The rule raises fees for state chartered financial institutions regulated by the Division of Banks of the Department of Financial Institutions by the fiscal growth factor defined in RCW 43.135.025(6). Under the rule, the fiscal growth factor will be applied to fees on June 25, 1999, July 1, 1999, July 1, 2000, and July 1, 2001.
Reasons Supporting Proposal: As explained more fully below, recent unforeseen and unprecedented developments threaten the ability of the Division of Banks (DOB) at current funding levels, to carry out its statutory mission and to reach and maintain a target fund balance. This places at risk the viability of the existing state-federal dual chartering system of bank regulation. DOB’s mission is to conduct full financial examinations of state chartered banks at least once during every eighteen-month period, as required by RCW 30.04.060, 32.04.211, and 33.04.020.
1. In recent months, the Division of Banks (DOB) has lost several of its most experienced examiners to the Federal Deposit Insurance Corporation (FDIC). The FDIC recently modified its long-standing practice and has been actively recruiting experienced examiners from among state banking divisions. The departure of these examiners represents a reduction of approximately thirty percent of DOB’s overall examiner force and a greater portion of its financial experience. The primary reason for these staff departures is that the FDIC offers considerably higher compensation.
DOB is actively working on ways within state personnel rules, with the support and participation of its affected stakeholder groups, to increase the compensation package and career advancement opportunities of its experienced financial examiners. As recognized by DOB and stakeholder trade organizations, it is critical to take immediate steps to obtain adequate resources to support a program designed to attract and retain experienced examiners and to prevent further loss of key experienced examiners, all within the parameters of Initiative 601.
2. With the participation and approval of the Office of Financial Management, DOB has established a current target fund balance of approximately $900,000 in order to handle reasonable foreseeable contingencies. As disclosed in WSR 99-02-033, DOB’s financial projections indicate that, absent an annual increase in fees incorporating fee increases in this fiscal year and in the four succeeding fiscal years, up to the applicable fiscal growth factor determined by OFM, DOB will be unable to:
| • | Maintain any fund balance, and |
| • | Have the resources to provide a reasonable increase in examiner compensation in order to attract and retain experienced field examiners. |
3. State agencies are expected to raise fees within the fiscal growth factor defined in RCW 43.135.025(6) as necessary to cover basic costs. Modest state mandated salary increases over the past four years have eroded the fund balance to the point where fee increases are required to properly manage the programs of the DOB. Fiscal year 1998 is the first year the fund balance targets were not achieved and projections show continuing drops in the fund balance every year thereafter regardless of changes to examiner staff compensation.
This rule change is intended to help DOB address the examiner compensation issue and to maintain an examiner staff capable of carrying out the division mission, including the added examination burdens presented by Year 2000 financial examinations, while addressing the challenge of maintaining an adequate fund balance.
DOB and stakeholder trade associations recognize it is impossible for DOB to build toward the targeted fund balance while maintaining a well-trained and experienced examination staff without increasing DOB’s examination and asset assessment rates up to the fiscal growth factor in the fiscal years reflected in the rule.
DOB is cognizant of its accountability to its stakeholders and the citizens of the state for the effective and efficient use of the funds raised by this rule making and has incorporated several provisions in this rule to provide for that accountability. The rule allows the director to suspend the collection of any or all of the charges and/or fees imposed under the rule if he or she determines the fund balance exceeds the projected acceptable minimum fund balance and that such course of action would be fiscally prudent. The rule provides for fee increases through fiscal year 2002, at which time the agency will review the adequacy of the rate and fee structure.
The purpose of this rule is to increase the rate of DOB’s charges and fees effective June 25, 1999.
Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Division of Banks, 300 General Administration Building, Olympia, (360) 902-8704.
Name of Proponent: Department of Financial Institutions, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: Chapters 50-44 and 419-14 WAC describe the fees charged to state chartered financial institutions by the Division of Banks. These fees provide the necessary funding to allow the Division of Banks to achieve its statutory mission to examine institutions within statutorily required time periods. The amendments will provide the division with sufficient funding to meet projected expenses associated with accomplishing its statutory mission.
