STATE BANKING BOARD OF ILLINOIS

Meeting of Friday, June 25, 1999

Chicago, Illinois

I. CALL TO ORDER

The meeting of the State Banking Board of Illinois was called to order at 1:00 p.m. by Chairman William A. Darr. Roll call was taken and a quorum was present.

Members Present

Thomas Bugielski, President and CEO
Founders Bank, Worth, Illinois

William A. Darr, Chairman
Office of Banks and Real Estate

A. Dean Decker, President and CEO
Central Trust and Savings Bank, Geneseo, Illinois

John G. Eck, Senior Vice President
ABN AMRO Bank, N.V., Chicago, Illinois

Mark G. Field, Chairman, President and CEO
The Farmers Bank of Liberty, Liberty, Illinois

Donald Gutowski
Public Member, Norridge, Illinois

Paul V. Reagan, Senior Vice President and U.S. General Counsel
Harris Trust and Savings Bank, Chicago, Illinois

Members Absent

Joy French Becker, Chairman
The Farmers State Bank and Trust Company, Jacksonville, Illinois

Susan J. Dubs, President
State Financial Bank, Richmond, Illinois

Gary N. Edwards, Chairman
Wemple State Bank, Waverly, Illinois

Sondra Healy
Public Member, Winnetka, Illinois

Judith Quesenberry, CEO and Vice President
The First State Bank, Grand Chain, Illinois

Staff Present

Arthur J. Appl, Jr., Director, Division of International Bank Supervision
Tom Kaufmann, Assistant Director, Division of Specialized Activities, Information Systems
Scott D. Clarke, Assistant Commissioner, Bureau of Banks and Trust Companies
Russell E. Curry, Director, Division of Commercial Bank Supervision-Springfield
Dina Mansour, Senior Corporate Attorney, Corporate Activities Section
Wesley Maynard, Assistant Director, Division of Commercial Bank Supervision-Chicago
Michael D. Morehead, Chief Counsel, Bureau of Banks and Trust Companies
Pamela Tiberend, Administrative Assistant, Bureau of Banks and Trust Companies
Dale Turner, General Counsel

II. APPROVAL OF OCTOBER 7, 1998 MINUTES

Chairman Darr requested additions or corrections to the October 7, 1998 minutes. Mr. Bugielski noted that he is President and CEO of Founders Bank, not Worth Bank and Trust. Mr. Field moved to approve with the change and Mr. Decker seconded. The motion carried unanimously.

III. DIVISION REPORTS

Mr. Appl, Director of International Bank Supervision, gave a report on the situation affecting the financial markets in the Asian and Pacific Rim countries. The crisis is winding down, but the economic reforms have created a backlash in the Japanese foreign branch offices here in Illinois. The assets have been transferred to their New York offices and as a result, the Illinois offices are doing loan and production business. Many employees were laid off as a result of moving the assets.

Mr. Appl also reported that the Year 2000 (Y2K) examinations are going well in the foreign branch offices.

Mr. Curry, Director of Commercial Bank Supervision, Springfield, provided an overview of the Commercial examinations that have been completed as of May 31, 1999. The division is on target to examine 100 percent of the banks they regulate this year. Mr. Curry also provided the members with charts explaining the CAMELS ratings and bank assets by rating, as well as the number of banks and their assets.

Mr. Curry discussed the number of state chartered banks that as a result of mergers are now national banks. Mr. Curry reported that since the agency has released the video tape of the benefits of a state chartered bank over a national chartered bank that there have been several national banks that have expressed an interest in exploring the idea of switching to a state chartered bank.

The Commercial Division is also looking into the possibility of issuing more Orders of Prohibition and Removal since there has been several instances of illegal activity of bank employees. The agency is trying to convince banks to report all suspicious activity as this may prevent further abuse. Mr. Clarke talked about the banks using the SAR reporting system.

Mr. Maynard, Assistant Director of Commercial Bank Supervision, Chicago, provided an overview of the condition of the banks in the Chicago metropolitan area. The number of banks in Chicago have held constant over time, losing only four institutions, but assets have been on the rise. The division has been very busy with de novo banks this year. He also went into details of the most troubled institutions under his supervision. Mr. Maynard discussed the types of training the examiners have been involved in over the past year.

Mr. Kaufmann, Assistant Director, Division of Specialized Activities, Information Systems, reported on his section's Y2K activities. To date, 95% of our regulated entities are rated satisfactory in their Y2K preparation. Mr. Kaufmann also gave an update on the Corporate Fiduciary section.

Ms. Mansour, Senior Corporate Attorney, Corporate Activities Section, reported on the various activities in her section. She highlighted the various areas with charts that compared various years to show how 1999 compares to previous years. The numbers have decreased slightly this year, believed to be due to the Y2K preparations.

IV. BUREAU OF BANKS AND TRUST COMPANIES UPDATE

Mr. Scott Clarke, Assistant Commissioner, Bureau of Banks and Trust Companies, updated the Board on recent activities.

Mr. Clarke reported that Jerry Cavanaugh and John Geiringer resigned from our Legal Division to take positions in the private sector. Mike Morehead has replaced Mr. Cavanaugh and Keith Flanagan has replaced Mr. Geiringer.

The Bureau of Banks and Trust Companies received reaccredidation from the Conference of State Bank Supervisors.

The Bureau is planning two Day with the Commissioner programs in October for officers and directors of banks and trust companies. The main focus of the program will be the Y2K effort.

