Relates to penalties for certain violations of laws or regulations by banking entities; repealer

BILL NUMBER:S5465

Title of bill

An act to amend the banking law, in relation to the penalties imposed on individuals for violating or causing a violation of laws or regulations by banking entities; and to repeal section 41 of such law relating thereto

Purpose of bill

The bill repeals §41 of the Banking Law ("BL") and adds a new BL §41 to increase the sanctions available to the Department against certain individuals who cause banking institutions to be in violation of applicable laws, thereby causing harm to the institution.

Summary of provisions

Section 1 of the bill changes the existing provisions of BL §41 in several respects:

a. It authorizes the Department not only to remove a director, trustee, member, partner or officer of a banking institution, or the branch manager or officer of a branch of a foreign banking organization, but also to bar them from serving as a director, trustee, member, partner or officer of any other banking organization, and to assess civil money penalties.

b. It adds non-corporate (e.g. limited liability company) institutions to the ambit of covered institutions.

c. It broadens the predicate violations to include similar underlying violations to those in the Federal Deposit Insurance Act, and all violations of regulations adopted under the Banking Law.

d. It provides for a hearing before an independent hearing officer, rather than a direct hearing before the Banking Board.

e. It authorizes the Superintendent to impose civil monetary penalties in three ascending tiers, depending on the gravity of the violation.

Section 2 of the Bill provides for an immediate effective date.

Existing law

Subdivision 1 of BL §41 currently covers only corporate banking organizations. It includes, as predicate acts, only a violation of law or of regulations of the Banking Board arid continuing to engage in unauthorized or unsafe practices in conducting the business of the corporation after having been ordered or warned by the Superintendent to discontinue such practices. Finally, it provides for a hearing by the Banking Board, after which the Banking Board may order that the director, trustee or officer be removed from office.

Subdivision 2 of BL §41 currently provides for the effectiveness of an order of removal, and provides that it shall be provided to the

director, trustee or officer and the directors or trustees of the banking organization involved, but shall not otherwise be made public. It also provides that, if a person so removed thereafter participates in the management of the banking organization (or branch of a foreign banking organization) he or she will be guilty of a misdemeanor.

Prior legislative history

This is a new bill.

Statement in support

BL § 41 was added to the Banking Law in 1935 and was last amended in 1961. Federal law with respect to sanctions against directors, trustees or officers of banking organizations was amended substantially following the thrift crisis in the 1980s and 1990s, to increase the sanctions against directors, trustees, officers and others, in order to underscore their responsibility for the proper management of the organization. At least 25 states have adopted legislation along similar lines, and the Conference of State Banking Supervisors considers the added penalties to be "best practice."

The Bill substitutes a hearing before an independent hearing officer, who would make findings of fact and conclusions of law. Following a recommendation from the hearing officer, the Superintendent would determine an appropriate penalty.

Budget implications

There are no budget implications from this bill.

Effective date

The bill would take effect immediately upon enactment.