Proposal Changes the Following Existing Rules: The amendments raise existing fees for regulated entities by the fiscal growth factor defined in RCW 43.135.025(6).
A small business economic impact statement has been prepared under chapter 19.85 RCW.
OVERVIEW: The proposed rule amends chapters 50-12, 50-44, 419-14, and 419-56 WAC to:
1. Increase the rate of charges and fees paid by regulated financial institutions to the Department of Financial Institutions (DFI) by 4.18%, effective June 25, 1999;
2. Establish a schedule for increases in the rate of charges, effective each July 1, beginning July 1, 1999, through July 1, 2001, based on the fiscal growth factor set by the state; and
3. Authorize the director to waive charges and/or fees if, in his or her opinion, the banking fund's balance exceeds the projected minimum fund balance approved by the Office of Financial Management and would be fiscally prudent.
The division has prepared this small business economic impact statement (SBEIS) in compliance with chapter 19.85 RCW, the Regulatory Fairness Act (RFA). The preproposal statement of intent in connection with the proposed rule was filed at WSR 99-02-033.
BACKGROUND FOR PROPOSED RULE: The division regulates state-chartered banks, savings banks, savings and loans, trust companies, and branches of alien banks pursuant to Titles 30, 32, and 33 RCW. These titles authorize the director of DFI to collect from each institution the cost of their examination and supervision. (See RCW 30.04.070, 32.04.150, and 33.28.020.) The operation of the division is paid for from the bank examination fund (fund), which is a nonappropriated, dedicated fund supported solely by fees and charges paid by these regulated institutions.
The regulated financial institutions have paid three types of charges assessed by the department:
1. A semiannual asset charge based on the total assets of the institution;
2. Hourly charges for examinations and other tasks performed by the division;
3. Miscellaneous charges and fees associated with the issuance of various certificates, application processing, licensing, legal assistance, and filing of documents.
The charges and fees received by the division vary by charter type and activity performed. The following breaks down current charges by charter type and activity, excluding semi-annual assessments:
| Charter | Activity | Charge |
| Bank, Savings Bank, Alien Branch | Examination | $ 65 per hour |
| Investigation | $ 90 per hour | |
| Specialty Examination (EDP, Merger, Trust Dept.) | $ 90 per hour | |
| Certificates and Filings | $ 100 | |
| Savings and Loan | Examination (Examiner) | $ 40 per hour |
| Examination (Senior Examiner) | $ 45 per hour | |
| Examination (Supervisory) | $ 50 per hour | |
| Branch Application | $ 500 | |
| License Renewal - per office/branch | $ 50 | |
| Legal Assistance | $ 60 per hour | |
| Acquisition Application Fee | $5,000 | |
| New Trust Application | $1,000 | |
| Branch Application/Foreign Assoc. | $2,500 | |
| Each Additional Branch | $ 500 | |
| Trust Companies | Examination | $ 90 per hour |
| If total assets are: | The assessment is: | |||
Over | But not Over | This Amount | Plus | Of Excess Over |
| Million | Million | Million | ||
| 0 | 500 | 0 | .00001408 | 0 |
| 500 | 1,000 | 7,040 | .0000135 | 500 |
| 1,000 | ------- | 13,790 | .0000133 | 1,000 |
The division has not increased fees of any kind since 1992. During that period costs of examination and supervision have risen significantly. The division has implemented a number of measures which reduce its cost of business without sacrificing its effectiveness. However, projected division revenues will not be sufficient to meet its estimated obligations during the upcoming fiscal year and in the ensuing years.
The proposed rule provides for increases in the rate of charges paid by regulated financial institutions to the division, within the limits of Initiative 601. The purpose of the increases is to help provide sufficient funds for the division to meet its obligations in this and ensuing fiscal years. DFI intends for the proposed rule to take effect no later than June 25, 1999.