The Bureau is also planning a two-day training session for all bank examiners within the Bureau of Banks and Trust Companies. The dates are November 30 - December 1, 1999. This is an opportunity to have all examiners from all the divisions together for updates similar to those presented at the Day with the Commissioner programs, and also provides and opportunity for recognition of outstanding performance and accomplishments throughout the year.

A current version of the Illinois Banking Act and Related Laws publication is being printed and will be available within the next month. The Banking Act will also be available in CD ROM this year. Every bank will receive two complimentary copies which contain all the new banking laws and the agency’s administrative rules.

Mr. Clarke reported the results of the Technology Survey that was sent out to all regulated entities. The survey was sent out to see how our institutions would like us to communicate with them. A large majority would like the agency to communicate with them through the U.S. mail. Less than half of the institutions have access to the internet in the institutions. Thirty-four percent of the institutions have a web site, although most of the web sites are promotional, not transactional. About 15-20% of the institutions will be setting up a web site within the next year.

The Bureau management has been holding ongoing meetings to set up Y2K contingency plans with respect to our institutions. We have also been meeting with our federal counterparts with respect to Y2K plans. The Bureau plans to do periodic checks with respect to our institutions' liquidity status. We have a plan to begin checking every institution that will be operating on the roll over weekend and all institutions on January 3 and 4, 2000. Each examiner will be assigned a small group of institutions to make a positive contact with and confirm that the institution is operational. The Bureau has initially prohibited all vacations of staff starting October 1 through the end of the year. Based on the condition of our institutions the bureau probably will not have to be as rigid on granting time off. We will have most staff working on December 31, 1999 through January 2, 2000.

VI. LEGISLATIVE UPDATE

Mr. Clarke reported that this was a reasonably quiet legislative year as opposed to last year. He highlighted the following legislative actions.

HB 1281 moved responsibility for administering the Unclaimed Property division from the Department of Financial Institutions to the state Treasurer's office. This does not affect our agency, except for the fact that OBRE will become responsible for the examination of our institutions with regards to unclaimed property. The Treasurer can request that OBRE conduct an examination if she has reasonable cause to believe the institution has failed to report unclaimed property. The Treasurer would notify us that an examination needs to be conducted and we would then examine the institution at the next regularly scheduled exam date, unless the Treasurer determines there to be a need for an accelerated examination schedule which would be in the best interest of the state. The Treasurer's office will pay OBRE for conducting the examinations.

HB 2204 Banking on Illinois Act. Creates a new act which gives state chartered banks the power to do any action, offer any product or service, that any state bank in any other state can provide. Any power granted to state banks that are not powers of national banks must have the approval of the FDIC. Our legal staff is working with the FDIC and CSBS to find out what is going on in the other 49 states, and determine an easy way to keep updated on the changes. This provides a significant opportunity for Illinois to be the charter location as there is no reason a bank should go to another state to charter a bank if you can do the same business as a bank in one of the other state. Exemptions in the bill do not allow for real estate brokerage activity or expand branching activities.

SB 890 provides liability protection to state and national banks in Illinois that have privity of contract with their customers for Y2K problems. Some consumer protections in the event a consumer cannot pay their bills due to a Year 2000 problem, gives consumers a 60 day grace period. This bill is still pending in the General Assembly.

HB 2019 allows banks to limit their liability without having to do a charter amendment.

SB 2494 eliminates the director's residency requirements for state chartered banks.

SB 447 provides that our examination reports are considered confidential. Even if our records are subpoenaed the person subpoenaing the request must come to the Commissioner's office so that we can review the materials being requested and help protect some of the information in our examination reports from being released.

Mr. Clarke highlighted a couple other legislative initiatives that have not been signed into law, if they are signed into law a summary of the bill will be sent out to every institution and the members of the board.

Just before the meeting today, Commissioner Darr received HR 10 by e-mail. This bill is a compromise bill that has come out of the House of Representatives. It will move to the Senate now. Privacy issues are the main sticking point in this bill.

VII. YEAR 2000 CONSUMER EDUCATION ACTIVITIES UPDATE

Commissioner Darr reported that one of his first focus' when he came to the agency, was to direct efforts towards public education with respect to Y2K. Working with the Governor's office, we have developed an aggressive public education program. We have established a Speaker's Bureau for Y2K issues. There are approximately 60 employees who are prepared to go out into the community and give presentations with regards to our efforts on Y2K. We are trying to alleviate any fears of the public. Interestingly enough the feedback is very positive. We have published a brochure for Y2K which we are proactively sending out into the communities throughout the state. We are in the process of developing a video as well. We are embarking on a public relations campaign to get stories published in the media. We will be focusing on Y2K scams. We are updating our web page with a specific area devoted to Y2K. We are also embarking on a program to work with our elected officials to encourage them to help us get the word out in regards to our efforts preparing for Y2K. We are educating our own staff and we encourage all banks to do the same. Finally we are working with the business community in cooperation with the Department of Commerce and Community Affairs to encourage the business community to understand the preparation of the banking industry for Y2K. We want to get the word out as much as possible as to the efforts that we as regulators have undertaken to ensure the computer systems make a smooth transition on January 1, 2000.

VIII. OPEN DISCUSSION FOR BOARD MEMBERS

There were no additional items for discussion.

IX. ADJOURNMENT

There being no further business before the board, Mr. Eck moved to adjourn the meeting. Mr. Decker seconded. The motion carried unanimously. The meeting adjourned at 2:48 p.m.