Banking law modernization lets state regulators intervene earlier

North Carolina's new state banking laws, signed into law last week, will give the state Office of the Commissioner of Banks new authority to step in earlier and work with struggling banks.

The law was the brainchild of former state banking commissioner Joseph Smith, who has recently left to serve as monitor of the $25 billion national mortgage servicing settlement. It marks the first major update to the system since the Great Depression.

The bill was uncontroversial and supported by consumer advocacy groups as well as industry groups. It passed with only one dissenting vote.

A good number of the changes to the law simply update definitions to things like "capital" to make them match federal standards. Others update recordkeeping requirements to take into account modern ways of storage (like computers).

But perhaps most significantly, the law gives the Office of the Commissioner of Banks authority to step in and take action before it gets to a point where federal regulators are coming in.


Specifically, it says the office can order a bank to "cease or desist from an act or course of conduct that 
threatens or is reasonably probable of threatening the financial integrity of the bank." This tool is similar to one that federal regulators have and one that the state previously did not have.


This is helpful because "at the state level, there is oftentimes a pretty good recognition of where the economy is, where various markets may have issues," said Nathan Batts, an attorney at the N.C. Bankers Association. "State regulators often have a very good perspective and good read on the local markets in which a bank may be operating. They may be in a better position sometimes to identify issues of concern.