Reforms to ease bank operations

The House Commerce and Tourism Committee has proposed more lenient regulations in the operations of banks and other financial institutions on the island as part of reform measures underway for the half-a-billion dollar sector.

According to committee chair Rep. Oscar Babauta, the proposed banking reform bill under review by the panel will soon be filed at the House for immediate action.

“The provisions are similar in current regulations but the committee has sidetracked some to allow not only a laxity or leniency in banking operations, but to require the bank to annually submit its financial statement as opposed to the current requirement which is every quarter,” he said in an interview.

Aside from reforms in the local banking industry, such as enforcement of regulations and easing of government bureaucracy, the measure will safeguard depositors from those banks not insured under the federal insurance corporation.

Babauta said the recommendation will require non-federally insured banks, such as the Hong Kong and Shanghai Banking Corporation, to certify assets of about $500 million in aggregate amount to the CNMI banking division.

“A provision will be put in place so that a similar bank in the future that wants to operate in the commonwealth should attain the aggregated assets,” he explained.

“Even if it is not insured by FDIC (Federal Depositors Insurance Corp.), they can still operate here as long as the institution can certify that the assets are there and depositors are well protected.”

While the panel is wrapping up work on the bill after almost a year of deliberation and consultation with bank executives on the island, they hope to press its immediate passage in light of the growth of the financial sector.

Banking activities have continued to soar in the CNMI despite current economic crisis, with bank assets posting healthy increase last year compared to figures recorded the previous year, according to latest statistics.

Most of the concerns of all major banks, including local and foreign owned, have been considered in the drafting of the bill, Babauta said.

But they have agreed to retain the auditing requirement of the banks. “It’s important that the government banking division must have a flexibility in assessing and conducting audit through its designee,” the representative added.

The committee has proposed giving authority to the banking commissioner to conduct comprehensive auditing and inspections of banking institutions in the commonwealth.

During deliberation of the bill last year, officials had cautioned against placing too much control on the banking operations on the island, such as the audit requirement, saying the move would only impede its development

Bank executives have called on lawmakers to overhaul existing banking laws to bridge loopholes and update regulations governing their operations, including remittance services of foreign workers.