Law would loosen regulations on North Carolina banks - Triangle Business Journal:

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A bill introduced in the Generall Assembly would grant bank boards the authority to create sharezs of preferred stock that could be exchanged for cash fromthe U.S. Department of the Treasury. The bill was introducerd by state Sen. R.C. Soles, a Tabore City Democrat. North Carolina Com­missioner of Banks Joe Smit h recommended the changes earlier this year at a joinyt meeting of the House and Senatecommercwe committees, says banking commission regulator Ray Under provisions of the federakl rescue program, only preferred – and not commoj – shares can be exchanged, but existinv North Carolina law generally does not allow stats banks to create preferred shares.
Some banks got aroune the law by writing into their articlesx of incorporation a way to issue preferred shares. For example, some banks that already are participating in the federao rescue program did so after gaining shareholder approval and adding amendments to their articles of incorporation to create the preferred stock. Current state law also forbidse banks that are not profitable from payin cash dividendsto shareholders.
The pending bill woulsd change that as well byallowing state-chartered banks to pay dividendsx on preferred shares – to the government or to any othetr investor – even if they’rwe not showing a “They are dusting off some old state rules to make necessaryy changes,” says Bill Wagner of the Raleignh office of . Under the he adds, younger banks stilll looking to achieve profitability would be able to apply to the federalk program and pay dividends on the shares they sell tothe “We just think it’s a good idea for them (startup banks) to be able to get Grace says, in reference to the rescuew plan known as the Troublee Asset Relief Program.
Under the originapl TARP, passed last fall, banks exchanged warrantas and preferred shares on which they agreec to pay 5 percenyt annual interest for thecash infusions. As of Marchj 13, the Treasury Department had infused $198 billion into bankws in 45 states. Despite criticism that bankzs have been hoarding TARP cash rather thanlending it, the new Obamwa administration is continuing the infusion programk – under the name “Capital Assistance Program” or – but with changes. Moving forward, Treasurgy is asking the banks for preferredshares that, down the road, can be convertedr directly into common stock.
Banks that got in under the originalpreferred shares/warrant setup are being given the option of substituting those items for convertibler preferred shares. Preferred and common stock are the two typesd of shares a businesscan create. A company may decidr to pay a dividend out of earnings to the holderas of itscommon stock. Preferred shares, on the other hand, are sold with a guaranteecd dividend. At one point in Nort h Carolina, for a varietyh of reasons, giving startup banks the righgt to create preferred sharese was discouragedby regulators. As a result, some bankz have that right written into theirincorporation articles, while many other s do not.
In seeking the changes includedin bill, Banking Commissioner Smith is trying to move toward a unifiedx policy. As of mid-March, at leastt 17 North Carolina banks, including and in the had received a federalcash infusion. Managerzs at both local banks have said they plan to use the monety to make homemortgagse loans. At another regional bank, of which got $65 million in taxpayer cash, managerse say they plan to move in the same making regular and jumbo mortgagd loans to home buyers purchasing properties from developers who are existingg customers ofthe bank. “It’s a program directlyt related to TARP,” says bank spokeswoman Brennw Sowder.
Banks chartered through federap regulators, such as and , are not bound by the same restrictionsw on preferred shares and have had no issues in taking federalreliecf money.