To Consolidate or Not

Assembly Bill 33 (AB33) is pending before the California legislature
and would consolidate the Department of Corporations and the Department
of Financial Institutions into a new Department of Financial Services,
including an Office of Financial Consumer Advocacy.

AB 33 would create the Department of Financial Services (“DFS”),
including an Office of Financial Consumer Advocacy, transfer the
Department of Financial Institutions (“DFI”) to the DFS as the Division
of Financial Institutions, transfer the Department of Corporations
(DOC) to the DFS as the Division of Corporations, effective 2011, and
transfer limited licensing and regulatory authority from the Department
of Real Estate to the DFS in the Division of Corporations effective
2012.

While it may not seem like a ground breaking bill, or one that would
ruffle feathers, it is a bill that has met with opposition from the
Financial Institutions Committee, Business Law Section of the state Bar
Association of California. This committee argued that the proposed
changes would lead California’s banks and credit unions to move towards
national charters, and thereby negatively impacting the health of the
state chartered bank system.

The Financial Institutions Committee asserted that preserving dual
banking is substantially benefited from an independent Department of
Financial Institutions (DFI). The committee reasons that state bank
policy makers, legal advisors and examiners are a major benefit to
California banks and that suggested changes to Financial Code section
200(b) would greatly diminish their effectiveness. Furthermore, the
committee feels that by blending the DOC and some parts of the
Department of Real Estate and their various staff would result in a
loss of current focus to the detriment of the dual banking system.

Another very real concern is the committee foresees that California
state banks don’t have that much exposure as federally regulated
institutions to consumer and commercial real estate, making them less
subject to market risks. This in turn is attributed to the extremely
knowledgeable DFI staff. It is that very knowledge and skill that has
seen many of the banks self-reporting as they have an established a
solid working relationship with the existing department. Changes to the
existing structure would bring about bureaucratic delays and a loss of
the existing candor with a possible loss of the successful regulatory
stewardship.

Commercial banking in California is under a great deal of stress give the economic climate.
If during staff reassignments and downsizing the expertise to oversee
the banks was lost or administratively distracted, then this too could
spell disaster. With pending economic recovery for the banks just
around the corner, any loss of guidance and expertise could slow this
recovery down.

Further concerns deal with the observation that the proposed changes
do not streamline the existing structure, but rather add to the
bureaucratic layers, thus resulting in more money being spent to change
the existing structure which would not improve it. It if isn’t broken,
why try to fix it could prove to be a challenging question for the
proponents of this bill.

The content contained within this feature is not intended as legal
advice and does not constitute an attorney-client relationship. To
learn more, contact Los Angeles business attorney and California corporate lawyer, Alan M. Insul by visiting Insullaw.com.