DESCRIPTION OF PROPOSED RULE: The proposed rule will increase the rate of charges paid by state-chartered banks, savings banks, alien branches, savings and loans, and trust companies to DFI by 4.18%, effective June 25, 1999. In addition the proposed rule will set up a schedule of increases in the rate of charges, effective July 1, 1999, 2000, and 2001.
Each increase will be in the amount of the then current fiscal growth factor set by the Washington State Office of Financial Management (OFM) in accordance with RCW 43.135.025. The estimated increases to take effect on July 1, of subsequent years are as follows:
| 2000 | - | 3.32% |
| 2001 | - | 2.93% |
| 2002 | - | 2.8 % (subject to revision) |
REQUIRED ELEMENTS OF SBEIS: The elements of the SBEIS required by the RFA are set forth below.
ELEMENT 1. A brief description of the reporting, recordkeeping, and other compliance requirements of the proposed rule and the kinds of professional services that a small business is likely to need in order to comply with the requirements.
RESPONSE: Because the proposed rule does not create new charges, but provides for an increase in the rate of existing charges, the rule will not result in additional compliance costs. Costs such as reporting or recordkeeping, the use of additional labor or professional services, the purchase of additional equipment or supplies, or increased administrative costs should remain unchanged.
ELEMENT 2. An analysis of the costs of compliance for identified industries, including costs of equipment, supplies, labor, and increased administrative costs.
RESPONSE: It appears that the only type of cost for compliance with the proposed rule is the increase in charges assessed by the division. As noted in Element 1 above, there should be no additional costs of compliance.
ELEMENT 3. Whether compliance with the proposed rule will cause business to lose sales or revenue.
RESPONSE: The increase in charges requested in the proposal should not cause regulated institutions to lose sales or revenue. The estimated increased cost of the proposed rule averages $396 for small institutions (with average assets of $61 million) affected by the rule in fiscal year 2000. Based on current projections, the increase remains fairly nominal during fiscal years 2001 and 2002, at $360 and $356, respectively. These increases appear nominal and it is doubtful that their financial impact will make regulated financial institutions less competitive to the degree that they lose sales or revenue to competitors.
ELEMENT 4. A comparison of the compliance costs for the small business segment and large business segment of the affected industries.
RESPONSE: The RFA provides that the compliance costs for small businesses (businesses with fifty or fewer employees) affected by the proposed rule should be compared with such costs for the largest 10% of businesses affected by the rule, based on one of the following methods:
1. Cost per employee.
2. Cost per hour of labor to comply.
3. Cost per one hundred dollars of sales.
Cost per employee appears to be the most effective comparison for the purposes of this analysis because cost per hour of labor is not available to the division and cost per hundred dollars of sales varies significantly between institutions and over time periods due to economic impacts on revenue.
The division's analysis indicates the cost of compliance for small and large banks is as follows1:
| Institution Size | Average cost increase per employee | |
| Small - 50 or fewer employees | $22.37 | |
| Large - top 10% by asset size | $ 5.19 | |
The disparity between the average cost per employee and percentage increase per employee reflects the huge discrepancy in number of employees between small and large institutions. The following information shows this difference:
| Institution Size | Avg. Number of Employees | Avg. Amount of Fees (FY 2000) | ||
| Small | 17 | $ 12,346 | ||
| Large | 961 | $ 155,610 | ||
CONCLUSION: Despite the seemingly large average cost increase per employee of the proposed rule on small institutions, the proposed rule has a fairly minimal actual dollar impact, and the percentage increase in charges per employee from current fee schedules is only marginally higher for small institutions than large.
ELEMENT 5. Steps taken by the agency to reduce the costs of the proposed rule on small businesses, or reasonable justification for not doing so, addressing the specified mitigation steps.
