When the legislature convened for the 2023-2024 legislative session one-third of the legislature had never held state-wide office. This sizeable freshman class was the product of both redistricting, an event that coincides with the U.S. Census every ten years, and the announcement by some sitting legislators that they would retire and not return to office. CBA spent much of the early part of this year developing relationships with these new members and discussing the important role banks have in their communities.
Much of the early dialog, however, quickly pivoted to the collapse of Silicon Valley Business Bank. Immediately, the association engaged in discussions with state and federal lawmakers to address further speculation about the health of the industry. The California Senate Banking and Financial Institutions held a joint hearing with the Assembly Banking Committee in May titled The Failure of Silicon Valley Bank: Where Regulation and Supervision Fell Short. While CBA was not asked to provide testimony during this hearing, the committees heard from Clothilde V. Hewlett, Commissioner, Department of Financial Protection and Innovation (DFPI), Avy Mallik, General Counsel, DFPI, and Jeanette Quick, Deputy Commissioner of Investor Protection, DFPI. The committee was very engaged and asked questions relative to the speed at which the department responded to troubling warning signs, including the fact that 93.8 percent of Silicon Valley Bank’s total deposits were uninsured. During the hearing DFPI announced plans to increase oversight of banks with over $10 billion in total assets in coordination with federal regulators as part of its examination process.
In the weeks following the hearing, DFPI met with CBA to unveil a significant increase in assessments on state-chartered institutions to ostensibly defray the cost of enhanced supervision of licensees. The 27 percent increase in assessments for the 2023-24 fiscal year is, according to DFPI, also the result of a reduction of approximately $450 billion in assets under supervision by the Department following the failures of Silicon Valley Bank and First Republic Bank, Silvergate Bank’s liquidation, and merger activity within the industry. In response, CBA sent a letter to the DFPI expressing concerns with the recent increase in assessments against California state-chartered banks. Among other things, the letter requests an understanding of expense reductions and efficiencies that might be contemplated by the Department to minimize future increases and describes the consequences on state-chartered banks associated with the increase in assessments. Discussions about next year’s assessment increase are ongoing.
Legislatively, CBA saw the introduction of SB 278 (Dodd). Sponsored by the Consumer Attorneys of California, this measure makes financial institutions liable for elder financial abuse if the institution should have known that the likely result of a transaction initiated by an accountholder would result in fraud, and the institution failed to stop it. We opposed this expanded liability, which fundamentally alters the relationship between banks and their senior accountholders. Under the measure, a bank employee could take the appropriate steps to warn an accountholder that the transaction they’ve initiated with the bank may result in fraud, but if the employee honors the transaction, the bank could be held liable. With no clear safe harbor for institutions to utilize to avoid liability, banks will be forced to reevaluate their customer relationship with accountholders over the age of 65. We launched a successful media campaign opposing SB 278 and worked with aging experts at Stanford University and the Milken Institute to publish and opinion editorial related to the measure. This legislation was ultimately held in the Assembly Banking Committee and did not advance this year but remains eligible for consideration next year.
A CBA-sponsored measure adopting the Uniform Fiduciary Income and Principal Act has been signed by the governor. The Act recognizes modern portfolio theory by allowing trustees to invest for the maximum total return, whether the return is in the form of income or growth of principal and provides more flexible terms giving trustees discretion to accumulate income or access principal when advantageous to further the purposes of the trust. Another uniform measure headed to the governor, and supported by CBA, adopts the Uniform Directed Trust Act which provides a framework for allocating fiduciary power and duty between a trust director and a trustee by allocating the primary duty to the director while simultaneously maintaining a minimum core duty for the trustee to avoid willful misconduct.
We successfully negotiated several mortgage-related measures that are still active. We secured amendments requiring lender consent for borrowers that wish to separately convey an accessory dwelling unit from the parcel. We helped redraft a measure to improve compliance that requires a transferor mortgage servicer to furnish to a transferee mortgage servicer material written records regarding damaged residential 1-4 property resulting from a disaster where a state of emergency has been called. A measure adopting remote online notarization in California, supported by CBA, is nearing the legislative finish line.
Additionally, CBA was asked to join an opposition coalition to express concern about a package of water rights-related measures that are important to our agriculture lending community. CBA joined the coalition, and the package of measures were set aside for the remainder of the legislative year, though they will be eligible to move forward in 2024 as two-year measures.
Though the Governor vetoed a similar bill last year, CBA-supported Assembly Bill 39 (Grayson) was finally signed into law on October 13. This measure creates the Digital Financial Assets Law and grants regulatory authority to the Department of Financial Protection and Innovation (DFPI) to license and supervise all digital asset activity in the state unless the activity is conducted by a commercial bank or credit union. The measure broadly defines “digital assets” as any digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender. This measure requires that the implementation of the department’s new authority be finalized by January 1, 2024.
The Governor also signed CBA-opposed Senate Bill 253 (Wiener). The California Global Warming Solutions Act of 2006 requires the California Air Resources Board (CARB) to adopt regulations to require the reporting and verification of statewide greenhouse gas emissions and to monitor and enforce compliance with the act. Additionally, the Governor signed Senate Bill 261 (Stern) another greenhouse gas reporting measure. Under this measure, on or before January 1, 2026, and biennially thereafter, a covered entity is required to prepare a climate-related financial risk report disclosing the entity’s climate-related financial risk and measures adopted to reduce and adapt to climate- related financial risk. The measure requires the covered entity to make a copy of the report available to the public on its own internet website. While Governor Newsom signed SB 253 and SB 261, his signing message acknowledged significant flaws in both measures and a commitment to direct his administration to work with the legislature on “clean-up” legislation to address implementation deadlines and the financial impact to businesses.
The CBA advocacy team traveled to Capitol Hill five times this year including CBA’s Annual Washington D.C. Visit and our Joint D.C. with the Florida Bankers in September. We met with members of the congressional delegation and their staff to discuss pending legislation we oppose such as The Credit Card Competition Act, which requires card-issuing banks to offer a choice of at least two networks over which an electronic credit transaction may be processed, and measures we support such as the SAFE Banking ACT, aimed at allowing financial institutions to provide services to cannabis-related businesses legalized by the states. We also used these opportunities to discuss our support of the Access to Credit for our Rural Economy Act, and our opposition to CFPB’s enforcement of the Section 1071 final rule.
In November, CBA held it’s annual Legislative Forum where we heard from key policymakers and political thought leaders including California State Treasurer Fiona Ma, Assembly Budget Committee Chair, Phil Ting and the Chair of the Assembly Banking and Finance Committee, Tim Grayson. We also received panel presentations on Artificial Intelligence, Elder Financial Abuse, the state of California politics, and a Department of Financial Protection and Innovation presentation on the bank regulatory landscape.
As we look to next year, we expect that some of these legislative topics will resurface, along with new legislative proposals impacting the banking industry. The advocacy team, armed with the expertise and guidance of our member banks who tirelessly support our efforts, will be ready for whatever comes next.