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F I S C A L I M P A C T R E P O R T

SPONSOR Fidel

DATE TYPED 02/07/05 HB

SHORT TITLE Lower State Bank Diversification

SB 509

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Regulation and Licensing Department (RLD)

Public Regulation Commission (PRC)

SUMMARY

Synopsis of Bill

Senate Bill 509 lowers the state bank diversification requirement by raising the maximum

amount a bank can loan to a single borrower from 20% of capital and surplus to 35%.

OTHER SUBSTANTIVE ISSUES

Diversification requirements exist to help ensure that state banks remain solvent. Reducing di-

versification requirements increases the risk that a bank will become insolvent.

According to RLD, the bill will make state chartered banks more competitive as they would be

able to lend more money to a single borrower. The corresponding limit for federally chartered

banks is 25%.

RLD further notes that this bill could improve economic development by allowing state banks to

loan more money in their communities to a single borrower.

EF/njw