RESPONSE: The RFA requires agencies to consider specific steps to mitigate the impact of the rule on small business, including:
1. Establishing different compliance or reporting requirements or timetables for small business.
2. Clarifying, consolidating or simplifying the compliance and reporting requirements for small businesses.
3. Establishing performance rather than design standards.
4. Exempting small business from any or all of the requirements.
5. Reducing or modifying fine schedules for not being in compliance.
6. Any other mitigation techniques.
The specific steps listed above do not appear to be pertinent to the proposed rule. The division is required by statute to pay for the cost of examination and supervision of regulated institutions and the current fee structure has been reviewed on an ongoing basis with regulated entities and their trade associations. The current fee structure will not be changed, simply increased by Initiative 601 allowable rates to offset increased costs faced by the division.
ELEMENT 6. A description of how the agency will involve small business in the development of the proposed rule.
RESPONSE: The division will provide a copy of the proposed rule to all institutions it supervises, including small banks, savings banks, alien branches, and trust companies. The division will hold a public hearing to discuss the proposed rule, as required by RCW 34.05.325. All of these entities are encouraged to contact the division to comment on the proposed rule. In addition, the division will work with the trade associations of these groups to discuss the proposed rule and solicit comments.
ELEMENT 7. A list of the industries affected by the proposed rule.
RESPONSE: The industries affected by the proposed rule are as follows:
1. State Commercial Banks (Savings and Trust) - Standard Industry Code 6022.
2. Branches of Foreign Banks - Standard Industry Code 6081.
3. Nondeposit Trust Facilities - Standard Industry Code 6091.
1This analysis uses charges for the fiscal year 2000. Other years are not analyzed because final fiscal growth factors have not been determined.
A copy of the statement may be obtained by writing to L. Wayne Fralin, Director of Banks, Division of Banks, P.O. Box 41200, Olympia, WA 98504-1200, phone (360) 902-8747, fax (360) 753-6070.
RCW 34.05.328 does not apply to this rule adoption. The Department of Financial Institutions is requesting the amendments to provide sufficient funding to the Division of Banks to meet its regulatory obligations.
Hearing Location: 210 11th Avenue S.W., Suite 300, Olympia, WA 98504, on April 27, 1999, at 2:30 p.m.
Assistance for Persons with Disabilities: Contact Patty Brombacher by 5:00 p.m. on April 22, 1999.
Submit Written Comments to: L. Wayne Fralin, Director of Banks, fax (360) 753-6070, by April 26, 1999.
Date of Intended Adoption: April 27, 1999.
March 24, 1999
John L. Bley
Director
OTS-2969.1
NEW SECTION
WAC 50-44-037
Charges and fees effective June 25, 1999.
Effective June 25, 1999, the rate of charges and fees under WAC 50-12-045, 50-44-020 and 50-44-030 shall be as follows:
(1) WAC 50-12-045 (1)(c) and (d) - The fee shall be $100.00 for the issuance and filing of certificates.
(2) WAC 50-12-045 (1)(e) - The fee shall be 50 cents per page.
(3) WAC 50-12-045(2) - The fee shall be $93.76 per employee hour expended.
(4) WAC 50-44-020(1) - The rates shall be the following:
| If total assets are: | The assessment is: | ||||
| Over | But not Over | This Amount | Plus | Of Excess Over | |
| Million | Million | Million | |||
| 0 | 500 | 0 | .000014668 | 0 | |
| 500 | 1,000 | 7,344 | .000014064 | 500 | |
| 1,000 | 10,000 | 14,366 | .000013855 | 1,000 | |
| 10,000 | —— | 139,061 | .000 | 10,000 | |
(6) WAC 50-44-030(1) - The fee shall be $67.71 per hour.
(7) WAC 50-44-030(2) - The fee shall be $93.76 per hour.
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(1) Effective July 1, 1999, the rate of charges and fees under WAC 50-12-045, 50-44-020 and 50-44-030 shall be as follows:
(a) WAC 50-12-045 (1)(c) and (d) - The fee shall be $100.00 for the issuance and filing of certificates.
(b) WAC 50-12-045 (1)(e) - The fee shall be 50 cents per page.
