North Carolina’s banking laws have been comprehensively updated for the first time in 80 years and provide the state with one of one of the most modern banking systems in the country. Effective October 1, 2012, the bipartisan legislation is a product of compromise and joint effort on the part of legislators, banks and consumer advocates. In addition to streamlining rules and processes for capitalization and liquidation, the new law takes into account systematic changes resulting from Dodd-Frank and the North Carolina Business Corporation Act.
A major revision in the new banking law involves a comprehensive overhaul of definitions that enhance the clarity and meaning of the various sections of the law. See N.C. Gen. Stat. § 53C-1-4. The previous patchwork of definitions was outmoded and inconsistent with banks that have federal and state layers of regulation and supervision. New definitions peg capital standards for nearly 100 state banks on the commonly used federal regulatory definitions of “well capitalized,” “adequately capitalized” and many others. For example, “well-capitalized” is defined as being the same as in Regulation Y of the Federal Reserve Board, 12 C.F.R. § 225.2(r). This change will allow state-chartered banks to streamline their protocols and strategies.
Other changes involve the process of organizing a bank, taking into account those procedures set forth in the North Carolina Business Corporation Act, which was not enacted at the time the last rewrite of the North Carolina banking law was completed. Over time, certain aspects of the North Carolina banking law related to organizing banks had been simply ignored because they did not make sense, and the new process is simplified, predictable, and consistent with organizing other types of businesses.
On the other side of the coin, the new banking law provisions impact liquidation of troubled institutions. New provisions bolster the ability of banks to elect self-liquidation, and also strengthen the ability of the North Carolina Commissioner of Banks to order involuntary liquidation of distressed banks. These meaningful changes modernize the liquidation procedures for North Carolina institutions.
Several antiquated rules are absent from the new law, including provisions that required bank managers to get a two-thirds vote of shareholders to approve a bank merger; a regulation that limited executive non-cash compensation to stock options only; and provisions that authorized monetary assessments from shareholders of troubled banks. In 2012, these outdated provisions were removed from the North Carolina banking law.
As the new statute takes effect, and banks begin to deal with its new regulatory scheme, there will certainly be guidance, regulations, and opinions that offer recommendations to North Carolina financial institutions. Spilman Thomas and Battle’s Community Banking Practice Group monitors and stays abreast of these rules and regulations to keep financial institutions in compliance and avoid problems resulting from a shifting playing field.