(c) WAC 50-12-045(2) - The fee shall be $96.87 per employee hour expended.
(d) WAC 50-44-020(1) - The rates shall be the following:
| If total assets are: | The assessment is: | ||||
| Over | But not Over | This Amount | Plus | Of Excess Over | |
| Million | Million | Million | |||
| 0 | 500 | 0 | .0000151549 | 0 | |
| 500 | 1,000 | 7,577 | .0000145309 | 500 | |
| 1,000 | 10,000 | 14,842 | .0000143149 | 1,000 | |
| 10,000 | —— | 143,676 | .000 | 10,000 | |
(f) WAC 50-44-030(1) - The fee shall be $69.95 per hour.
(g) WAC 50-44-030(2) - The fee shall be $96.87 per hour.
(2) Thereafter, effective July 1, 2000, and again on July 1, 2001, the charges and fees set forth in subsection (1)(c), (d), (e), (f), and (g) of this section shall be increased by the fiscal growth factor as determined by the office of financial management pursuant to RCW 43.135.025.
(3) The director may suspend the collection of any or all of the charges and/or fees imposed under this section when he or she determines the banking examination fund established in RCW 43.320.110 exceeds the projected acceptable minimum fund balance level approved by the office of financial management and that such course of action would be fiscally prudent.
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OTS-2970.1
NEW SECTION
WAC 419-14-135
Charges and fees effective June 25, 1999.
Effective June 25, 1999, the rate of charges and fees under chapter 419-14 and 419-56 WAC shall be as follows:
(1) WAC 419-14-030(1) - The fee shall be $41.67 per hour.
(2) WAC 419-14-030(2) - The fee shall be $46.88 per hour.
(3) WAC 419-14-030(3) - The fee shall be $52.09 per hour.
(4) WAC 419-14-040 - The asset charge shall be .031254 per thousand dollars of assets.
(5) WAC 419-14-075 - The fee shall be $2,500.00 for the first branch and $500.00 for each additional branch.
(6) WAC 419-14-080 - The fee shall be $50.00 for the home office and each branch.
(7) WAC 419-14-090 - The fee shall be $62.50 per hour.
(8) WAC 419-14-100 - The fee shall be $52.09 per hour.
(9) WAC 419-14-110 - The fee shall be $52.09 per hour.
(10) WAC 419-14-110 - The fee shall be $5,000.00.
(11) WAC 419-56-070 - The fee shall be $1,000.00.
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(1) Effective July 1, 1999, the rate of charges and fees under chapters 419-14 and 419-56 WAC shall be as follows:
(a) WAC 419-14-030(1) - The fee shall be $43.05 per hour.
(b) WAC 419-14-030(2) - The fee shall be $48.43 per hour.
(c) WAC 419-14-030(3) - The fee shall be $53.81 per hour.
(d) WAC 419-14-040 - The asset charge shall be .0322916 per thousand dollars of assets.
(e) WAC 419-14-075 - The fee shall be $2,500.00 for the first branch and $500.00 for each additional branch.
(f) WAC 419-14-080 - The fee shall be $50.00 for the home office and each branch.
(g) WAC 419-14-090 - The fee shall be $64.57 per hour.
(h) WAC 419-14-100 - The fee shall be $53.81 per hour.
(i) WAC 419-14-110 - The fee shall be $53.81 per hour.
(j) WAC 419-14-110 - The fee shall be $5,000.00.
(k) WAC 419-56-070 - The fee shall be $1,000.00.
(2) Thereafter, effective July 1, 2000, and again on July 1, 2001, the charges and fees set forth in subsection (1)(a), (b), (c), (d), (g), (h), and (i) of this section shall be increased by the fiscal growth factor as determined by the office of financial management pursuant to RCW 43.135.025.
(3) The director may suspend the collection of any or all of the charges and/or fees imposed under this section when he or she determines the banking examination fund established in RCW 43.320.110 exceeds the projected acceptable minimum fund balance level approved by the office of financial management and that such course of action would be fiscally prudent.
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